On June 26, 2013, the Supreme Court issued its landmark Windsor decision, invalidating Section 3 of the Defense of Marriage Act (DOMA). Effectively the decision required federal law, including federal laws relating to retirement plans, to recognize the validity of same gender marriages that were valid under state law.
Effective September 16, 2013, the IRS ruled, in Rev. Rul. 2013-17, that for tax purposes the Windsor rule applied to a couple whose marriage was valid in the state or jurisdiction where they were married (the state of celebration), without regard to the laws of the state where the couple then resided. The Revenue Ruling was effective September 16, 2013 and promised future guidance with regard to amendment deadlines and the retroactive effect of the Windsor decision for retirement plans.
The IRS has just released Notice 2014-19 to provide that promised guidance. There is also an additional set of FAQs. This is the second of a four part series of Technical Updates dealing with the new guidance:
1. Retroactive effect
2. Amendment need and deadlines
3. Compliance notes from the FAQs
4. Effect on 403(b) plans
We will also discuss the new guidance and put it into perspective with examples and practical suggestions in a special Web seminar on Thursday, April 17, Same Gender Marriage: Retroactivity: Plan Amendments.
In Notice 2014-19, the IRS discusses which plans must be amended to comply with Windsor and the deadline to adopt the amendments. In order to determine what amendments, if any are needed, one must know the existing plan terms and how the plan has been operated.
Early adopters. Some employers may wish recognize same gender marriage, at least for some purposes, prior to June 26, 2013, the date of the Windsor decision. Those employers must amend their plans to accomplish this. The amendment should specify an effective date and should list the specific purposes for which same gender marriages are recognized.
Adoption after Windsor. For other employers, an amendment may or may not be required. The key issue is whether the existing terms of the plan are inconsistent with the Windsor decision and subsequent IRS guidance. If they are, then the employer must amend. Otherwise, while the employer may wish to amend in the interests of clarity, an amendment is not required so long as the plan is operated in accordance with IRS guidance.
Example 1: Plan X defines marriage as the marriage of one man and one woman. Plan Y defines marriage in accordance with DOMA §3. Plan Z defines marriage as including same gender marriage if the participant lives in a state that recognizes same gender marriage. All three plans include language that conflicts with current law and must be amended to comply with the Windsor decision and Rev. Rul. 2013-17.
Example 2: Plan A does not define marriage or spouse. Plan B defines marriage as marriage under “applicable law.” Neither is inconsistent with the decision or IRS guidance. The sponsor of Plan A administers the plan by recognizing a participant’s same gender marriage for the period between June 26, 2013 and September 16, 2013 only if the participant resides in a jurisdiction which recognizes the validity of the marriage. After September 16, 2013 the sponsor follows the state of celebration and not the state of residency. The sponsor of Plan B administers its plan for periods after June 25, 2013 by recognizing a participant’s same gender marriage, regardless of where the participant resides. Since the operations of both Plan A and Plan B conform to Notice 2014-19, and neither has an inconsistent plan provision, neither plan needs to be amended, although the sponsors may wish to amend the plans in the interests of clarity.
Deadline. The deadline to adopt Windsor amendments is the later of the normal amendment deadline or December 31, 2014. For most existing plans, the December 31, 2014 date will apply. If the plan is a governmental plan an amendment “need not be adopted before 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.” Presumably, the sponsor of a safe harbor 401(k) plan may timely adopt such an amendment midyear.
Defined benefit plans. Under Code §436(c), some defined benefit plans may be prohibited from adopting an amendment if it would have the effect of increasing employer liabilities (such as through the provision of subsidized joint and survivor annuities). Windsor plan amendments effective before June 26, 2013 (early adopters) are subject to the restrictions of Code §436(c). Other Windsor plan amendments are exempt from Code §436(c). Pursuant to the FAQs, a similar rule applies to multiple employer defined benefit plans otherwise subject to amendment limitations under Code §432.
SunGard plan documents. SunGard’s retirement plans do not contain language that would conflict with the Windsor decision or IRS guidance. We do not anticipate, at this time, the development of a plan amendment. However, if we develop an amendment, we will let our subscribers know.
We will also cover this topic at the Southern Retirement Plan Conference and the 401(k) Workshops. See below for details.
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Upcoming Live Classroom Seminars – Don’t Miss the Early Fee, Register Today
PPA Pre-approved Plan Workshop - Corbel and PPD Documents - May-June
The IRS is finalizing its approval of SunGard’s Relius Documents Defined Contribution Prototype and Volume Submitter Plans (Corbel and PPD versions). Shortly, practitioners will begin the PPA restatement process. In response to customer requests, we’ve scheduled the PPA Pre-approved Plan Workshops in 18 cities during May and June. Each document (Corbel and PPD) is presented separately in its own full-day session. Not all cities will offer both programs. Registration is open at: www.relius.net/Events/events.aspx?Seminar.
401(k) Plan Workshop - April - June
Tax Forms Workshop: 5500 and more - April - June
Registration is open, at: www.relius.net/Events/events.aspx?Seminar
New Southern Retirement Plan Conference – Atlanta, GA – April 24-25, 2014
Pensions on Peachtree
Earn up to 15 hours of CE Credit including 2 ethics hours.
See more details and register online, here: www.relius.net/Events/seminardetail.aspx?CID=43.
Upcoming Web Seminars
Attribution: What You Don't Know Can Hurt You, April 10, 12:00 pm ET
Top Ten Corrections Not Addressed in EPCRS, April 16, 12:00 pm ET
Same Gender Marriage: Retroactivity: Plan Amendments, April 17, 12:00 pm ET
Form 5500 for Welfare Plans 2014 - A two-part program, June 2-3, 2:00 pm ET
Details and online registration: www.relius.net/Events/events.aspx?Web
Focused Web Seminar Series – 12 NEW topics – bundle pricing for live and recorded sessions
Bundled pricing – register for nine segments and get three segments free. Not too late to register – If you miss some of the first segments but still want to register and bundle all 12 for the discounted fee, we offer a bundled combination of live and recorded segments. (Due to the inability to track participation, CE credits are not available for recorded Web seminars.) Details and online registration: www.relius.net/Events/events.aspx?Web
Recently Archived Web Seminars
Compensation: Navigating the Maze, February 2014
For program details about archived Web seminars, and to register: www.relius.net/events/events.aspx?Archive
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