Part 2: FAQ for Same-Sex Spouses – Changes to Retirement Plans

This is the second post in a three-part series answering frequently asked tax and financial planning questions for same-sex married couples.

On April 4, 2014, the Internal Revenue Service (IRS) released Notice 2014-19, offering guidance to qualified retirement plans on the inclusion of same-sex spouses. The Notice outlines necessary changes for retirement plans that reflect the outcome of the Supreme Court’s decision in United States v. Windsor, which struck down parts of the Defense of Marriage Act (DOMA).

In 2013, the IRS released Revenue Ruling 2013-17, which outlined the application of the Windsor decision for broad federal tax purposes. Specifically, Rev. Rul. 2013-17 says:

• The terms “spouse,” “husband and wife,” “husband” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law.
• The IRS recognizes same-sex marriage, provided the union was entered into in a state that legally authorizes the marriage.
• These rulings do not apply to individuals in registered domestic partnerships, civil unions or other formal relationships.

Notice 2014-19 includes amendments to qualified retirement plans based on the Windsor decision and Rev. Rul. 2013-17. It offers guidance to plan holders and sponsors looking to navigate and comply with the changes.

The following are answers to some frequently asked questions about the upcoming amendments to retirement plans:

Q: How does the Windsor decision affect the application of federal rules to qualified retirement plans?

The Supreme Court ruling in Windsor struck down section 3 of DOMA, which prohibited the recognition of same-sex spouses for the purposes of federal tax law. In the absence of section 3 of DOMA, any retirement plan qualification rule that applies to a straight married participant must be applied to a participant who is married to a person of the same sex.

Q: When are amendments required for qualified retirement plans?

Amendments are required for qualified retirement plans with exclusionary terms or policies that are in opposition to or otherwise inconsistent with Rev. Rul. 2013-17, or the Windsor decision or Notice 2014-19.  For example, plans that define marriage as the union between one man and one woman require an amendment.

Q: Do all qualified retirement plans require an amendment?  

No. If a qualified retirement plan uses general terminology in describing a marital union, (e.g., “spouse”) or if the plan’s terms are not inconsistent with Rev. Rul. 2013-17, or the Windsor decision or Notice 2014-19, then it does not require an amendment, provided coverage is extended to include same-sex spouses.

Q: What is the deadline to adopt a plan amendment in accordance with the IRS Notice?

Generally, the deadline to adopt a plan amendment is December 31, 2014.

Q: Is an amendment required for a plan’s sponsor to retroactively apply the rules for married participants?

Yes. If a plan sponsor chooses to retroactively apply the rules, an amendment to the plan that specifies the date and purpose of the changes is required.

Q: Can same-sex spouses still be covered under qualified retirement plans if they don’t live in a state where same-sex marriage is legal?

Yes. Same-sex spouses do not need to live in a state where their marriage is recognized for the federal government to recognize it. According to Rev. Rul. 2013-17, as long as the marriage took place in a state that is legally authorized to conduct and recognize same-sex unions, the marriage is legal for federal tax and retirement purposes.

If you would like more information about enrolling in a retirement plan or the changes coming to qualified retirement plans, please contact me or another member of our estate and trust services team.