• Retirement Plans Must Recognize Same-Sex Spouses for Federal Tax Purposes
  • December 18, 2013 | Authors: Lauren B. Dunn; Mindi M. Johnson
  • Law Firms: Foster, Swift, Collins & Smith, P.C. - Lansing Office ; Foster, Swift, Collins & Smith, P.C. - Grand Rapids Office
  • LEGAL BACKGROUND

    The Internal Revenue Service (“IRS”) has issued guidance that significantly affects retirement plans. The IRS guidance released on September 16, 2013, clarifies the federal tax impact of the United States Supreme Court’s landmark decision in United States v. Windsor which held Section 3 of the federal Defense of Marriage Act (“DOMA”) unconstitutional. Section 3 of DOMA provided that “marriage” meant a legal union between one man and one woman and that “spouse” referred to a husband or wife of the opposite sex. As a result of the Court’s holding, the IRS clarified that a same-sex couple that was married in a state or foreign country which legally recognizes same-sex marriage must be treated as married for federal tax purposes. That treatment applies even if the couple resides in a state that does not legally recognize same-sex marriage.

    IMPLICATIONS

    Retirement plans are largely governed by federal law and, therefore, must comply with the post-Windsor IRS guidance. Accordingly, a retirement plan must treat a same-sex spouse in the same manner as an opposite-sex spouse for federal tax purposes. For example, a same-sex spouse must be treated as a spouse for purposes of any survivorship rules (including applicable qualified joint and preretirement survivor annuity rules) and spousal consent rules (including spousal consent that may be required for participant loans or distributions).

    ACTION ITEMS

    A plan sponsor is not currently required to make any changes to its retirement plan in order to comply with the IRS guidance. We anticipate that the IRS will issue further guidance regarding when and how retirement plans should be amended. In the interim, plan sponsors should confirm, however, that any plan distribution forms, beneficiary designation forms and administrative procedures have been updated to reflect the IRS guidance, and that the plan’s third-party administrator has been administering the plan accordingly.