Retirement Plan Amendment Requirements Post-Windsor
Written by Ann Fievet
The recent release of Notice 2014-19 and IRS FAQs provide some initial pieces of the guidance that the IRS first promised in September 2013 regarding administrator obligations when amending employee benefit plans to account for the Supreme Court’s decision in United States v. Windsor and Rev. Rul. 2013-17.
Windsor found Section 3 of the Defense of Marriage Act (DOMA) unconstitutional in excluding same sex marriages from recognition as marriages under federal law. Rev. Rul. 2013-17 stated the IRS’s position that same-sex marriages entered into in a state that had legalized same-sex marriage would be recognized for federal tax purposes (including with respect to employee benefit plans) in states that did not themselves allow same-sex marriages (the “state of celebration” rule). Read our client alert on Rev. Rul. 2013-17 here.
Building on Rev. Rul. 2013-17, Notice 2014-19 and the FAQs clarify the following with respect to retirement plans:
- No plan amendment is needed if the plan did not specifically define spouse to exclude same-sex spouses. However, the ruling states that a clarifying amendment may be useful for purposes of plan administration.
- Plans must have begun recognizing same-sex marriages as they do any other marriage (1) by June 26, 2013 (the date of the Windsor decision) for same-sex spouses domiciled in states that recognized same-sex marriages and (2) by September 16, 2013 (the date that the IRS issued Rev. Rul. 2013-17) for same-sex spouses domiciled in states that do not recognize same-sex marriages. This includes treating a same-sex spouse as the default beneficiary under a retirement plan absent a valid spousal waiver in the case of a participant’s death on or after June 26, 2013, regardless of conflicting plan terms or any prior beneficiary designation to which the same-sex spouse had not consented.
- Plans can be amended to grant spousal rights to same-sex spouses effective as of a date earlier than June 26, 2013, but will have to be mindful of other Code qualification requirements. As the IRS points out, “recognizing same-sex spouses for all purposes under a plan prior to June 26, 2013 may trigger requirements that are difficult to implement retroactively.” If a plan sponsor wishes to extend spousal benefits under a plan to same-sex couples prior to June 26, 2013 a plan amendment is required regardless of plan terms and must be adopted by December 31, 2014 for calendar year plans.
- Specifically with respect to underfunded single-employer defined benefit plans, an amendment recognizing same-sex spouses (or simply administering the plan to treat same-sex spouses as spouses under the plan, if the plan had not specifically excluded them prior to the Windsor decision) would not require additional funding or attainment of an 80% funding percentage if the amendment (or operational change) takes effect on June 26, 2013. However, amending the plan to recognize same-sex spouses any earlier would require an additional funding contribution to the plan.
Perhaps the most important take-away from this new guidance is the reminder that qualified plans need to be administered consistently with the Supreme Court’s holding in Windsor and with Notice 2013-17 as of June 26, 2013 (for purposes of recognizing same-sex marriages in states that recognize such marriages) and September 16, 2013 (for purposes of recognizing same-sex marriages in all states in which a couple is domiciled, regardless of the state’s recognition of the marriage under state law). Plan administrators should review plan operations to make sure their retirement plans have been administered consistently with the law as it has changed over the past year and correct any errors, if necessary. Corrections involving exclusion of same-sex spouses from rights under the plan should be made consistently with the IRS’s correction methodology in Rev. Proc. 2013-12 and may require an IRS filing, depending on the extent of the error.
Employers should also notify employees, if they haven’t already, of their rights under the plans. This may involve email or written notifications requesting that same-sex spouses update their personnel records to include their spouse’s information, re-soliciting beneficiary designations, etc. While a plan administrator could not be held at fault for not administering benefits to a participants with a same-sex spouse who it had no knowledge of, it would be advisable from an employee relations standpoint to be proactive in communicating these changes to employees and getting appropriate documentation for all employees in a same-sex marriage as soon as possible.