New Guidance on Same-Sex Marriage Under Tax-Qualified Retirement Plans: IRS Notice 2014-19 Requires Prospective Application of the Windsor Decision as of June 26, 2013 and Compliance with “State of Celebration” Approach to Recognizing Marriages as of September 16, 2013
Sullivan & Cromwell LLP - April 7, 2014
On April 4, 2014, the Treasury Department and the IRS issued Notice 2014-19 (the “Notice), which provides long-awaited guidance on the effect of the Supreme Court’s decision in United States v. Windsor on tax-qualified retirement plans. In Windsor, 133 S. Ct. 2675 (2013), the Supreme Court held that Section 3 of the Defense of Marriage Act, which denied Federal recognition of the marriages of same-sex couples who were legally married under state law, was unconstitutional as a deprivation of the equal liberty of persons protected by the Fifth Amendment.
Key points of the Notice are as follows:
- Only Prospective Application Required: The operation of tax-qualified retirement plans must reflect the outcome of Windsor as of June 26, 2013, the date of the Windsor opinion, on a prospective basis.
- Compliance with State of Celebration to determine Validity of Marriage: Even though operational compliance with Windsor is required as of June 26, 2013, a retirement plan will not be treated as failing to meet the requirements of Section 401(a) of the Internal Revenue Code merely because the plan used a “state of domicile” test to determine the validity of same-sex marriages for the period from June 26, 2013 to September 16, 2013. On September 16, 2013, Treasury and IRS issued Revenue Ruling 2013-17, adopting a “state of celebration” test to determine the validity of same-sex marriages.
- Retirement Plans may apply Windsor Holding Retroactively: The Notice clarifies that a tax-qualified retirement plan is permitted to apply the Windsor decision for some or all purposes as of a date before June 26, 2013. For example, a plan could decide to apply Windsor solely for purposes of eligibility for a qualified joint and survivor annuity or a qualified pre-retirement survivor annuity, but for no other plan purposes. The Notice cautions that recognizing same-sex marriage for all plan purposes prior to June 26, 2013 may trigger requirements that are difficult to implement on a retroactive basis (such as the ownership attribution rules) and may create unintended consequences.
- Plan Amendments May Be Required: The Notice clarifies that whether retirement plan amendments to comply with Windsor are required depends on the terms of the plan. For example, where the terms of the plan are inconsistent with Windsor or define the marital relationship by reference to section 3 of the Defense of Marriage Act, plan amendments are required. If the plan terms are not inconsistent with Windsor, the terms of Revenue Ruling 2013-17 and the Notice, an amendment is not required. However, a plan amendment is required if a retirement plan applies Windsor for some or all purposes prior to June 26, 2013.
- Timing of Plan Amendments: The deadline to adopt retirement plan amendments required pursuant to the Notice is the later of (1) December 31, 2014, or (2) the otherwise applicable deadline under section 5.05 of Revenue Procedure 2007-44, which relates to the applicable deadline for interim and discretionary amendments.