What Changes Do You Need to Make to Your Retirement Plan as a Result of DOMA?
Published:
By Stacey Spencer, QKA | Manager, Employee Benefits Group and Tim Ayler, CPA | Partner, Team Member of the Employee Benefits Group
On April 4, 2014, the IRS issued Notice 2014-19 which responded to several questions lingering about how qualified retirement plans should apply the United States Supreme Court case State v. Windsor which stuck down part of the Defense of Marriage Act (DOMA). In short, the IRS has clarified that plans are required to treat same-sex spouses as married beginning on June 26, 2013, the date the Windsor decision was issued. Significantly, IRS pointed out that these rules apply even if the married same-sex couple lives in a state that does not recognize same-sex marriage.
Background Info
On June 26, 2013, the Supreme Court ruled in United Sates v. Windsor that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional. Section 3 defined marriage as a legal union between one man and one woman as husband and wife. Spouse also referred only to a married person of the opposite sex.
Effective September 16, 2013, the Department of Labor (DOL) and the IRS have both announced that “spouse” now refers to any individuals who are legally married under the laws of any state, D.C., U.S. Territory or foreign jurisdiction, regardless of sex and regardless of current domicile. In addition, the definition of “marriage” will not include same sex unions that are not marriages (such as civil unions, domestic partnerships or other similar relationships recognized under state laws). Therefore, marriages are recognized based on where the ceremony occurred, also referred to as the “place of celebration.” The changes apply for all Federal tax purposes, including the Federal tax rules that apply to qualified retirement plans under section 401(a).
Plan Sponsor Action Items:
For Greenwalt CPAs’ clients using our plan document, your plan document never defined spouse. Therefore, no amendment is required.
If your plan is not administered by Greenwalt CPAs, then you should review your retirement plan documents to determine whether any amendments are required related to the Windsor decision and IRS guidance. Generally, a plan document that includes a broad definition of “spouse” and does not provide any distinction between same-sex and opposite-sex spouses will not require an amendment. For example, an amendment may not be required if the plan defines “spouse” merely as a “legally married spouse” or “spouse under Federal law.” If, however, a plan document defines “spouse” as a “legally married spouse who is a member of the opposite sex,” a plan amendment (effective June 26, 2013) would generally be required. Likewise, if your plan documents use the terms “husband” and “wife” instead of “spouse,” you will need to amend them.
Documentation to support the legality of a participant’s marriage will remain the same, regardless of the sex of the spouse. It is important not to discriminate. If you require proof of marriage for “same sex” marriages, then you must also require proof for traditional marriages.
In summary, all qualified Plans must recognize same sex marriages for all Plan purposes effective June 26, 2013. This would include provisions applicable to beneficiary designation, death benefits, applicable spousal consent requirements regarding distributions and loans, rollovers, etc. Plan sponsors should review their administrative procedures to confirm that their plans have been recognizing “same sex” marriages since this date. Any necessary plan amendments can be prepared retroactively, but plans must operate in compliance from June 26, 2013.
If you would like assistance in reviewing your plan document or your procedures to assure compliance with the Windsor decision, please contact us.
Contact Information
Stacey Spencer, QKA | Manager, Employee Benefit Services Group | 317-260-4421 | sspencer@greenwaltcpas.com
Tim Ayler, CPA | Partner, Team Member Employee Benefit Services Group | 317-260-4401 | Tayler@greenwaltcpas.com