April 4, 2014
IRS Guidance Outlines Application of Windsor Same-Sex Marriage Decision to Retirement Plans
In Internal Revenue Service (IRS) Notice 2014-19, issued April 4, the U.S. Treasury Department set forth the rules for recognition of same-sex spouses in retirement plan administration, as required under the U.S. Supreme Court's decision in U.S. vs. Windsor, which struck down key sections of the Defense of Marriage Act. Very generally, the guidance does not require application of new spousal standards prior to June 26, 2013, but does permit optional retroactive application of Windsor prior to that date.
In light of the high court’s ruling in the Windsor case, retirement plans must recognize same-sex marriages for purposes of issuing survivor benefits, obtaining spousal consent, eligibility for joint and survivor annuities and other administrative functions.
Plans must also comply with the “state of celebration” standard established by the IRS under Revenue Ruling 2013-17, under which same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage.
Notice 2014-19 requires application of Windsor as of June 26, 2013 (the date of the decision), and application of the "state of celebration" approach as of September 16, 2013 (the effective date of Revenue Ruling 2013-17). Failure to recognize the same-sex spouse of a participant as a spouse before June 26, 2013, will not incur penalty or plan disqualification.
For the time period between June 26, 2013, and September 16, 2013, the rules are based on whether the marriage is recognized in the state in which the couple currently lives, but the plan can choose to apply the “state of celebration” approach prior to September 16. Failure to recognize a same-sex spouse according to the “state of celebration” standard prior to September 16, 2013, will likewise not incur penalty or plan disqualification.
The plan can also choose to apply Windsor prior to June 26, 2013, and can choose to only apply it for certain purposes (e.g., for purposes of qualified joint and survivor annuities and qualified pre-retirement annuities) as long as the amendment is nondiscriminatory and the amendment can specify it will only apply to annuity starting dates on or after a certain date.
Amendments for the required provisions (i.e., June 26, 2013, for application of Windsor and September 16, 2013, for application of the “state of celebration” approach) can be made regardless of whether the plan would otherwise be subject to limitations under Section 436 (because of underfunding) but any voluntary (optional) changes would be subject to the limitations.
The notice also provides guidance on whether an amendment will be necessary and provides various scenarios. If necessary, the deadline for amendments will be as follows:
"The deadline to adopt a plan amendment pursuant to this notice is the later of (i) the otherwise applicable deadline under section 5.05 of Revenue Procedure 2007-44 [which established the staggered remedial amendment period,] or its successor, or (ii) December 31, 2014. Moreover, in the case of a governmental plan, any amendment made pursuant to this notice 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."
The issuance of Notice 2014-19 follows prior IRS guidance under Windsor addressing payroll taxes and health savings plans, including:
- Notice 2013-61, guidance for employers and employees to make claims for refunds or adjustments of overpayments of payroll taxes with respect to certain benefits and remuneration provided to same-sex spouses; and
- Notice 2014-01, guidance on the rules governing cafeteria plans, Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs).
For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.