The fallout from the U.S. Supreme Court’s 2013 U.S. v. Windsor decision continues to affect employers. The IRS now says that 401(k) plans that define marriage and spouses in terms of heterosexuality must be amended to define those terms in a gender-neutral way.
Plans that already use gender-neutral terms need not be amended, but must afford same-sex spouses all spousal rights.
Caution: If your plan requires you to define these terms in accordance with a state law that doesn’t recognize same-sex marriage (commonly called a choice-of-law provision), your plan will still need to be amended.
Find the official word from the IRS in Notice 2014-19, IRB 2014-17 and Notice 2014-37, IRB 2014-23.
Required plan amendments
401(k) plans must reflect the outcome of Windsor as of June 26, 2013, the date of the Supreme Court’s ruling. In general, you have until Dec. 31, 2014, to amend your plan.
The IRS has clarified that 401(k) or (m) safe harbor plans may make these amendments without jeopardizing their tax-exempt status.
Key: Your 401(k) plan won’t be out of compliance simply because it didn’t recognize same-sex marriage prior to June 26, 2013.
You may retroactively choose an amendment date before June 26, 2013, but the IRS warns that there may be unintended consequences. If you choose a date prior to June 26, 2013, you may want to apply it selectively—for example, choosing to amend the plan to reflect the outcome of Windsor solely with respect to qualified joint and survivor annuities.
Spouse-specific plan provisions
Spouses (and even ex-spouses) get special consideration in 401(k) plans. These spouse-specific plan provisions now cover same-sex spouses:
- Qualified joint and survivor annuities (QJSAs) and qualified preretirement survivor annuities (QPSAs) must be provided to all spouses. Spouses must consent to waive these provisions.
- 401(k) plans aren’t covered under the QJSA and QPSA rules if married employees’ benefits are payable in full to their surviving spouses upon their death, unless surviving spouses consent to the designation of a different beneficiary.
- The special rollover rules and minimum distribution rules that apply when a spouse receives their deceased spouse’s retirement benefits.
- Hardship distributions may be based on a spouse’s hardship.
- Plans that allow employees to take out loans must secure spouses’ consent.
- Plans must allow employees to designate alternative payees under qualified domestic relations orders.
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State same-sex marriage update
State bans on same-sex marriage continue to be challenged in court.
A federal trial court in Michigan recently opened a window and about 300 same-sex couples leapt through and married before a federal appellate court stayed that decision pending appeal; the federal government is recognizing those marriages.
After a court in Arkansas voided that state’s same-sex marriage ban, about 540 same-sex couples married. In keeping with past practices, it’s likely that federal government will recognize those marriages.
In May, federal courts in Oregon and Pennsylvania overturned those states’ same-sex marriage bans and those decisions are likely to stick.
Currently pending are appeals of trial courts’ decisions overturning bans on same-sex marriage in Arkansas, Idaho, Kentucky, Michigan, Utah, Oklahoma and Virginia.
