401(k): IRS Provides Further Windsor Guidance for Qualified Retirement Plans

From Thomson Reuters

The IRS has provided further guidance in Notice 2014-19 regarding the effect of the Supreme Court’s Windsor decision (requiring federal recognition of same-sex marriage) on various requirements for 401(k) and other retirement plans, including spousal consents, required minimum distributions, and QDROs. The Notice addresses operational compliance, conforming amendment requirements, the deadline for those amendments, and the option to apply Windsor before the June 26, 2013 decision date if certain requirements are met. Additionally, the IRS has provided Frequently Asked Questions (FAQs) on its website, along with a new webpage summarizing retirement plan treatment of same-sex couples. Here are highlights:

• General Application of Windsor and Ruling 2013-17. The Notice reiterates the federal tax rule 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. The tax rule applies to a plan’s operation as of June 26, 2013 (the date of the Windsor decision), but a plan will not have a qualification failure if, before September 16, 2013 (the effective date of Ruling 2013-17), it only recognized the same-sex spouse of a participant domiciled in a state that recognized same-sex marriages. (Under Ruling 2013-17, a same-sex marriage validly entered into under the laws of a state is recognized for federal tax purposes, even if the marriage is not recognized in the state in which the couple lives.) For example, FAQ-1 explains that, to the extent the Code requires benefits to be paid to a participant’s surviving spouse, a plan must treat the same-sex spouse of a participant who dies on or after June 26, 2013 as the participant’s surviving spouse, but it is not a qualification failure if the plan recognized only same-sex marriages recognized under the law of a participant’s state of domicile before Ruling 2013-17.
• Retroactive Application Is Optional. Plan sponsors that wish to apply the Windsor decision for some or all plan purposes before June 26, 2013 may amend their plans retroactively so long as the amendment complies with applicable qualification requirements. For example, a plan sponsor could retroactively amend its plan to apply Windsor to the spousal annuity requirements for participants with annuity starting dates on or after a specified date before June 26, 2013. The guidance cautions, however, that recognizing same-sex spouses for all purposes under a plan before that date could trigger requirements that are difficult to implement retroactively (e.g., the ownership attribution rules) and may create unintended consequences. FAQ-3 indicates that retroactive amendments should be implemented using principles similar to those that apply under the IRS’s EPCRS correction programs.
• Identification of Plans That Require Amendments. Not all retirement plans will require a plan amendment to comply with the Windsor decision and Ruling 2013-17; the plan’s language with respect to spouse benefits will determine if an amendment is required. If spouse benefits are determined under a plan by reference to the definition of “marriage” or “spouse” in Section 3 of the Defense of Marriage Act (DOMA) or by language that is otherwise inconsistent with the Windsor decision and Ruling 2013-17, the plan must be amended. Plan sponsors that wish to apply the Windsor decision retroactively (before June 26, 2013) also must amend their plans.
• No Amendment Required. If a plan’s terms are consistent with the Windsor decision and subsequent IRS guidance (for example, the plan uses the term “spouse,” “legally married spouse,” or “spouse under Federal law” without any distinction between a same-sex or opposite-sex spouse), no amendment is required, though the guidance suggests that, for plan administration purposes, it might be useful to adopt a “clarifying” amendment.
• Amendment Deadline. Generally, required amendments must be adopted by December 31, 2014, unless, for certain non-calendar-year plans, a later date would apply under the rules for interim amendments (i.e., the due date of the plan sponsor’s tax return for the tax year that includes the amendment’s effective date).

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