IRS Issues Windsor Guidance For Qualified Retirement Plans

by Holland & Knight LLP


  • The IRS has issued Notice 2014-19, which provides anticipated guidance for sponsors of qualified retirement plans on complying with last year's Supreme Court ruling in United States v. Windsor. That decision deemed unconstitutional the non-recognition of same-sex spouses for federal law purposes, including the Internal Revenue Code.
  • IRS Notice 2014-19 provides a list of compliance reminders that sponsors of qualified plans should be aware of in regard to same-sex married couples. This alert summarizes that list and suggests steps plan sponsors should take when considering the implications of Windsor.

In United States v. Windsor, 570 U.S. ____, 133 S. Ct. 2675 (2013), the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act, which specifically prohibited the recognition of same-sex spouses for federal law purposes, including the Internal Revenue Code of 1986, as amended (the "Code"). As a result, same-sex spouses were denied many tax benefits provided to heterosexual spouses even if the same-sex couple were married and residing in a state that recognized same-sex marriage. Windsor established that same-sex spouses are entitled to the same federal benefits as any similarly situated heterosexual married couple including, among others, tax-favored treatment with respect to employer-provided health insurance and certain rights and protections under qualified retirement plans.

In August 2013, the IRS issued Revenue Ruling 2013-17, which stated that effective September 16, 2013, the IRS would recognize same-sex marriages for federal tax purposes if the couple were married in a state where same-sex marriage is recognized, regardless of where the couple resides (called the "state of celebration" rule), and that domestic partnerships, civil unions or similar formalized relationships would not be accorded the same treatment as lawful "marriages." The IRS further stated that it would issue specific guidance on qualified retirement plans, which was issued on April 4, 2014 in the form of Notice 2014-19 (the "IRS Notice").

The IRS Notice

The IRS Notice provides a helpful reminder that same-sex married couples meeting the state of celebration standard must be treated like any other similarly situated married couple. It sets out a list of items pertinent to qualified plans that sponsors should be particularly aware of, as follows:

  • spousal rights to Qualified Joint and Survivor Annuities and Qualified Pre-Retirement Survivor Annuities (and related beneficiary designation and loan consent requirements)
  • more favorable required minimum distribution requirements for spouses vs. other designated beneficiaries
  • stock ownership attribution between spouses for purposes of determining tax controlled group and "key employee" status
  • ESOP accrual/allocation restrictions for sellers of employer securities and 25 percent or more owners
  • recognition of "qualified domestic relations orders"

The IRS Notice also provides general guidance in a helpful Q&A format. It indicates, for example, that:

  • plans must be operated in accordance with Windsor as of June 26, 2013
  • plans are required to apply the state of celebration rule effective September 16, 2013, but may apply the state of domicile rule (i.e., whether a couple is legally married is determined in accordance with the laws of the state in which the couple resides) prior to September 16, 2013
  • plans may voluntarily implement Windsor prior to June 26, 2013 and may choose to apply Windsor for only certain plan provisions like the QJSA/QPSA rules
  • plans should be reviewed and amended to eliminate or modify any provisions inconsistent with Windsor (i.e., defining "spouse" by reference to Section 3 of DOMA)
  • sponsors wishing to retroactively implement Windsor before June 26, 2013 must amend their plans to specifically reflect the date of implementation
  • the funding status of defined benefit plans should be reviewed to assess the impact of Windsor and any amendments to ensure that the plan's funding target attainment percentage continues to be sufficient in accordance with Section 436(c) of the Code
  • the deadline for adopting required amendments, if any, is the later of: (1) December 31, 2014, or (2) the end of the Plan's 2013 Remedial Amendment Cycle

Note: While the IRS Notice provides a roadmap for compliance with the requirements of the Code, it does not provide a safe harbor for possible claims for benefits or otherwise under the Employee Retirement Income Security Act of 1974, as amended ("ERISA").

Action Items

Plan sponsors should take the following steps as soon as possible:

  1. consult with their legal advisors to determine whether their plans currently comply with Windsor and the IRS Notice
  2. carefully determine as of what date they wish to implement Windsor and the impact on their plans (particularly if the date is prior to June 26, 2013)
  3. adopt any required amendments by the applicable deadline
  4. communicate changes to plan participants in accordance with the requirements of ERISA (e.g., summary of material modification)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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