Post-Windsor Treatment Of Same-Sex Spouses Under Qualified Retirement Plans

by Perkins Coie
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The United States Supreme Court significantly changed the treatment of same-sex spouses under qualified retirement plans in United States v. Windsor.  For the implications of Windsor and its companion case Hollingsworth v. Perry on health and welfare plans, please read our prior Client Update

Prior to Windsor, a spouse for federal law and qualified retirement plan purposes referred "only to a person of the opposite sex who is a husband or a wife" as prescribed by Section 3 of the Defense of Marriage Act (DOMA).  In Windsor, the Supreme Court struck down Section 3 of DOMA holding it unconstitutional.  As a result, sponsors of qualified retirement plans must now look to state laws for the definition of “spouse.” 

When and how a retirement plan must recognize same-sex spouses is an open issue that is yet to be resolved.  The Obama Administration has indicated that guidance will be forthcoming shortly.  In the meantime, qualified plan sponsors can prepare for the implementation of the Windsor decision by becoming familiar with the plan provisions and related issues affecting spouses and taking certain administrative actions described below.

Qualified retirement plan provisions that affect spouses include:

  • QJSA and QPSA.  Defined benefit plans (DB plans) and certain defined contribution plans (DC plans) are required to provide automatic spousal benefits in the form of qualified joint and survivor annuities (QJSAs) for married participants upon retirement and qualified preretirement survivor annuities (QPSAs) for married participants who die before retirement.  Such benefits may only be waived with a spouse's consent.  Same-sex spouses may now be eligible for QJSAs and QPSAs.

  • Default Beneficiary.  Under DC plans not subject to the QJSA and QPSA requirements (including most 401(k) plans), the spouse must be the default beneficiary of a married participant, and the spouse must consent to the participant's designation of any other beneficiary.  Prior to Windsor, a same-sex spouse could only become a beneficiary if the participant specifically designated the same-sex spouse as the beneficiary under the plan.  A same-sex spouse may now be the participant's default beneficiary and may be required to consent to the participant's designation of any other beneficiary.

  • Required Minimum Distributions.  A surviving spouse may delay taking required minimum distributions until the end of the year in which the participant would have attained age 70-1/2.  Also, a surviving spouse has an extended period for taking minimum required distributions when compared to a non-spouse beneficiary.  Same-sex spouses may now be eligible for the expanded required minimum distribution rights.

  • QDROs.  Generally, a qualified domestic relations order (QDRO) divides a participant's retirement plan benefits between the participant and his or her spouse upon the dissolution of a marriage.  Plan sponsors may now need to determine the qualified status of a domestic relations order resulting from the dissolution of a same-sex marriage.

  • Rollovers.  A surviving spouse of a deceased participant may make rollovers to another employer's eligible retirement plan or to a personal or inherited individual retirement account (IRA) whereas a non-spouse beneficiary may make rollovers only to an inherited IRA.  Same-sex spouses may now be eligible for broader rollover rights.

  • Hardship Withdrawals.  Prior to Windsor, a participant could obtain a hardship withdrawal based on the medical, educational and/or funeral expenses of the participant's same-sex spouse only if the same-sex spouse was the participant's designated beneficiary under the plan or the participant's dependent.  Such hardship withdrawals may now be available based solely on the same-sex spouse's marital status to the participant.

  • Spousal Consent.  In addition to the spousal consent requirements described under QJSA and QPSA and Beneficiary Status above, some plans require spousal consent when a participant requests a plan loan or hardship withdrawal.  If applicable, plan sponsors may now need to obtain the consents of same-sex spouses for plan loans and hardship withdrawals.

  • Code Section 415(b) Limits.  The value of a subsidized QJSA is not taken into account under a DB plan to the extent that the benefit is paid to the participant's surviving spouse.  This may now also apply to the extent that the benefit is paid to the surviving same-sex spouse.

After Windsor, many questions remain regarding issues that will significantly impact the administration and operation of retirement plans.  For example, it is unclear the extent to which the Windsor decision will have any retroactive effect on retirement plans.  Another issue is whether a same-sex couple living in a state that recognizes same-sex marriage will need to be treated differently under the same plan from a similar couple living in a state that does not recognize same-sex marriage.  To complicate the issue further, it is unclear how treatment under a plan would work for a same-sex couple who marries in a state that recognizes same-sex marriage but resides in a state that does not recognize same-sex marriage.

What Plan Sponsors Can Do Now

At minimum, plan sponsors should review their plan documents, determine how "spouse" is defined under the plan, and identify all provisions that affect spouses.  Other actions plan sponsors can take now to prepare for the implementation of the Windsor decision include:

  • Establish procedures for identifying spouses that distinguish between opposite-sex and same-sex spouses.
  • Update human resources, plan administration and payroll systems to reflect marital status.
  • Provide communication to employees and participants to identify same-sex spouses and to advise them to review and update their beneficiary designation forms if needed.
  • Review the beneficiary designation forms of participants with same sex-spouses to determine whether spousal consent may be needed to designate a non-spouse beneficiary.

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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