On June 26, 2013, when the Supreme Court determined that Section 3 of the federal Defense of Marriage Act (DOMA) was unconstitutional, the tax and benefit plan implications were unclear. Later, in Revenue Ruling 2013-17, the IRS ruled it would recognize same sex marriages performed in states that recognize same sex marriage—even if the spouses lived in a state that didn’t recognize same sex marriages. But that ruling left many questions unanswered about the impact of United States v. Windsor on the tax rules that affect employee benefit plans. On April 4, the IRS issued Notice 2014-9, which answers many of these questions. Notice 2014-9 provides more clarity on issues including the following:
- Plans May Need to be Amended to Conform with Windsor and IRS Rulings. Plan documents must use language consistent with Windsor and the rulings. Plans must also operate in a manner consistent with these rules. Plans that contain inconsistent language must be amended. This amendment will generally be required by the later of December 31, 2014 or, the due date of the employer’s tax return for the year in which the change first became effective.
- Plans Need Not Recognize Same Sex Marriages Prior to June 26, 2013. However, plans may recognize same sex marriages before that time. Such recognition is permissible even for limited purposes and limited time periods prior to June 26, 2013. For example, for the limited purpose of providing certain survivorship rights, plans may recognize the Windsor outcome effective January 1, 2013.
What Should Employers and Plan Participants Do Now?
- Employers should promptly review their plan documents to determine whether any plan provisions must be changed. Employers should also determine whether any other changes to their plan documents (even if not required) should be made.
- Employers should also determine whether the new definition of spouse may impact plan compliance testing. For example, a same sex spouse will be treated as owning stock owned by the other spouse for purposes of the rules that determine whether a corporation is part of a controlled group. Compliance with these rules is mandatory for qualified retirement plans. Therefore, it is important to determine whether the new definition will impact a company’s compliance testing or other aspects of plan operations.
- Participants should review their beneficiary designations to confirm that designations will remain effective in light of the new definition—and, employers should consider advising participants to review their beneficiary designations. For example, certain plans may require a participant’s spouse to consent to a beneficiary designation. If a participant’s spouse never consents to the beneficiary designation, the designation may be invalid.