IRS Not Out to Trap Employers That Make Plan Adjustments Post-Windsor, Official Says

The Internal Revenue Service and Treasury Department expect to get guidance out to cafeteria plans “very, very soon” on the retroactive application of the Supreme Court's Windsor decision, a Treasury official said.         

“The most immediate need for guidance post-Windsor is in the health and welfare area,” and, in particular, cafeteria plan guidance is needed to address what can and can't be done in terms of new elections, Robert J. Neis, deputy benefits tax counsel with the Office of Tax Policy, said Nov. 5, speaking during an executive compensation conference in New York. The next priority, Neis said, is qualified retirement plan guidance.        

The Supreme Court's June 26 decision in United States v. Windsor (U.S., No. 12-307, 6/26/13) invalidated Section 3 of the Defense of Marriage Act.         

In the context of executive compensation post-Windsor, employers may need to make adjustments to supplemental executive retirement plan payments, said Martha N. Steinman, a partner in the New York office of Hogan Lovells. She moderated a question-and-answer session with Neis during the National Institute on Executive Compensation, sponsored by the American Bar Association Joint Committee on Employee Benefits.         

Steinman asked Neis whether, by making those corrections, employers run the risk of violating tax code Section 409A, which deals with the inclusion in gross income of deferred compensation under nonqualified deferred compensation plans.         

Referring to Revenue Ruling 2013-17, Neis said that “in the initial revenue ruling following Windsor, we said that our rules incorporate the state-of-celebration standard for recognizing same-sex marriage, so that even if a couple is legally married in a state that authorizes their marriage and moves to a state that doesn't recognize it, the IRS is going to continue to recognize that marriage.” He added, “We said that rule would apply prospectively upon the issuance of our revenue ruling.”        

Specifically, Neis said, “the revenue ruling said that, with respect to retiree benefits, the extent to which it applies retroactively” will be the subject of additional guidance.        

Good-Faith Compliance     

“To the extent any guidance is needed on 409A, we will definitely consider it,” Neis said. “We are not looking to trap employers who were complying with the law at the time and not recognizing same-sex marriages for qualified plan purposes,” he said. Neither are the IRS and Treasury going to “somehow penalize them for having done what was required of them at the time,” he said. “That same philosophy is going to carry over into the 409A area,” he said.        

“To extent some adjustments need to be made in payments from nonqualified plans because larger payments need to be made from the qualified plan as a result of recognizing a same-sex marriage, you are not going to find any appetite on part of IRS or Treasury for trying to look for problems and penalize folks for making adjustments,” he said.        

Neis said that because there are so many different types of plans, Treasury and the IRS “aren't going to be able to do any sort of comprehensive guidance.”    

If “folks just reasonably promptly make the necessary adjustments” from qualified and nonqualified plans “as quickly as they reasonably can, that willbe fine,” he said.

Excerpted from a story that ran in Pension & Benefits Daily (11/6/2013).