On Friday, the Internal Revenue Service (IRS) issued Notice 2014-19, which contains long-awaited guidance on how qualified retirement plans should comply with federal recognition of same-sex marriage. Based on this guidance, plan sponsors must: (1) review the definition of spouse in all retirement plans to determine whether an amendment is necessary; (2) determine the effective date for plan compliance; (3) review all aspects of retirement plan administration that may be affected to ensure compliance.
In Notice 2014-19, the IRS stated that if a retirement plan is inconsistent with the Windsor decision, which led to the federal recognition of same-sex marriage, it must be amended by the later of (1) Dec. 31, 2014 or (2) the end of the plan year or due date of the employer’s tax return for the tax year including the date in which the change is effective (whichever is later). In cases involving governmental plans, any amendment made to implement these rules need not be adopted before the close of the first regular legislative session of the legislative body with the authority to amend the plan that ends after Dec. 31, 2014. For example, if a retirement plan contains a definition of “spouse” that requires a spouse to be a person of the opposite sex or references DOMA (Defense of Marriage Act), a plan amendment is required. If the retirement plan’s terms are not inconsistent with Windsor, a plan amendment may not be required. Regardless, all retirement plan must be reviewed to determine if an amendment is required.
In addition, a retirement plan will not lose its tax-qualified status simply because it (1) did not recognize a same-sex spouse of a participant prior to Jun. 26, 2013 or (2) only recognizes the same-sex spouse of a participant if the participant was domiciled in a state that recognized same-sex marriages prior to Sept. 16, 2013. Consequently, under the new guidance, qualified retirement plan operations must reflect the new federal recognition of same-sex marriages as of Jun. 26, 2013. The IRS notes, however, that recognizing same-sex spouses for all purposes under a plan prior to June 26, 2013, may trigger requirements that are difficult to implement retroactively (such as the ownership attribution rules) and may create unintended consequences.
Provided that applicable qualification requirements are otherwise satisfied, a plan sponsor’s choice of a date before Jun. 26, 2013, and the purposes for which the plan amendments recognize same-sex spouses before Jun. 26, 2013, do not affect the qualified status of the plan. For example, for the period before Jun. 26, 2013, a plan sponsor may choose to amend its plan to reflect the outcome of Windsor solely with respect to the qualified joint survivor annuity and qualified pre-retirement survivor annuity requirements of Internal Revenue Code Sec. 401(a)(11) and, for those purposes, solely with respect to participants with annuity starting dates or dates of death on or after a specified date.
If a plan sponsor chooses to apply the rules with respect to married participants in qualified retirement plans in a manner that reflects the outcome of Windsor for a period before Jun. 26, 2013, an amendment to the plan that specifies the date as of which, and the purposes for which, the rules are applied in this manner is required.
Finally, an amendment to a defined benefit plan to comply with this guidance that is effective no earlier than June 26, 2013, is not required to comply with Code Section 435(c) regarding additional employer contributions for a plan that increases plan liabilities by amendment unless the plan’s adjusted funding target attainment percentage is sufficient.
Provisions in qualified retirement plans that apply to married participants now must also apply to participants in same-sex marriages affecting plan administration. For example:
IRS published frequently asked questions regarding the application of this guidance can be found here.
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