Now Is the Time to Consider Amending Qualified Plans for Same-Sex Marriages
The Internal Revenue Service (IRS or Service) recently issued guidance on how qualified retirement plans must treat the marriages of same-sex couples. The notice provides an effective date and retroactive effect for implementing the Windsor decision as well as for the timing of relevant plan amendments.
Last year, in Windsor, the U.S. Supreme Court invalidated a section of federal law defining “marriage” as a union between one man and one woman and defining a “spouse” as a person of the opposite sex. Shortly afterward, the IRS issued Revenue Ruling 2013-17, announcing that same-sex marriages will be recognized for federal tax purposes if they are legally recognized in the jurisdiction in which they were performed and providing guidance on some employee benefit issues. However, the Service left a number of issues affecting qualified retirement plans open for further guidance. As a result, plan sponsors and administrators had to use conjecture to determine how – and, more importantly, when – to apply the new rules related to same-sex spouses.
NEW IRS NOTICE 2014-19
With the recent release of Notice 2014-19, the IRS has clarified that any retirement plan qualification rule that applies to married participants must be applied equally with respect to a participant who is legally married to an individual of the same sex. The guidance provides examples of specific Internal Revenue Code (IRC) requirements where marital status is relevant, such as the spousal consent requirements applicable to joint and survivor pensions under IRC section 401(a)(11). The Service also published six Frequently Asked Questions (FAQs) that address additional considerations, such as beneficiary designations in profit-sharing plans.
The Notice establishes two dates by which qualified plans are required to operate in compliance with Windsor. First, if the plan participant lives in a state that recognizes same-sex marriages, a plan must recognize the same-sex spouse of a participant as the participant’s spouse for all plan purposes as of June 26, 2013 (the date of the Supreme Court’s decision). Second, if the participant lives in a state that does not recognize same-sex marriages, a plan must recognize the same-sex spouse of the participant as the participant’s spouse as of September 16, 2013 (the date provided in Rev. Rul. 2013-17). However, plan sponsors may elect to recognize all same-sex spouses of plan participants as those participants’ spouses as of June 16, 2013. As a matter of administrative ease, we would anticipate that most plan sponsors will elect June 16, 2013 as the effective date for recognizing same-sex marriages. In addition, while qualified plans must apply Windsor prospectively beginning June 26, 2013 or September 16, 2013 as noted above, the Service reminds sponsors and administrators that they are permitted to apply these rules to earlier dates, but also has warned that application to periods earlier than June 26, 2013 may cause unintended consequences. Accordingly, plan sponsors that want apply Windsor prior to June 16, 2013 should draft amendments that are very specific as to which plan provisions the amendments apply. While all plans must operate in accordance with Windsor (and existing IRS guidance) as of June 26, 2013, the Notice acknowledges that a plan amendment is not required – although it may be useful – if the plan’s definitions of “marriage” and “spouse” are not inconsistent with Windsor.
The deadline for adopting amendments required by the Notice is the later of December 31, 2014, or the otherwise applicable deadline for adopting interim or discretionary amendments. As a result, each plan sponsor and administrator should determine its particular deadline, since – based on Sec. 5.05 of IRS Rev. Proc. 2007-44 – the calendar year-end is not the deadline for every plan. Please do not hesitate to contact me or your EisnerAmper LLP advisor to discuss your plan’s compliance with Windsor or the applicability of this new guidance to your plan.