November 26, 2022

Volume XII, Number 330


November 23, 2022

Subscribe to Latest Legal News and Analysis

Developments in Spousal Rights under Employee Benefit Plans (Part I)

The US Internal Revenue Service (IRS) recently issued Notice 2015-86 (Notice) to provide guidance on the application of federal tax law with respect to same-sex spouses for qualified retirement plans and health and welfare plans in light of the US Supreme Court’s decision in Obergefell vs. Hodges, 576 U.S. ___, 133 S. Ct. 2675 (2015). In Obergefell, the Court ruled that the US Constitution requires all states to issue marriage licenses to same-gender couples on the same terms and conditions that apply to opposite-gender spouses, and to recognize legal same-gender marriages entered into in other states.

This post summarizes the Notice’s relevant guidance related to qualified retirement plans (Part II will address the guidance related to health and welfare plans).

Qualified Retirement Plans: Guidance on Discretionary Amendments to Expand Benefits to the Same-Sex Spouses of Plan Participants

  • Because sponsors of qualified retirement plans were already required to adopt amendments to conform their plans to the holdings of United States v. Windsor and Notice 2014-19, sponsors are not required to make any additional changes as a result of Obergefell.

  • However, sponsors of qualified retirement plans are allowed (but not required) to adopt discretionary amendments to provide new rights and benefits to participants with same-sex spouses. For example, plan sponsors may amend their plans to permit participants with same-sex spouses who were already in pay status and receiving single life annuities prior to Windsor to change their benefit election to qualified joint and survivor annuities.

  • Prior IRS guidance required qualified retirement plans to recognize same-sex marriage prospectively as of June 23, 2013. However, plan sponsors may elect to amend their qualified retirement plans to recognize same-sex marriage on a retroactive basis in accordance with Notice 2014-19 without losing their qualified status.

  • Sponsors of single-employer defined benefit plans may not adopt discretionary amendments to respond to Obergefell or the Notice unless the plan’s adjusted funding target attainment percentage is sufficient or the plan sponsor makes the additional contribution specified under section 436(c) of the Internal Revenue Code.

  • The deadline for sponsors to adopt discretionary amendments contemplated by Obergefell and the Notice is generally the end of the plan year in which the amendment is operationally effective. However, for governmental plans, the deadline to adopt these discretionary amendments may be later (i.e., the last day of the next regular legislative session beginning after the amendment is operationally effective in which the governing body with the authority to amend the plan can consider a plan amendment under the laws and procedures applicable to the governing body’s deliberations).

Copyright © 2022 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume VI, Number 32

About this Author

Amy Pocino Kelly, Morgan Lewis, Tax Attorney

Amy Pocino Kelly provides strategic, day-to-day guidance on employee benefits plan matters to plan sponsors, including public and private companies, tax-exempt organizations, and governmental employers. She counsels these clients on the design, governance, operation, and compliance of qualified and nonqualified retirement plans, equity and executive compensation arrangements, and welfare benefit plans. Amy also represents plan sponsors in audit and correction matters before the US Department of Labor (DOL) and the Internal Revenue Service (IRS).

Sariyah Buchanan, Employee benefits plans attorney, Morgan Lewis

Sariyah S. Buchanan ensures that benefit plans and compensation arrangements comply with US state and federal laws including ERISA and the Internal Revenue Code. Sariyah drafts employment agreements, equity plans, grant agreements, and proxy materials, and prepares custodial agreements, disclosures, and election and beneficiary designation forms for IRA custodians. She assists clients in corporate transactions and represents clients before the IRS, PBGC, and DOL. Sariyah’s clients include startup and Fortune 500 clients in financial services, insurance, real estate,...