IRS Notice 2014-19

Guidance on Application of Windsor Decision to Retirement Plans

On April 4, 2014, the IRS issued Notice 2014-19. This notice provides guidance on the application (including the retroactive application) of the decision in United States v. Windsor and the holdings of IRS Rev. Rul. 2013-17 (published on Sept. 16, 2013) regarding same-sex spouses, to retirement plans qualified under Internal Revenue Code (Code) §401(a).

General Rules

Notice 2014-19 clarifies that plans must be operated in accordance with the Windsor decision no later than June 26, 2013 and gives plan sponsors relief from the retroactive effect of the decision. Due to the retroactive nature of the Windsor decision, plans may, but do not have to, recognize same-sex spouses for plan purposes before June 26, 2013. However, plan sponsors should take note that applying the rulings for all purposes to a date before June 26, 2013, may result in unintended consequences (e.g. changing the results of ownership attribution, which may affect the plan's non-discrimination testing). Since, the decision to implement the rulings retroactively is subject to all the normal qualification requirements, such as non-discrimination testing under Code §401(a)(4), plan sponsors who want to recognize same-sex spouses for plan purposes before June 26, 2013 should carefully consider what provisions should be applied retroactively.

Before Revenue Ruling 2013-17 was issued on September 16, 2013, it was unclear how the same-sex marriage laws of various states would apply, so Notice 2014-19 provides that beginning on September 16, 2013 plans must recognize a same-sex spouse if the couple is lawfully married under the laws of one of the 50 states, the District of Columbia, a U.S. territory, or a foreign jurisdiction. For the period from June 26, 2013, to September 15, 2013, plans may either recognize all same-sex spouses in accordance with Rev. Ruling 2013-17 or recognize same-sex spouses only for participants who were domiciled in a state that recognized same-sex spouses.

While the Notice does not impose any requirement to notify current or former participants of the new rules, plan sponsors may elect to notify participants. Of course, the summary plan description, beneficiary designation forms, distribution forms, and other administrative documents should be updated to be consistent with the new rules.

Plan Amendments

Whether a plan must be amended to reflect the outcome of Windsor and the guidance in Rev. Rul. 2013-17 and Notice 2014-19 depends on the specific terms of the plan.

If a plan's terms with respect to the requirements of Code §401(a) define a marital relationship by reference to section 3 of the Defense of Marriage Act (DOMA) or are otherwise inconsistent with the outcome of Windsor or the guidance in Rev. Rul. 2013-17 or Notice 2014-19, then an amendment to the plan that reflects the outcome of Windsor and the guidance in Rev. Rul. 2013-17 and Notice 2014-19 is required by December 31, 2014 or, if later, the plan's normal remedial amendment period under Treasury Regulation §1.401(b)-1(b)(3).   An amendment to reflect the outcome of Windsor or the guidance in Rev. Rul. 2013-17 or Notice 2014-19 effective as of June 26, 2013, will not be subject to the funding-based benefit restrictions under Code §436(c).

If a plan's terms are not inconsistent with the outcome of Windsor and the guidance in Rev. Rul. 2013-17 and Notice 2014-19 (for example, the term "spouse," "legally married spouse" or "spouse under Federal law" is used in the plan without any distinction between a same-sex spouse and an opposite-sex spouse), an amendment generally would not be required. If no amendment to such a plan is made, the plan nonetheless must be operated in accordance with the provisions of Q&A-2 of Notice 2014-19. (Though not required, a clarifying amendment may be useful for purposes of plan administration.)

If a plan sponsor chooses to apply the rules in a manner that reflects the outcome of Windsor for a period before June 26, 2013, an amendment to the plan that specifies the date as of which, and the purposes for which, the rules are applied in this manner is required by December 31, 2014 or, if later, the plan's normal remedial amendment period under Treasury Regulation §1.401(b)-1(b)(3). An amendment to apply the rulings to a date before June 26, 2013, is subject to the funding-based benefit restrictions under Code §436(c).