Retirement Plans Aren't Required to Apply Windsor Ruling Retroactively, IRS Says

Many plan sponsors and administrators got the news they were looking for on the application of the U.S. Supreme Court's Windsor decision to retirement plans: No retroactive application before the date of the high court ruling itself.         

The Treasury Department and the Internal Revenue Service issued the guidance April 4 in Notice 2014-19, saying that qualified retirement plan operations must reflect the outcome of the United States v. Windsor decision as of June 26, 2013. The guidance said that a retirement plan won't be treated as failing to meet the requirements of tax code Section 401(a) for being considered a qualified plan merely because it didn't recognize the same-sex spouse of a participant as a spouse before June 26, 2013.                  

The IRS's guidance “is definitely welcome news, because there was quite a bit of concern if plans were required to apply it retroactively,” Jan Jacobson, senior counsel for retirement policy for the American Benefits Council, told Bloomberg BNA April 4.         

If plans had been required to apply the decision retroactively, they would have faced various problematic situations, Jacobson said.         

One such situation would have been if they had made payouts to one person where, as a result of the Windsor decision, the plan should have made a payment to another, Jacobson said.         

“So you could have dual liability because it's hard to get money from somebody once it's paid out,” she said.         

“This is the result that a lot of plans were hoping for, and I don't know if they would be surprised, but they would be pleased,” Jacobson said.         

Kathryn A. Ricard, senior vice president for retirement policy at the ERISA Industry Council, agreed, saying that the IRS notice is “very good news,” but also was not surprising.         

T. David Cowart, a partner in the pensions, benefits and executive compensation practice of Dentons in Dallas, said in an e-mail, that the “IRS and Treasury need to be complimented for the common sense, balanced approach taken” in the notice.         

The effective date of June 26, 2013, “certainly makes a lot more sense than trying to suggest that employers had some obligation from that date to go back and recalculate earlier effective dates for marriages before the date and things like that,” said W. Waldan Lloyd, a shareholder of Callister Nebeker & McCullough in Salt Lake City, and chairman of the firm's employee benefits and Employee Retirement Income Security Act practice area.         

The IRS guidance also said that plans wouldn't run afoul of tax qualification requirements if they failed to comply before Sept. 16, 2013, with agency guidance in Revenue Ruling 2013-17 applying the “state of celebration” rule: that same-sex married couples will be recognized as legally married for all federal tax purposes, regardless of where they live, so long as they were married in a jurisdiction that recognizes such marriages. The revenue ruling, issued Aug. 29, 2013, officially took effect Sept. 16, 2013.         

The new guidance said that if a plan's terms with respect to tax code requirements under Section 401(a) define a marital relationship by reference to Section 3 of DOMA or are otherwise inconsistent with the Windsor ruling, the plan will need to be amended for the ruling, as well as Rev. Rul. 2013-17 and Notice 2014-19.         

Plan Amendments Deadline          

Retirement plan sponsors must amend their plans as of the later of the deadline under Section 5.05 of Revenue Procedure 2007-44, or its successor, or Dec. 31, 2014, the notice said. Rev. Proc. 2007-44 provides the general deadline for adopting interim or discretionary plan amendments.         

In the case of a governmental plan, amendments are not required to be adopted before the close of the first legislative session of the legislative body with the authority to amend the plan that ends after Dec. 31, 2014, the notice said.         

“Plans must be aware that December 31, 2014 is not the deadline for required amendments for every plan. Each plan should determine its particular deadline individually,” Cowart said.         

The agency also released a set of answers to frequently asked questions on the application of the Windsor decision, Rev. Rul. 2013-17 and Notice 2014-19 to qualified retirement plans.        

Notice 2014-19 is scheduled to be published in Internal Revenue Bulletin 2014-17, dated April 21, 2014.         

Excerpted from a story that ran in Pension & Benefits Daily (4/4/2014).