When the U.S. Supreme Court issued its ruling on same-sex marriages in United States v. Windsor, the Court left several questions unanswered regarding how qualified plans and other retirement plans should treat same-sex marriages. Chief among these was the issue of how same-sex couples married in one state should be treated if they reside in a state where their marriage is not recognized.
EXAMPLE: Two men are legally married in New York (a state that recognizes same-sex marriages). They move to Georgia (a state that does not recognize same-sex marriages) and one of them participates in a 401(k) plan sponsored by an employer headquartered in Georgia. Under the Windsor ruling alone, it was unclear whether they would be treated as married for federal tax purposes. Accordingly, it was unclear whether the retirement plan could treat them as married for plan purposes.
Fortunately, for retirement plan administrators, the U.S. Treasury Department recently issued Revenue Ruling 2013-17, which answers this crucial question. Specifically, the revenue ruling explains that couples will be treated as married for federal tax purposes if their marriage is legal in the state where it is performed, regardless of where the couple actually resides. This ruling is effective prospectively from September 16, 2013.
EXAMPLE: The same-sex couple described in the previous example would be treated as legally married for federal tax purposes. The IRS will determine their marital status based on the state where their marriage was performed. This also means that the 401(k) plan should treat them as spouses for all plan purposes.
This advisory will answer a few key questions that retirement plan administrators will face in light of this new guidance.
- What does this mean for my plan?
Since federal tax law applies to retirement plans, this means that starting on September 16, 2013, plan administrators should treat same-sex married couples as “married” and as “spouses” for retirement plan purposes. Plan administrators should treat same-sex married couples as spouses for plan purposes regardless of whether state law in the state where the couple lives or the state in which the employer is headquartered recognizes same-sex marriages.
- Do I need to amend my plan?
Not right now. Amendments may be required later, but the IRS intends to issue guidance on this in the future. The IRS anticipates that any such guidance will allow plans sufficient time to make any amendments to plan documents and any other necessary corrections. Because of this, we generally advise plan sponsors to wait until the IRS issues its forthcoming guidance before amending plan documents.
- Should I change my plan administration?
Most plans require participants to self-certify their marital status. Unless they have knowledge to the contrary, plan administrators can generally take participants at their word concerning their marital status. There is no need at this time to implement special procedures regarding same-sex couples. The burden generally falls on the participant to declare truthfully whether he or she is legally married.
Prior beneficiary designations may now be invalid. For example, consider a participant who named his son as beneficiary but is married to a same-sex spouse. That prior beneficiary designation would not have required spousal consent, but it is now invalid because the participant is married. Communication may be necessary with participants to assure that they are aware of the need to update their beneficiary designations, with spousal consent as applicable.
- What about past situations where we have denied a benefit to same-sex spouses? For example, what if a participant died a few months ago and his same-sex spouse applies for a distribution of benefits as a spouse?
We generally recommend waiting until the IRS issues further guidance on this issue. Revenue Ruling 2013-17 is prospective only and did not address the issue of retroactivity. However, we recognize some situations may require immediate action. Without guidance from the IRS, it is difficult to give recommendations in this advisory that would address all situations. If waiting is not an option, we recommend you seek legal assistance.
- If same-sex married couples are treated as married, what about domestic partnerships and civil unions?
The Windsor decision and the Revenue Ruling 2013-17 apply only to couples who are actually married. Nothing has changed regarding any other forms of cohabitation. Individuals in a civil union or domestic partnership (whether same-sex or opposite-sex) should generally be treated as unmarried.