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Northwest OH Legal Blog

Tuesday, May 6, 2014

Internal Revenue Service Issues Guidance Addressing Retroactive Impact of Same-gender Marriage Ruling on Retirement Plans

On June 26, 2013, the United States Supreme Court, in a much anticipated opinion, United States v. Windsor, 570 U.S. 17 (2013), ruled that the federal Defense of Marriage Act (“DOMA”), which defines marriage as a union between a man and a woman for purposes of deciding who can receive a range of benefits under federal law, contravenes the United States Constitution.  The main argument of the DOMA opponents was that under DOMA, the rights of same-gender couples who are legally married under state law (in a state in which same-gender marriages are legal) to receive federal benefits are not recognized, and thus their right to equal protection of laws under the Fourteenth Amendment’s equal protection clause is violated.

Windsor’s Impact on Definition of “Spouse” under Federal Law.  The immediate impact of the Supreme Court’s Windsor decision was that the term “spouse,” when used in a federal law, must include same-gender spouses who are legally married in a state that recognizes same-gender marriages.  Employee benefit plans are extensively governed by a myriad of federal laws, including the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code (“Code”).  Under these federal laws, the definition of “spouse” is integral to important benefits that are conferred exclusively on spouses.

Initial Internal Revenue Service Guidance.  Following the issuance of the Supreme Court’s opinion in Windsor, plan administrators raised questions about Windsor’s application to retirement plans that are tax-qualified under the Code.  On August 29, 2013, the Internal Revenue Service (“IRS”), in response to such questions, issued IRS Revenue Ruling 2013-17.  Pursuant to IRS Revenue Ruling 2013-17, same-gender couples who are legally married in a domestic or foreign jurisdiction that recognizes their marriage must be treated as married for federal tax purposes, regardless of where they reside.  The ruling was effective as of September 16, 2013 and covered all federal tax provisions in which marriage is a factor, including employee benefits.  Thus, effective September 16, 2013, a tax-qualified retirement benefit plan was required to follow the “place of celebration” rule in determining the validity of a marriage.  Concurrently, the IRS issued Frequently Asked Questions (“FAQs”) for same-gender couples and updated FAQs for registered domestic partners and individuals in civil unions that reflect the guidance in IRS Revenue Ruling 2013-17.  The ruling specifically noted that the IRS would issue further guidance addressing any retroactive impact of Windsor on employee benefit plans.

Subsequent Internal Revenue Service Guidance.  Responding to the need for guidance on Windsor’s retroactive application to tax-qualified retirement plans, the IRS, on April 4, 2014, issued IRS Notice 2014-19.  This notice provides the following guidance concerning Windsor’s retroactive application to such plans:

1.     Tax-qualified retirement plans must recognize valid same-gender marriages for spousal consent elections, minimum survivor benefits, eligibility for joint and survivor annuities, and other protections afforded to eligible spouses under federal law.

2.     Tax-qualified retirement plans are not required to apply Windsor to employees with same-gender spouses prior to June 26, 2013.  If a plan does not wish to recognize same-gender spouses prior to that date, the IRS will not seek penalties or disqualification on that basis.  A plan may, however, be revised to reflect the Windsor decision for some, or all, purposes prior to June 26, 2013, as long as the plan continues to satisfy discrimination testing and all other tax-qualification requirements under the Code.

3.     Tax-qualified retirement plans are permitted to determine whether an employee has a same-gender spouse during the period between June 26, 2013 and September 16, 2013—before the IRS had issued guidance under Windsor—by reference to either the law in the jurisdiction where the marriage was celebrated or in the jurisdiction in which the couple lives.

Key Takeaways.  The general effect of the guidance in IRS Notice 2014-19 is to limit the retroactive application of Windsor to June 26, 2013, i.e., the date on which the United States Supreme Court issued its ruling.  However, plan sponsors still face some potential risks.  In particular, even though the guidance provides relief from IRS sanctions for a plan’s failure to recognize same-gender marriages prior to Windsor, or for using the law of the state of residence to determine whether a marriage will be recognized prior to September 16, 2013, the guidance would not necessarily preclude a same-gender spouse’s claim for a benefit with respect to a participant who died before that date.


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