Sep 2, 201410:20 AMTaking Stock
with Nathan Brinkman
How do federal marriage-equality rulings affect retirement plans?
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Spouses of employer-sponsored retirement plan participants have certain rights when it comes to the plans. Because of this, the legal definition of “spouse” is very important to both plan sponsors and plan participants in understanding how a retirement plan works.
On June 26, 2013, in United States v. Windsor, the U.S. Supreme Court struck down as unconstitutional Section 3 of the 1996 Defense of Marriage Act (DOMA). Section 3 of DOMA stated that the definition of marriage was limited to the union of one man and one woman. The Windsor decision means that federal law recognizes same-sex couples married under state law; same-sex couples are now able to receive federal benefits and protections that were previously afforded only to opposite-sex married couples. The decision does not, however, require individual states to recognize same-sex marriages.
Pursuant to the Windsor ruling, the Internal Revenue Service (IRS) and the Department of Labor released guidance stating that same-sex couples married in a state where same-sex marriage is legal (“state of celebration”) are recognized under federal law for tax and employee-benefit purposes. What this means for qualified retirement plans is that spousal plan provisions are extended to same-sex spouses, even in states where same-sex marriages are not recognized, provided the marriage took place in a state that recognized same-sex marriage. In April of this year, the IRS issued further guidance to help retirement plan sponsors determine when the law officially applies (i.e., answering questions surrounding retroactivity) and whether plan documents need to be amended.
Employers will want to take note of a few dates:
- June 26, 2013: Plans needed to recognize same-sex spouses of participants as of this date to reflect the Windsor decision.
- Sept. 16, 2013: This is the first applicable date when the state of celebration rule had to be observed. The period between June 26 and Sept. 16, 2013, was considered transitional — employers that recognized same-sex married couples only in cases where the participant was domiciled in a state that recognized same-sex marriages were not treated as failing to meet the requirements.
- The later of Dec. 31, 2014, or the end of the plan’s normal amendment period: Any plan documents that currently have language that is not consistent with the Windsor decision (e.g., any documents that reference the definition of marriage in Section 3 of DOMA, specify recognition based on state of domicile rather than celebration, or are inconsistent with Windsor in any way) must be amended to comply with current law.
Note that not all plans will need amendments — those whose language is neutral enough to be consistent with Windsor will be in compliance, provided they operate in accordance with the new law as of June 26, 2013. In addition, employers may choose to adopt amendments recognizing same-sex marriages prior to June 26, 2013; however, the IRS cautions this may result in complications and “may trigger requirements that are difficult to implement retroactively ... and may create unintended consequences.”