On April 4, 2014, the IRS confirmed in Notice 2014-19 that, for purposes of retirement plan tax qualification under Internal Revenue Code Section 401(a), such plans, including 401(k) plans, are not required to apply the Windsor Decision retroactively to periods before June 26, 2013 (the date of the Windsor Decision) and plans that do voluntarily recognized same-sex marriages before June 26, 2013 are permitted to do so without jeopardizing the plans' tax qualified status. In the Windsor Decision, the U.S. Supreme Court invalidated Section 3 of the 1996 Defense of Marriage Act (DOMA) that barred same-sex couples from being treated as married for purposes of federal law. The IRS also clarified when plan amendments are required and how to implement corrective actions.
At a minimum, a tax-qualified retirement plan must recognize a same-sex spouse of a participant as a spouse under the plan effective from:
- June 26, 2013, if the same-sex couple was married on June 26, 2013 and resided in a jurisdiction that recognizes same-sex marriages; or
- September 16, 2013, if the same-sex couple was married on September 16, 2013 regardless of where the participant resides, and the marriage occurred in a jurisdiction that authorizes same-sex marriage.
According to the IRS guidance, effective June 26, 2013, same-sex couples who marry in a jurisdiction that permits same-sex marriages are legally married for qualified retirement plan purposes, even if the couple resides in a state that does not recognize same-sex marriages. Plans could voluntarily recognize same-sex marriages prior to June 26, 2013, but were not required to do so. Notwithstanding the foregoing, a plan will not be disqualified if for the period of June 26, 2013 to September 16, 2013, the plan treated a participant's same-sex spouse as a spouse under the plan only if the participant lived in a jurisdiction which recognizes same-sex marriage (i.e. if the plan used the place of domicile to determine the validity of the marriage rather than the place of celebration). On and after September 16, 2013, however, the plan must determine the validity of a participant's same-sex marriage based on the place of celebration.
From an operational standpoint, this means a same-sex spouse of a participant must, from the applicable effective date, be treated as spouse under the plan for all purposes, including without limitation, the following:
- Participation in, calculation of benefits under, and waivers of Qualified Joint & Survivor Annuities (QJSA) and Qualified Pre-Retirement Annuities (QPSA);
- Qualified defined contribution distributions, default beneficiary designations, minimum distribution rules and rollovers;
- Provision and administration of spousal consent rights to participant plan loans;
- Application of hardship distribution rules for payment of a spouse's medical bills, tuition, or funeral expenses;
- Administration of Qualified Domestic Relations Orders under the plan;
- Constructive stock ownership and stock attribution rules (where one spouse is treated as owning shares owned by the other spouse) for purposes of determining whether corporations are members of a control group under IRC Code Sections 414(b) and 1563(e)(5); whether an employee is a 5% owner; or whether an employee is a key employee;
- Applying allocation and accrual limits under Employee Stock Ownership Plans (ESOPs).
Plan amendments are only required if:
- the plan voluntarily applies the Windsor Decision before June 26, 2013, in which case the amendment must specify the date and manner to which the rules will be applied and the amendment must be made by the later of December 31, 2014 or the end of the plan year that includes June 26, 2013; or
- the plan terms conflict with the IRS rules on same-sex marriage (e.g. the plan defines spouse by reference to DOMA rule or as the legal union of a "man and a woman"), in which case the amendment must be adopted by the later of December 31, 2014 or the plan's otherwise applicable 2013 remedial amendment period.
The IRS has indicated that the guidance generally applies to 403(b) plans as well as 401(k) and other qualified retirement plans, but that amendments required to a 403(b) governmental plan need not 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.
For operational plan errors since June 26, 2013, the IRS has posted Q&As on its website [click here] which indicate that principles similar to those in the Employee Plans Compliance Resolution System (EPCRS) should be used to remedy operational errors such as spousal consent failures.