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IRS Guidance: Same-Sex Spouses Under Retirement Plans




by:
Eva A. Rasmussen
Clifton Budd & DeMaria, LLP - New York Office

 
May 2, 2014

The IRS has recently issued guidance on the application of the Supreme Court’s decision in United States v. Windsor and Revenue Ruling 2013-17 with respect to same-sex marriages (See IRS Notice 2014-19). Not surprisingly, the Notice confirms that a legal same-sex spouse must be treated the same as an opposite-sex spouse under any qualification requirement applicable to qualified retirement plans.

RETROACTIVE APPLICATION NOT REQUIRED
Qualified retirement plans are not required to apply the Windsor decision before June 26, 2013 (the date of the decision). As of June 26, 2013, the plan must operate in accordance with Windsor. However, prior to September 16, 2013, it was not clear if a same-sex spouse would be recognized only if he/she was domiciled in a state that recognized same-sex spouses (“Domicile Rule”) or if any same-sex spouse would be recognized if he/she was legally married in any state or country (“Ceremony Rule”). In Revenue Ruling 2013-17 the IRS stated that the Ceremony Rule will apply, effective upon the issuance of that Ruling. Thus, between June 26, 2013 and September 16, 2013, a retirement plan will be in compliance with the Windsor decision whether it applied the Domicile or the Ceremony Rule.

A plan may apply the outcome of the Windsor decision before June 26, 2013 on a retroactive basis but the IRS cautions that this may trigger requirements that are difficult to implement retroactively and may create unintended and unexpected consequences.

IMPACT ON SAME-SEX SPOUSES
The following qualification requirements will apply to same-sex spouses as well as opposite-sex spouses:

(a) Plans that are required to provide annuity benefits (generally, defined benefit and money purchase plans) must provide joint and survivor annuity benefits to a spouse unless the spouse consents to a different form of payment;

(b) Certain defined contribution plans (such as 401(k) plans) are not required to offer annuities if any lump-sum death benefit is paid to a surviving spouse unless the spouse consents to a different form of payment or beneficiary;

(c) Expanded opportunities for indirect rollover of distributions;

(d) Qualified domestic relations orders may be issued to provide benefits to a former same-sex spouse; and

(e) Same-sex couples will be considered married for purposes of the minimum distribution rules which may result in smaller mandated distributions.

IMPACT ON RETIREMENT PLANS
A retirement plan that is inconsistent with Windsor or Revenue Ruling 2013-17 must be amended. For example, if a plan defines “spouse” as a marriage between opposite-sex spouses, required compliance with Section 3 of DOMA or applied the Domicile Rule, an amendment will be required. Conversely, a plan that defined “spouse” without any distinction between opposite-sex and same-sex spouses or as a legally married spouse would not require amendment. Any plan that wants to apply Windsor retroactively must be amended.

Employers should also consider using a general announcement that same-sex spouses will be recognized after June 26, 2013. Participants should be informed that any designation of a beneficiary other than a spouse will not be recognized unless the spouse consents. Thus, if it desired to designate someone other than a spouse, spousal consent should be obtained. Participants with an opposite-sex spouse may also find it helpful to review their beneficiary designations as they may have married or divorced after they filed a beneficiary designation. This information should also be included in the summary plan description.

NEXT STEPS FOR EMPLOYERS
Plan sponsors should determine if their plans will need to be amended. Most retirement plans will need to be amended to redefine “spouse.” The amendment must be adopted by the latest of (i) December 31, 2014, (ii) the end of the plan year which includes June 26, 2013 or (iii) the due date of the employer’s tax return, including extensions for the tax year that includes June 26, 2013.

Plan sponsors should also determine if they wish to encourage all employees to review their beneficiary designations and update them, if needed.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Eva A. Rasmussen
 
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