The June 26, 2013 U.S. Supreme Court decision in United States v. Windsor, ruling that the Defense of Marriage Act of 1996 (DOMA) was unconstitutional, left open many questions regarding its applicability to tax-qualified plans. The Internal Revenue Service (IRS) has now issued Notice 2014-19 on the retroactive application of the Windsor decision to tax-qualified retirement plans. Based on this recent guidance, all retirement plan sponsors should review their plan provisions to determine whether amendments will be required and, if so, will generally need to amend their plans to comply with the Windsor decision by December 31, 2014.
U.S. Supreme Court Ruling on DOMA
In Windsor v. United States, the U.S. Supreme Court addressed the constitutionality of Section 3 of DOMA, which defined "marriage" as a union between a man and a woman, and "spouse" as only a person of the opposite sex who is a husband or wife. In its landmark decision, the U.S. Supreme Court struck down Section 3 of DOMA as a violation of the Fifth Amendment. The DOMA definition of "marriage" and "spouse" applies to numerous federal laws, including the Internal Revenue Code, which contains numerous rules for tax-qualified retirement plans that apply to married participants (for example, the requirement that certain retirement plans provide a qualified joint and survivor annuity (QJSA) option, which can only be waived by a married participant with spousal consent).
Following the Windsor decision, on September 16, 2013, the IRS issued Revenue Ruling 2013-17, which clarified that for federal tax purposes, the terms "spouse," "husband," and "wife" include same-sex spouses if the individuals are lawfully married under state law, and the term "marriage" includes such a marriage between individuals of the same sex. This guidance also clarified that the IRS would recognize a marriage of same-sex individuals that was validly entered into under state law even if the married couple was domiciled in a state that does not recognize the validity of same-sex marriages. The guidance further provided that individuals who have entered into a registered domestic partnership, civil union, or similar formal relationship that is not denominated as a marriage under the laws of the jurisdiction in which it is entered into are not treated as married for federal tax purposes. Revenue Ruling 2013-17 applied prospectively but stated that the IRS would issue further guidance on the retroactive application of the Windsor decision to tax-qualified plans.
The IRS has now issued long-awaited guidance on the application of the Windsor decision to tax-qualified retirement plans in Notice 2014-19, which clarifies when such plans must reflect the outcome of the Windsor decision.
Timing of Plan Compliance with Windsor Decision
Notice 2014-19 clarifies that tax-qualified retirement plans must comply in operation with the Windsor decision by June 26, 2013. A retirement plan will not fail to be qualified merely because it did not recognize a participant's same-sex spouse as a spouse for retirement plan purposes before June 26, 2013. The Notice also clarifies that a retirement plan will not fail to be qualified merely because, prior to September 16, 2013, it only recognized the same-sex spouse of a participant if the parties were domiciled in a state that recognized same-sex marriage.
Notice 2014-19 states that a retirement plan will not lose its qualified status if it is amended to reflect the outcome of the Windsor decision for some or all purposes as of a date prior to June 26, 2013. The IRS guidance notes, however, that doing so may trigger requirements that are difficult to implement retroactively and may create unintended consequences.
Plan Amendments to Reflect Windsor Decision
Whether a retirement plan must be amended to reflect the outcome of the Windsor decision depends on the terms of each individual plan document. Plan sponsors should carefully review plan document provisions pertaining to married participants in order to assess whether plan amendments will be necessary. If a plan's terms are not inconsistent with the Windsor decision, e.g., using terms such as "spouse" or "legally married spouse," then no amendment would be required (though a plan must operate in accordance with the Windsor decision and related IRS guidance as of the dates set forth above). However, if a plan's terms define marriage by reference to Section 3 of DOMA or are otherwise inconsistent with the Windsor decision and related IRS guidance, plan amendments will be required. If a plan sponsor decided to operate its plan in accordance with the Windsor decision for a period prior to June 26, 2013, it must amend the plan to reflect such operations.
The deadline to adopt any such plan amendments to reflect the Windsor decision is the later of (i) the otherwise applicable deadline under Section 5.05 of Rev. Proc 2007-44 or its successor (which relates to the applicable deadline for interim and discretionary amendments), or (ii) December 31, 2014.