On April 4, 2014, the Internal Revenue Service (“IRS”) issued Notice 2014-19, which provides guidance for plan administrators and plan sponsors of qualified retirement plans in applying certain provisions of the Internal Revenue Code of 1986, as amended (the “Code”), to legally married same-sex spouses and operating plans in compliance with the Code (as a result of the United States Supreme Court’s decision in United States v. Windsor).
As a result of Notice 2014-19, nearly all qualified retirement plans, including governmental plans and non-electing church plans, will require an amendment. For example, qualified retirement plan provisions relating to required minimum distributions (“RMDs”) and rollovers may need to be amended to help ensure that the plan treats legally married same-sex spouses in the same manner as opposite-sex spouses. The IRS has established deadlines for amending qualified retirement plans, which are discussed in more detail in this article. Plan sponsors and plan administrators should review their qualified retirement plan documents and administrative policies/procedures immediately to help ensure the plan is maintained and administered in accordance with applicable IRS guidance.
The Code establishes a number of rules that apply to married participants in a qualified retirement plan. Notice 2014-19 identifies and discusses various Code provisions that relate to spouses of plan participants. Examples of spouse-related Code provisions discussed in Notice 2014-19 include the following:
- Certain qualified retirement plans must provide a qualified joint and survivor annuity to married participants upon their retirement. In general, if a married participant dies before retirement, certain plans must also provide a qualified preretirement survivor annuity to the participant’s surviving spouse. These annuities may be waived by a married participant only with spousal consent.
- If a qualified plan permits participant loans, the plan must obtain spousal consent before making a loan to a plan participant.
- Code provisions relating to required minimum distributions and rollovers provide additional alternatives for surviving spouses that are not available to non-spouse beneficiaries.
- The controlled group rules generally provide that a spouse is treated as owning shares of stock that are owned by his/her spouse.
- Code provisions relating to employee stock ownership plans (“ESOPs”) reference spouses. For example, an ESOP that acquires certain employer securities must generally prohibit the accrual or allocation of those securities for the benefit of certain individuals, including the spouse of any individual who owns twenty-five percent (25%) or more of the securities and the spouse of the seller of securities.
- The qualified domestic relations order (“QDRO”) rules reference spouses and former spouses.
The United States Congress enacted the federal Defense of Marriage Act (“DOMA”) on September 21, 1996. Section 3 of DOMA prohibited the recognition of legally married same-sex spouses for federal tax laws. On June 26, 2013, the United States Supreme Court issued its opinion in United States v. Windsor. In Windsor, the Court ruled that Section 3 of DOMA was unconstitutional. Additional information on the Windsor decision is available here.
On August 28, 2013, the IRS issued Revenue Ruling 2013-17 to provide guidance on the application of Windsor to federal tax law. Revenue Ruling 2013-17 generally provides that the terms “spouse,” “wife,” “husband,” and “husband and wife” include an individual married to a person of the same sex if the individuals were legally married under the laws of a state that permits same-sex marriages. Revenue Ruling 2013-17 adopted the “state of celebration” rule for determining whether same-sex individuals are legally married. For federal tax purposes, individuals of the same sex are treated as being married if they were validly married in a state whose laws authorize the marriage of individuals of the same sex, even if the married couple is domiciled in a state that does not recognize same-sex marriages. Additional information on Revenue Ruling 2013-17 is available here. On September 18, 2013, the United States Department of Labor issued similar guidance. A discussion of the Department of Labor guidance is available here .
New Guidance Under Notice 2014-19
Notice 2014-19 provides important guidance for plan sponsors and plan administrators of qualified retirement plans. Notice 2014-19 emphasizes that “any retirement plan qualification rule that applies because a participant is married must be applied with respect to a participant who is married to an individual of the same sex.” Notice 2014-19 explains how this general rule applies to the operation of qualified retirement plans.
- Effective as of June 26, 2013, qualified retirement plans must be operated to reflect the Windsor decision. Accordingly, a qualified retirement plan must treat a legally married same-sex spouse as a “spouse” for all plan purposes.
- Effective as of September 16, 2013, qualified retirement plans must recognize the same-sex spouse of a participant even if the couple is domiciled in a state that does not recognize same-sex marriages.
- Under certain circumstances, qualified retirement plans may be amended to reflect the Windsordecision as of a date earlier than June 26, 2013. Such an amendment may be adopted for some or all purposes, provided that the amendment complies with the applicable qualification requirements.
- The question of whether a qualified retirement plan must be amended to reflect the Windsordecision depends on the specific terms of each plan.
- If a qualified retirement plan defines a marital relationship (e.g., the term “spouse”) by reference to Section 3 of DOMA or in a manner that is otherwise inconsistent with Windsor, Rev. Rul. 2013-17, and/or Notice 2014-19, then the plan must be amended. The plan must be amended by the later of (i) the otherwise applicable deadline under Rev. Proc. 2007-44, Section 5.05, or (ii) December 31, 2014. However, governmental plans are not required to adopt an amendment before the close of the first regular legislative session of the legislative body with the authority to amend the plan that ends after December 31, 2014.
- If a qualified retirement plan does not define a marital relationship, or does not define a marital relationship in a manner that is inconsistent with Windsor, Rev. Rul. 2013-17, and/or Notice 2014-19, then a plan amendment may not be required. However, the plan must still be operated in accordance with Windsor, Rev. Rul. 2013-17, and Notice 2014-19. Accordingly, it may be useful for plan administration purposes to adopt a clarifying amendment.
- If the sponsor of a qualified retirement plan chooses to apply the rules with respect to married participants in a manner that reflects the outcome of Windsor for a period before June 26, 2013, the plan must be amended. The amendment must specify the date as of which, and the purposes for which, the rules are applied in accordance with Windsor. The plan must be amended by the later of (i) the otherwise applicable deadline under Rev. Proc. 2007-44, Section 5.05, or (ii) December 31, 2014. However, governmental plans are not required to adopt an amendment before the close of the first regular legislative session of the legislative body with the authority to amend the plan that ends after December 31, 2014.
- Notice 2014-19 provides guidance on amending single-employer defined benefit plans in accordance with Code § 436(c) (relating to the plan’s adjusted funding target attainment percentage) to comply with Windsor.
Employers, plan sponsors, and plan administrators of qualified retirement plans should take the following actions to comply with Notice 2014-19.
- Review all plan documents, summary plan descriptions (“SPDs”), communication materials, and forms/consents to determine how “spouse,” “marriage,” and similar terms are used and defined.
- Work with counsel to determine whether plan documents, SPDs, communication materials, and forms/consents must be modified to conform to the Windsor decision and IRS guidance.
- Work with counsel to prepare and adopt plan amendments by the IRS’s stated deadline.
- Prepare and disseminate summaries of material modifications (“SMMs”) and/or updated SPDs.
- Review plan administrative policies and procedures to ensure that legally married same-sex spouses are being treated in the same manner as non-same-sex spouses under the plan.
- Work with counsel to revise plan administrative policies and procedures to help ensure that legally married same-sex spouses are being provided appropriate benefits and consents.
- Consider whether the plan should be amended to reflect the Windsor decision as of a date earlier than June 26, 2013 and work with counsel to amend the plan.
Fraser Stryker is a nationally recognized leader in employee benefits and tax law. Attorneys in the Firm’s Employee Benefits & ERISA Practice Group advise businesses, governments, and nonprofit/tax-exempt organizations on a wide variety of tax and employee benefits matters, transactions, and litigation. Fraser Stryker helps employers implement and maintain innovative and cost-effective employee benefit plans that attract and retain top talent. For information regarding qualified plans, such as defined benefit plans, 401(k) plans, and cash balance plans, please contact Nicole R. Konen, Kevin Tracy, or Emily Wischnowski.
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