On June 26, 2013, in United States v. Windsor (Windsor), the Supreme Court decided that section 3 of the Defense Of Marriage Act (DOMA) was unconstitutional. DOMA had limited “marriage” to opposite-gender couples for purposes of federal law. As result of this decision, the IRS has taken the general position that where a provision in the Internal Revenue Code (Code) refers to marriage, husband, wife, or husband and wife, the IRS will interpret the Code to include a valid same-gender marriage and the individuals of the same gender in that relationship. A same-gender marriage is valid if it was validly entered into in a State whose laws authorize the marriage of two individuals of the same gender even if the married couple is now domiciled in a State that does not recognize the validity of same-gender marriage. Therefore, employers and plans in States that do not currently recognize same-gender marriages may be required to recognize same-gender marriages performed in different States. “Marriage” does not include individuals (whether of the opposite gender or the same gender) who have entered into a registered domestic partnership, civil union or other similar, formal relationship under State law that is not treated as a “marriage” under the laws of the State.
More recently, in Notice 2014-19 (Notice), the IRS issued guidance on what sponsors of qualified retirement plans may need to do in order to maintain the tax-qualified status of their plans in light of Windsor. The Notice generally gives plan sponsors until the end of 2014 to make any necessary amendments to bring their plans into compliance. The Notice also clarifies that a plan will not be treated as having a qualification failure if, prior to September 16, 2013, it only recognized same-gender spouses of participants domiciled in a State that recognized same-gender marriage.
An amendment is required if your plan’s current terms do not agree with the way in which the plan is to operate in light of Windsor. Even if your plan does not currently define “spouse,” you may want to amend your plan in order to clarify exactly how you want to operate your plan with respect to same-gender spouses.
In the case of a governmental 401(a) plan, the deadline is 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. For many public agencies whose governing boards meet on a monthly basis, compliance is required by January 2015. For 403(b) plans and 457(b) plans, the plan should be amended as soon as possible. We recommend the following actions:
1. Review the administration of your plan, starting on June 26, 2013, and confirm that your plan has complied with the Windsor case and the IRS guidance. Once you have made this determination, document it.
2. If your plan has not complied with the Windsor case and the IRS guidance in operation, take appropriate actions under the IRS’s Employee Plans Compliance Resolution System to correct the administration of the plan.
3. Review your plan documents to determine if any of your plans contain a definition that is inconsistent with the Windsor case. If so, amend the plan by the deadline stated above (e.g., January 2015).
4. Even if your plan’s definition is consistent with IRS guidance (or the plan does not define “spouse” specifically), consider adopting a plan amendment to make clear the effective date of the change and the application of these requirements. It is easier to administer new plan rules and requirements that are expressly spelled out.
5. Review and update your plan summary and your employee communications as appropriate.
Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at firstname.lastname@example.org or (916) 329-3685.