How same-sex marriage ruling applies to retirement plans

The IRS has recently provided guidance to businesses operating tax-qualified retirement plans for applying the U.S. Supreme Court’s decision affecting same-sex married couples.

Notice 2014-19 advises that retirement plans are required to reflect the U.S. v. Windsor (Sup Ct 2013)decisionas of June 26, 2013 (the date of the decision). However, Windsor can be applied for some or all plan purposes with an earlier date. But the IRS cautions that recognizing same-sex spouses for all purposes under a plan before June 26, 2013, may trigger requirements that are difficult to implement retroactively (such as ownership attribution rules) and may create unintended consequences.

Whether plans must be amended depends on the terms within the plan document. If the plan contains terms that are inconsistent with the Windsor decision, the plan must be amended. Plans with inconsistent language must be amended as of the later of Dec. 31, 2014, or the applicable deadline under Section 5.05 of Revenue Procedure 2007-44.

The guidance also provides that individuals who have entered into a registered domestic partnership, civil union or similar formal relationship that is not denominated as a marriage under the laws of the state in which it is entered into are not treated as married for federal tax purposes.

Section 3 of the Defense of Marriage Act (DOMA) defined marriage for purposes of administering federal law as the “legal union between one man and one woman as husband and wife.” It further defined “spouse” as “a person of the opposite sex who is a husband or wife.” As a result, same-sex spouses were not recognized for purposes of applying the Internal Revenue Code to qualified retirement plans.

In Windsor, the Supreme Court struck down Section 3 of DOMA as a violation of the Due Process Clause of the Fifth Amendment. Following the court’s decision, the IRS issued guidance explaining the federal tax implications of the Windsor decision.

The IRS stated that same-sex couples who were legally married in jurisdictions that recognize their marriage will be treated as married for federal tax purposes, regardless of whether their state of residence recognizes same-sex marriage. The IRS also stated that, for federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law. And the term “marriage” includes a marriage between individuals of the same sex.