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IRS Releases Guidance on Effective Date for Treatment of Same-Sex Spouses in Qualified Retirement Plans

The Treasury Department recently issued Notice 2014-19 and associated FAQ guidance regarding the status of same-sex spouses under qualified retirement plans. The Notice states that, for tax qualification purposes, a plan is not required to recognize a valid marriage of a same-sex couple prior to June 26, 2013, i.e., the date the Supreme Court's decision in U.S. v. Windsor invalidated certain provisions of the federal Defense of Marriage Act.

Moreover, pursuant to IRS Revenue Ruling 2013-17, a plan need not recognize a valid marriage of a same-sex couple prior to September 16, 2013, if the couple resides in a state that does not recognize same-sex marriage.

Plan Amendment Deadlines

The Notice further states that calendar year plans containing terms that are inconsistent with the Windsor ruling or with Revenue Ruling 2013-17 must generally be amended by December 31, 2014. In separate guidance (Notice 2014-37), the IRS clarified that a safe harbor 401(k) plan may adopt an otherwise impermissible mid-year amendment in order to comply with this requirement.

Analysis and Next Steps

The Windsor case and Revenue Ruling 2013-17 have multiple applications to qualified retirement plans. For example, because of Windsor, a plan participant's same-sex spouse is the automatic beneficiary for purposes of the "qualified joint and survivor annuity" rules and therefore must consent to the participant's designation of another death beneficiary.

The new guidance clarifies that a plan that failed, prior to the dates listed above, to treat a same-sex spouse as the automatic death beneficiary is not in violation of the IRS tax qualification requirements. However, a plan must treat the same-sex spouse as the automatic death beneficiary of a participant who dies after the dates listed above, regardless of whether an alternate beneficiary designation has been filed (unless the same-sex spouse consented to the alternate beneficiary designation).

Department of Labor Position

Note, however, that the Notice applies only to the requirements of the Internal Revenue Code, and not Title I of ERISA. The Department of Labor has not yet issued guidance on the retroactive application, if any, of theWindsor decision under Title I of ERISA. In fact, one court has already applied the Windsor decision retroactively in a suit for benefits. See "First Post-Supreme Court DOMA Case Rules in Favor of Same-Sex Spouse" from August 13, 2013. Therefore, maintaining the qualified status of a plan under the new guidance may not be sufficient to protect the plan against a same-sex spouse's claim for benefits arising before the IRS' application of these new rules.

Employers should begin reviewing and amending their qualified retirement plans where necessary to account for same-sex spouses. Plans should also update their beneficiary designation and benefit election forms.

© 2019 Schiff Hardin LLP

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About this Author

Lauralyn Bengel, Schiff Hardin, Business Attorney, executive compensation lawyer, employee benefits legal counsel
Partner

As a member of Schiff Hardin’s Executive Compensation and Employee Benefits group, Lauralyn Bengel is involved in all areas of establishing and maintaining qualified retirement and non-qualified employee benefit plans and arrangements, for both public and closely held companies.

Lauralyn provides her clients with strategically sound counsel on selecting, designing, implementing and managing employee benefit plans, arrangements and transactions that achieve their particular objectives. She is a trusted advisor to clients who value her legal...

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William B. Duff, Schiff Hardin Law Firm, Business Attorney
Partner

William B. Duff practices primarily in the areas of employee benefits, including ERISA, executive compensation, employment law and related tax issues. He also advises on matters of corporate governance, particularly with respect to nonprofit organizations. Mr. Duff serves as leader of Schiff Hardin's Employee Benefits and Executive Compensation Group.

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Katherine J. Levy, Schiff Hardin Law Firm, Estate Planning Attorney
Partner

Katherine J. Levy concentrates her practice in:

  • Estate planning

  • Trust and estate administration

  • Advice to non-profit entities, including with respect to organizational structure, tax-exempt status, state registrations, analyses of tax and employee benefit issues, planned giving and corporate governance

  • Business succession planning

  • Tax planning, including the structuring of limited partnerships, joint ventures, limited liability companies and S corporations

  • Contested tax...

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