Plan sponsors now have additional answers to some of their questions about the effect of the Windsor decision on retirement plans. Notice 2014-19, released on April 4, 2014, provides guidance concerning the application (including retroactive application) of Revenue Ruling 2013-17 and the June 26, 2013, Supreme Court decision that invalidated Section 3 of the Defense of Marriage Act (DOMA).
As expected, the guidance confirms the IRS’ position that tax qualified plans must treat a marriage between individuals of the same sex as valid for Federal tax purposes if the marriage was validly entered in a jurisdiction that recognizes same-sex marriages, even if the married couple lives in a state that does not recognize same-sex marriages. The notice provides that this rule applies to the following qualification requirements:
- Providing a qualified joint and survivor annuity (QJSA) and a qualified pre-retirement survivor annuity (QPSA) and obtaining spousal consent to waive a QJSA or QPSA if the plan is subject to the QJSA/QPSA requirements;
- Payment of a deceased participant’s entire account balance to his or her surviving spouse by a 401(k) or other defined contribution plan that is exempt from the QJSA and QPSA rules;
- Alternative distribution provisions available to a surviving spouse under the required minimum distribution rules;
- Attribution rules that treat a spouse as owning shares owned by his or her spouse for purposes of determining if an employee is a key employee or a 5% owner;
- Attribution rules that prohibit the allocation or accrual of employer securities in an ESOP for the benefit of the spouse of the seller or the spouse of any individual who owns more than 25% of the employer securities;
- Attribution rules that prevent the acquisition of S corporation stock during a nonallocation year for the benefit of certain family members of a disqualified person ESOPs; and
- Payment to an alternate payee who is a spouse or former spouse of a participant and who is treated as a distributee under the QDRO distribution rules.
The guidance indicates that qualified plans must be administered consistent with the Windsor decision (and treat same-sex spouses as spouses for all purposes) as of June 26, 2013 (the date of the Windsor decision). Qualified plans may be retroactively amended to reflect the Windsor decision effective earlier than June 26, 2013, provided the amendment complies with the qualification requirements. Any such retroactive amendment may specify the purposes for which the plan will recognize same-sex spouses before June 26, 2013. The Notice warns, however, that retroactive amendments may trigger requirements that are difficult to implement retroactively (such as ownership and attribution rules) and may create unintended consequences.
As to whether a plan amendment is required to implement the changes made by the Windsor decision, the Notice indicates that it depends on the terms of each individual plan. If the plan is not contrary to the Windsor decision, a plan amendment may not be required. For example, if the plan merely refers to “spouses”, but does not limit spouses to opposite sex spouses or refer to section 3 of DOMA, a plan amendment may not be needed. Obviously, if the terms of a plan are inconsistent with the Windsor decision (e.g., if the plan limits spouses to opposite sex spouses), a plan amendment is required. The guidance also indicates that a clarifying amendment, even if not required, might be advisable depending on the circumstances. If a plan amendment is required to satisfy the effect of the Windsor decision, it must generally be adopted by December 31, 2014.