IRS Guidance – Application of Windsor decision to Qualified Pension and Retirement Plans
On April 4, 2014, the IRS issued Notice 2014-19, together with some FAQs providing guidance to qualified pension and retirement plans on matters relating to the definition of spouse. As background, on June 26, 2013, in the case of United States vs. Windsor, the U. S. Supreme Court ruled that Section 3 of the Defense of Marriage Act to be unconstitutional. As a result, couples in a same-sex marriage, sanctioned by a state, have all of the benefits of federal law.
In prior guidance issued last fall in the form of a Revenue Ruling 2013-17, the IRS adopted the “Rule of Celebration” concept wherein a same-sex couple who is legally married in a jurisdiction recognizing same-sex marriage is to be treated for all federal tax purposes as an opposite-sex married couple (see this Benefit Beat article, For Federal Tax Purposes, a Spouse is a Spouse, Whether Same or Opposite Sex, says the IRS and Treasury, 9/12/13). The effects of this Revenue Ruling became applicable on September 16, 2013.
IRS Notice 2014-19 re-affirms that a legally married same-sex spouse must be treated as a spouse for all qualified pension and retirement benefit plan purposes, including:
- As a named beneficiary unless the spouse consents to another beneficiary;
- If a retirement plan provides a qualified joint and survivor annuity or a qualified preretirement survivor annuity, the same-sex spouse would be entitled to these benefits;
- Minimum distribution and rollover rules;
- Withdrawals, loans and hardship distributions;
- Alternative payee rights for distributions under a qualified domestic relations order; and
- Family attribution and other ownership rules applicable to retirement plans.
The clarifications in Notice 2014-19 are effective as of June 26, 2013; though, as indicated above, the “Rule of Celebration” applies as of September 16, 2013. Notice 2014-19 says that the “state of residence rule”, i.e., where the couple must live in a state that recognizes same-sex marriage, could apply between June 26, 2013 and September 16, 2013.
The guidance further provides that a plan can be amended to recognize same-sex spouses prior to June 26, 2013, but cautions that prudence should be exercised in doing this in that it could create complications. If a plan wants to define spouse to include same and opposite-sex spouse prior to June 26, 2013, it should work closely with its legal counsel.
At this point, plan administrators should review their definition of spouse in their qualified pension and retirement plan documents and related plan materials including summary plan descriptions, benefit statements or other participant communications. If the definition for spouse is defined as “any lawful spouse”, or something similar to this language, then no change to the definition need be made. The plan administrator should then proceed to ensure that the plan processes include all legal spouses.
If a plan defines spouse inconsistent with the Windsor decision, or limits spouse to opposite-sex couples or some other term or limitation, then the plan should be amended accordingly. Generally, required amendments must be adopted by December 31, 2014; or the applicable date under the IRS’ general amendment guidance for qualified retirement plans, as contained in Revenue Procedure 2007-44.