​New Guidance on United States v. Windsor May Require Plan Amendments and Operational Changes

The Internal Revenue Service (IRS) recently issued a new notice regarding retroactive retirement plan implications of the Supreme Court's ruling in U.S. v. Windsor, which held that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional. The IRS previously released guidance providing that same-sex couples legally married in a jurisdiction with laws authorizing same-sex marriage will be treated as married for federal tax purposes, regardless of whether the couple resides in a state where same-sex marriage is recognized. The latest notice, Notice 2014-19, clarifies that, effective as of June 26, 2013, retirement plans must be administered in a manner that reflects the Windsor ruling. However, plans are not required to retroactively recognize same-sex spouses prior to that date.

There are two areas of compliance that plan sponsors should consider with respect to the Windsor decision. First, a plan amendment may be required, depending on the language currently in the plan. If the plan can be operated in compliance with Windsor and the related IRS guidance without changing its language, no plan amendment is required. However, if a plan defines "spouse" by referencing DOMA or opposite-sex spouses, the plan will require an amendment. Some plan sponsors might consider adopting an amendment to clarify that qualifying same-sex spouses are covered under the plan. Calendar year plans must be amended by December 31, 2014, and fiscal year plans may have additional time to adopt amendments. In addition to amending plan language, plans must have been operated in accordance with the Windsor decision since June 26, 2013. This requires plan sponsors to treat same-sex spouses of participants as spouses for all required purposes under the plan, including survivor benefits, spousal consents, benefit required beginning dates, rollovers, loans, hardship distributions, and qualified domestic relations orders. If a plan did not fully comply with the Windsor decision and the related IRS guidance, a correctional filing may be required.

Plan sponsors are encouraged to review plan documents and plan operations to ensure that plans are in full compliance with Windsor and the related IRS guidance. Plan sponsors may also wish to communicate with participants about the implementation of the Windsor decision, to encourage participants to review their beneficiary designations and ensure they are up to date. For example, non-spouse beneficiary designations by a participant who has a same-sex spouse became invalid on June 26, 2013, in the absence of spousal consent to the designation.