In Notice 2014-19, the Internal Revenue Service provided guidance to clarify the retroactive implications of the U.S. Supreme Court’s decision in United States v. Windsor and Rev. Rul. 2013-17 regarding qualified retirement plans for married same-sex couples. The Notice generally requires qualified retirement plans to be administered in accordance with the Windsor decision decided on June 26, 2013, but does not require retroactive application of Windsor prior to that date. Before reviewing Notice 2014-19, let’s briefly review Windsor and Rev. Rul 2013-17.
On June 26, 2013, the Supreme Court decided in United States v. Windsor that Section 3 of the Defense of Marriage Act or “DOMA” was “unconstitutional as a deprivation of the liberty of the person protected by the Fifth Amendment of the Constitution.” Generally, the court based its holding on the equal protection element of due process guaranteed by the Fifth Amendment. The result of the Windsor decision gave same-sex couples whose marriages were legally recognized in their state the right to over 1,138 Federal benefits which were previously denied to them.
However, Windsor did not address the treatment of same-sex couples who were married in a state that recognized same-sex marriages, yet resided in a non-recognition state. Would they also be entitled to these Federal rights and benefits? The Internal Revenue Service answered this question on August 29, 2013 by issuing Rev. Rul. 2013-17.
Rev. Rul. 2013-17 set forth two distinct conclusions. First, the Internal Revenue Code is to be read in a gender neutral manner to include same-sex spouses. Second, the state where legally married same-sex couples reside is not relevant. Rather, effective September 16, 2013, marital status for Federal tax purposes would be determined based upon the law of the state or jurisdiction where the
marriage was performed, or what became known as the “place of celebration” rule. So, a same-sex couple married in a state that recognized same-sex marriages would now be entitled to all Federal rights and benefits, even if they were domiciled in a non-recognition state. Many of these Federal rights and benefits involve the treatment and administration of qualified retirement plans.
After the Windsor decision and Rev. Rul. 2013-17, it became clear how qualified retirement plans were going to be treated on a prospective basis. However, it was still not clear how to apply Windsor on a retroactive basis, at least as it applied to certain employee benefits and employee benefit plans. Specifically, the ruling held that:
The Service intends to issue further guidance on the retroactive application of the Supreme Court’s opinion in Windsor to other employee benefits and employee benefit plans and arrangements. Such guidance will take into account the potential consequences of retroactive application to all taxpayers involved, including the plan sponsor, the plan or arrangement, employers, affected employees and beneficiaries. The Service anticipates that the future guidance will provide sufficient time for plan amendments and any necessary corrections so that the plan and benefits will retain favorable tax treatment for which they otherwise qualify.
Which brings us to Notice 2014-19.
Notice 2014-19 was issued to provide guidance on the application, including retroactive application, of the Windsor decision and Rev. Rul. 2013-17 to qualified retirement plans under Section 401(a) of the Internal Revenue Code. Specifically, the Notice provides that qualified retirement plans must recognize same-sex spouses effective no later than June 26, 2013. The Notice permits, but does not require, recognition of same-sex spouses prior to this date.
Since plans do not require retroactive application of Windsor prior to June 26, 2013, plans should not be liable to pay qualified pre-retirement survivor annuities or death benefits to same-sex spouses prior to this date. In addition, unless a plan sponsor voluntarily amends its plan documents to include same-sex spouses prior to June 26, 2013, generally, plans should not have to reissue election paperwork or obtain spousal consent for benefits paid prior to that date.
Does this mean that there are no administrative issues for qualified retirement plans prior to June 26, 2013? Not necessarily. For example, any existing beneficiary designations may automatically be invalid without a same-sex spouse’s consent. Clearly, this can present issues for both plan administrators and plan participants who will no longer have a valid beneficiary designation for the commencement of future benefits. So, while the IRS does not require plan administrators to specifically communicate the Windsor decision to plan participants, it may be prudent for plan administrators to remind participants to review their beneficiary designations.
Whether a plan must be amended to reflect the outcome in Windsor, Rev. Rul. 2013-17 and Notice 2014-19 depends upon a number of factors. For example, if the terms of the plan define a marital relationship by specific reference to Section 3 of DOMA or the terms are otherwise inconsistent with Windsor or the guidance provided in Rev. Rul 2013-17 and Notice 2014-19, the plan must be amended. An amendment is also required if a plan sponsor applies the rules in a manner that reflect the outcome of Windsor during a period prior to June 26, 2013. The deadline to adopt a plan amendment under Notice 2014-19 is the later of “(i) the otherwise applicable deadline under section 5.05 of Rev. Proc. 2007-44, or its successor1, or (ii) December 31, 2014. In most cases, the deadline will be December 31, 2014. Other rules apply in the case of governmental plans.
As a same-sex married couple, you should inquire whether your plan sponsor has reviewed their retirement plan documents to determine if specific plan amendments are required to clarify same-sex spouse’s rights to benefits under the plan. Even if plan documents do not require amendment, other administrative documents such as the summary plan description, election forms, beneficiary designation forms and QDRO procedures may need to be updated to reflect the Windsor decision and other guidance issued by the IRS.
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