IRS Issues Follow-up Guidance Regarding Application of the Windsor/DOMA Decision to Qualified Retirement Plans
The IRS released Notice 2014-19 and a set of related FAQs providing guidance on the impact of the U.S. Supreme Court’s June 2013 decision in United States v. Windsor on qualified retirement plans. In Windsor, the Supreme Court struck down the provision of the Defense of Marriage Act (DOMA) providing that, for federal law purposes, a marriage could only be between a man and a woman. After the Windsor decision, the IRS issued Revenue Ruling 2013-17, which held that a same-sex marriage would be recognized for federal tax purposes if it was validly entered into in a state that authorizes same-sex marriages (the “state of celebration”), regardless of the couple’s state of domicile. Previous guidance based on Rev. Rul. 2013-17 has been covered in our prior alerts here and here.
Notice 2014-19 and the related FAQs specifically discuss the changes that plan sponsors may need to make to qualified retirement plans to comply with Windsor. Below are the key items from the guidance:
Application of Plan Terms with Respect to Same-Sex Marriages. The guidance provides that any plan term that applies because a participant is married must be applied with respect to a participant who is validly married to a person of the same sex. For example, a participant with a valid same-sex marriage cannot waive a qualified joint and survivor annuity (QJSA) without obtaining spousal consent, as required by Code Section 417. Similarly, a qualified domestic relations order (QDRO) assigning benefits to an alternate payee of the same sex as the participant would be valid under Section 414(p) if entered pursuant to the dissolution of a valid same-sex marriage.
Deceased Participants. The guidance also provides that participants in valid same-sex marriages who die on or after June 26, 2013 must be treated as married at death. As a result, benefits must be paid to the participant’s same-sex surviving spouse, absent consent of the spouse to the designation of another beneficiary, regardless of any other conflicting plan terms or prior beneficiary designations to which the spouse has not consented (except an assignment of benefits pursuant to a QDRO).
Retroactive Amendment May Be Needed. Plans that define a marital relationship in terms that are inconsistent with the Windsor decision, such as by reference to Section 3 of DOMA or to state law (and the state does not recognize same-sex marriages), will need to adopt a remedial amendment so that the plan terms reflect the outcome of Windsor and the state of celebration rule in Revenue Ruling 2013-17. Such an amendment would need to be retroactive to June 26, 2013, and implemented in accordance with principles similar to those set forth in the Employee Plans Compliance Resolution System (EPCRS). For example, a plan may obtain retroactive spousal consent from a same-sex spouse in connection with the waiver of a QJSA if the plan failed to do so prior to adopting the amendment. A remedial amendment must be adopted by the later of (i) the plan’s remedial amendment period pursuant to Rev. Proc. 2007-44, or (ii) December 31, 2014.
Application to 403(b) Plans. The IRS states that Rev. Rul. 2013-17 and all subsequent guidance applies to 403(b) plans to the extent any of the underlying tax and ERISA rules apply.
Effect of Remedial Amendment on Plans Subject to Funding Rules. The guidance states that a remedial amendment to make a plan consistent with Windsor is not subject to plan funding rules (Section 432 for multiemployer plans in endangered or critical status and Section 436(c) for single-employer plans) if the amendment is retroactive no earlier than June 26, 2013. However, a remedial amendment that is made retroactive earlier than June 26, 2013 may be subject to funding rules to the extent that the amendment increases the plan’s liabilities.
As mentioned above, qualified retirement plans must reflect the outcome of Windsor retroactive to June 26, 2013. However, the guidance states that a plan will not be treated as failing to meet the qualification requirements of Section 401(a) merely because the plan’s operations, for periods prior to September 16, 2013, recognized the same-sex spouse of a participant only if the participant was domiciled in a state that recognized same-sex marriages.