On July 26, 2013, in United States v. Windsor, the United States Supreme Court held that the prohibition against recognizing a same-sex spouse as a spouse for federal law purposes, including for purposes of the Internal Revenue Code (the “Code”), under Section 3 of the Defense of Marriage Act (“DOMA”) was unconstitutional.
Subsequently, on September 16, 2013, the Internal Revenue Service (“IRS”) held in Rev. Rul. 2013-17 that for plan qualification purposes a qualified retirement plan under Code Section 401(a), which includes 401(k) and pension plans, must treat a same-sex spouse who is lawfully married to a plan participant in a US state or territory or a foreign jurisdiction that authorizes same-sex marriages as a spouse for purposes of any requirements in the Code related to the treatment of a spouse. The ruling was limited to operational compliance. Specifically, the ruling provided that on and after September 16, 2013, a plan must be in operational compliance with Rev. Rul. 2013-17 and recognize a same-sex spouse as a spouse for purposes of the plan regardless of how the plan may read. Thus, after that date the same-sex spouse of a participant has all the same spousal protections as an opposite-sex spouse. Failure to recognize a same-sex spouse as a spouse after September 16, 2013 is a qualification failure under this ruling.
- Example: If an employee who resides in Texas travels to a state that permits same-sex marriages, such as New York, and enters into a lawful marriage with his or her same-sex partner on October 1, 2013, and returns to Texas, that employee is married and has a spouse for purposes of his or her employer’s 401(k) plan. This is regardless of the fact that Texas does not recognize that same-sex marriage.
Note that Rev. Rul. 2013-17 makes clear that a registered domestic partnership, civil union, or other similar formal relationship entered into under state law that is not denominated as a marriage under the laws of that state, is not treated as a “marriage” and the employee’s partner, whether same-sex or opposite-sex, is not a “spouse” for plan purposes.
The ruling did not address when a plan amendment addressing same-sex marriage would be required. The ruling also left open the possibility that the IRS would ultimately require a plan amendment and operational compliance with the Windsor decision to be effective prior to September 16, 2013
Document Compliance is Generally Required by December 31, 2014 - But Only if the Plan is Inconsistent with Windsor and IRS Rulings
The IRS answered these open issues, including the plan amendment question, on April 4, 2014 in Notice 2014-19.
Whether a plan must be amended will turn on the plan’s terms. If a plan defines a marital relationship by reference to Section 3 of DOMA or is otherwise inconsistent with the holding of Windsor, Rev. Rul. 2013-17 or Notice 2014-19, then the plan will need to be amended to remove that inconsistency. However, if a plan’s terms are not inconsistent with Windsor, and the IRS rulings, an amendment generally will not be required.
- Example: If a plan does not define the term “spouse” or merely defines a “spouse” as a person legally or lawfully married to a plan participant, the plan should not need to be amended.
The IRS did note that, while not required, “a clarifying amendment may be useful for purposes of plan administration.”
Notice 2014-19 provides that, if a Windsor-conforming amendment is required, the deadline to adopt such amendment is December 31, 2014 (or, if later, the “interim amendment” deadline for certain non-calendar plan year plans). For a governmental plan, the amendment must be adopted before the close of the first regular legislative session of the legislative body with the authority to amend the plan that ends after December 31, 2014.
Generally, the effective date of the plan amendment must be June 26, 2013, the date of the Windsor decision. As a result, the IRS is requiring this earlier date for operational compliance rather than September 16, 2013 as set forth in the earlier ruling. However, a plan will not be treated as having a qualification failure if, prior to September 16, 2013, it only recognized same-sex spouses of participants domiciled in a state that recognized same-sex marriages (“Delayed Effective Date”).
- Example: Assume that the Texas couple in the earlier example was married in New York on February 1, 2013 instead of October 1, 2013. Since Texas did not recognize same-sex marriages during the period between June 26, 2013 and September 15, 2013, the employee may be treated by his or her employer’s 401(k) plan as not married during that period. However, effective as of September 16, 2013, the employee would be married for plan purposes. If the employee above resided in New York at all times, the Delayed Effective Date does not apply and the employee must be treated as married for plan purposes as of June 26, 2013, even if the employee is working in Texas or another state that did not recognize same-sex marriages prior to September 16, 2013.
Also, subject to certain technical issues discussed in Notice 2014-19, a plan sponsor may elect (but is not required) to treat a same-sex spouse as a spouse for periods before the otherwise applicable compliance date of June 26, 2013 or September 16, 2013 (assuming that an earlier effective date is consistent with plan operations).
What Should Plan Sponsors be Doing Now?
It is recommended that plan sponsors consider the impact of Windsor and the IRS rulings on their plans sooner rather than later, which should include the following:
- First, the plan sponsor should confirm that it has operationally complied with the requirements of the Windsor decision and the IRS rulings addressing same-sex spouses since June 26, 2013 (or, where appropriate and applicable, the Delayed Effective Date).
- Second, to the extent it hasn’t done so already, the plan sponsor should review its qualified plans to determine whether any of the plans have a definition of spouse that is inconsistent with Windsor and the IRS rulings. If so, the plan will need to be amended by December 31, 2014 (or, if later, the interim amendment due date for certain non-calendar year plans). If the plan is a prototype or volume submitter, the plan sponsor should check with the plan document sponsor to confirm what, if any, action is needed.
- Third, when drafting the plan amendment, the plan sponsor will need to determine whether the plan relied upon the Delayed Effective Date, where applicable, and if so, should reflect such reliance in the amendment.
- Fourth, even if the plan’s definition of spouse is compliant, the plan sponsor should consider whether it will still want to amend the definition to make clear the effective date of the qualification change, in particular if it is using the Delayed Effective Date.
Finally, it should be noted that the IRS rulings on same-sex marriage are limited to plan qualification under the Code, and actions by same-sex spouses or couples for qualified plan benefits for periods before the Windsor decision are currently pending in several courts.