The very day after we posted about the IRS’s delay in issuing guidance on the application of the Windsor decision (and guidance previously provided by the IRS under Rev. Rul. 2013-17) to qualified retirement plans the IRS issued Notice 2014-19 (the “Notice”) addressing those very issues. The brief seven page Notice took the form of a Q&A and weighed in on many of the issues facing plan sponsors:
- The Basics – The Notice reconfirms the basic principle (which arguably was not questioned by anyone at this stage of the game) that any retirement plan qualification rule that applies because a participant is married must be applied with respect to a participant who is married to an individual of the same sex. The Notice provides the example of a participant in a plan subject to the rules of IRC 401(a)(11) who is married to a same-sex spouse and notes that such participant cannot waive a qualified joint and several annuity without obtaining his or her same-sex spouses consent as required by IRC 417.
- Retroactive Application of Windsor – Moving on to the “meaty” questions, the IRS indicated that qualified retirement plans are required to reflect the outcome of Windsor as of June 26, 2013. This effective date may come as a surprise to some who expected September 16, 2013 to be the magic date given the effective date contained in Notice 2013-17. However, it is a welcome development to others who worried that a retroactive effective date preceding the Windsor decision might be forthcoming.
Qualified status of a plan will not be impacted merely because it did not recognize the same-sex spouse of a participant as a spouse before June 26, 2013. Additionally, a plan may (permissively) be amended to reflect the outcome of Windsor for some or all purposes as of a date prior to June 26, 2013, if the amendment complies with the applicable qualification requirements (e.g., the discrimination rules under IRC 401(a)(4)). For example, a plan could apply only the QJSA and QPSA requirements to same sex spouses before June 26, 2013 solely with respect to participants with annuity starting dates or dates of death on or after a specified date. However, as the IRS warns, amending a plan retroactively to a date prior to June 26, 2013 may trigger requirements that are difficult to implement retroactively (such as the ownership attribution rules) and may create unintended consequences.
- Plans That Must be Amended – If a qualified plan defines a marital relationship by reference to Section 3 of DOMA (or is otherwise inconsistent with Windsor, Rev. Rul. 2013-17 or the Notice), then the Notice provides that an amendment to such plan to reflect all three sources is required. However, if a plan’s terms are not inconsistent with these sources (e.g., the plan’s definition is simply “spouse,” “legally married spouse” or “spouse under Federal law” without any distinction between a same-sex spouse and an opposite-sex spouse), an amendment is generally not required – although may still be helpful for clarification. Finally, if a plan sponsor chooses to apply the rules with respect to married participants in qualified retirement plans in a manner that reflects the outcome of Windsor for a period before June 26, 2013, an amendment to the plan that specifies the date as of which (and the purposes for which) the rules are applied in this manner is required. In the event the plan is amended, a summary of material modifications must be provided to inform plan participants of the change. Even if a plan amendment is not required, a plan sponsor may want to provide a communication to educate participants about the right of same-sex spouses under the plan to facilitate participant planning and minimize potential costly controversy.
- Due Date for Plan Amendments – Generally, a plan sponsor who has not adopted a plan amendment in line with the Notice already will have through at least December 31, 2014 (or the applicable deadline under Rev. Proc. 2007-44) to adopt such an amendment, with additional guidance provided for governmental plans. Rev. Proc. 2007-44 provides, in relevant part, that when there are changes to the plan qualification requirements that affect provisions of the written plan document, the adoption of an interim amendment generally is required by the later of (1) the end of the plan year in which the change is first effective or (2) the due date of the employer’s tax return for the tax year that includes the date the change is first effective.
- Special IRC 436(c) Rule – For purposes of IRC 436(c), regarding limitations on single-employer plan amendments increasing liability for benefits, the Notice provides a special rule for a plan amendment consistent with the Notice that takes effect on June 26, 2013 and provides that such amendment is not treated as an amendment to which IRC 436(c) applies. However, this special rule does not apply to an amendment that reflects the outcome of Windsor for a period before June 26, 2013.