On April 4, 2014, the Internal Revenue Service released IRS Notice 2014-19, which provides additional guidance on recognition of same-sex spouses in qualified retirement plans.
The Notice is good news for the benefits community because it provides further guidance and implementing changes and affirms that plans are not required to apply the U.S. Supreme Court's decision in U.S. v. Windsor* on a retroactive basis. However, the Notice provides that plans with terms that are inconsistent with the Windsor decision generally must be amended appropriately by December 31, 2014.
The IRS previously issued guidance on the effect of the Windsor decision last year in Rev. Rul. 2013-17, which provided that, for federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law. More than 200 code provisions and treasury regulations relating to the internal revenue laws include the terms “spouse,” “marriage” (and derivatives thereof, such as “marries” and “married”), “husband and wife,” “husband,” and “wife.”
IRS Notice 2014-19 only applies to qualified retirement plans. However, non-qualified plans, employment, change in control, severance agreements, and stock incentive plans and award agreements often include the term “spouse” or a similar reference. Therefore, companies may need to amend some of these.
Notice 2014-19 requires that plans apply Windsor as of June 26, 2013 (the date of the decision) and apply the “state of celebration” approach as of September 16, 2013 (the effective date of Revenue Ruling 2013-17). A plan that does not recognize same-sex marriages prior to those dates will not incur a penalty or risk plan disqualification.