IRS provides guidance on amending plans to comply with Windsor decision

The IRS has issued a notice that provides guidance on how qualified plans should treat the marriages of same-sex couples following the Supreme Court’s decision in United States v. Windsor. The guidance, provided in a question-and-answer format, discusses how Windsor affects the tax law requirements under which the marital status of the participants is relevant to the payment of benefits and describes when retirement plans must be amended to comply with Windsor.

The Windsor decision invalidated Section 3 of the 1996 Defense of Marriage Act (DOMA), which had provided that, in interpreting any federal law, a “marriage” was limited to a “legal union of one man and one woman as husband and wife” and a “spouse” was only “a person of the opposite sex who is a husband or a wife.” The IRS reflected the Windsor holding by issuing the Rev. Rul. 2013-17, which treated same-sex couples as married for all federal tax purposes where marriage is a factor, if the couple is lawfully married under the laws of one of the 50 states, the District of Columbia, a U.S. territory or a foreign jurisdiction. The IRS has now provided additional guidance on how qualified retirement plans should treat the marriages of same-sex couples.

General rules

Under the new guidance, qualified retirement plan operations must reflect the outcome of Windsor as of June 26, 2013. However, a plan will not be out of compliance with Code Sec. 401(a)(1) merely because it did not recognize the same-sex spouse of a participant as a spouse before June 26, 2013. Nor will a plan be treated as failing to meet the requirements of Code Sec. 401(a)(1) merely because, prior to September 16, 2013, it recognized the same-sex spouse of a participant only if the participant was domiciled in a state that recognized same-sex marriages.

A qualified retirement plan will not lose its qualified status due to an amendment 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 applicable qualification requirements. The IRS noted, however, that recognizing same-sex spouses for all purposes under a plan 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.

Provided that applicable qualification requirements are otherwise satisfied, a plan sponsor’s choice of a date before June 26, 2013, and the purposes for which the plan amendments recognize same-sex spouses before June 26, 2013, do not affect the qualified status of the plan. For example, for the period before June 26, 2013, a plan sponsor may choose to amend its plan to reflect the outcome of Windsor solely with respect to the qualified joint and survivor annuity and qualified pre-retirement survivor annuity requirements of Code Sec. 401(a)(11) and, for those purposes, solely with respect to participants with annuity starting dates or dates of death on or after a specified date.

Required plan amendments

If a plan’s terms define a marital relationship by reference to section 3 of DOMA or are otherwise inconsistent with the outcome of Windsor or the IRS guidance in Rev. Rul. 2013-17 or this notice, then an amendment is required to bring the plan into compliance. However, if the terms are not inconsistent with the outcome of Windsor and the IRS guidance (for example, the term “spouse,” “legally married spouse” or “spouse under federal law” is used in the plan without any distinction between a same-sex spouse and an opposite-sex spouse), an amendment generally would not be required. However, if no amendment is made, the plan nonetheless must be operated in accordance with the Windsor ruling and the IRS guidance.
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. The deadline to adopt a plan amendment pursuant to this guidance is the later of: (1) the otherwise applicable deadline under section 5.05 of Rev. Proc. 2007-44 or its successor, or (2) December 31, 2014. In the case of a governmental plan, any amendment made to implement these rules 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 notice contains a special rule concerning the application of Windsor to the funding rules of Code Sec. 436(c). In general, under Code Sec. 436(c), an amendment to a single-employer defined benefit plan that increases the liabilities of the plan cannot take effect unless the plan’s adjusted funding target attainment percentage is sufficient or the employer makes the additional contribution specified under Code Sec. 436(c)(2). However, a plan amendment that is required for compliance purposes and that takes effect on June 26, 2013, is not treated as an amendment to which Code Sec. 436(c) applies. In contrast, Code Sec. 436(c) does apply for a plan amendment that incorporates Windsor for periods prior to that date.

Source: IRS Notice 2014-19.

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