IRS Windsor Retroactivity Guidance Leaves Questions on ERISA Claims, Practitioners Say

But what about the retroactive application of Windsor to claims for benefits under the Employee Retirement Income Security Act?

That's a question benefit attorneys say remains open in the wake of the recent guidance from the Treasury Department and Internal Revenue Service on the application to retirement plans of the U.S. Supreme Court's decision in United States v. Windsor. Notice 2014-19 said there is no retroactive application for tax qualification purposes prior to the justices' June 26, 2013, ruling.         

The lack of that guidance means that plan sponsors will have to interpret the terms of their plan as required under ERISA Section 502(a) for claims that occurred prior to the Supreme Court decision (124 PBD, 6/27/13; 40 BPR 1589, 7/2/13) in order to determine who is eligible for benefits, Robert Newman, a partner with Covington & Burling LLP in Washington, told Bloomberg BNA on April 8.                  

These claims have the potential to be the “biggest dollar item” concern for sponsors, Mark C. Nielsen, a principal with Groom Law Group Chartered in Washington, said during an April 10 webinar hosted by his firm. One example would be cases in which plan sponsors paid out claims in the form of a single-life annuity instead of a qualified joint and survivor annuity (QJSA) without getting consent of a same-sex spouse, Nielsen said. Another would be if a plan administrator didn't provide a qualified pre-retirement survivor annuity (QPSA) to a same-sex spouse because under the terms of the plan, only opposite-sex spouses were eligible, he said.         

Treasury and the IRS released Notice 2014-19 on April 4.

Cozen O'Connor, P.C. v. Tobits.          

Newman said that plan sponsors facing such questions can look to the U.S. District Court for the Eastern District of Pennsylvania's July 2013 decision in Cozen O'Connor, P.C. v. Tobits, which applied the Windsor ruling in a case involving survivor benefits from an ERISA-governed profit-sharing plan.         

In that case, the court determined that the same-sex spouse of a participant in a law firm's plan was the rightful recipient of that participant's survivor annuity. The couple got married in 2006. The plan didn't define “spouse” other than by imposing a length-of-marriage requirement: a couple needed to be married for at least a year prior to the death of the participant.         

The Cozen case centered on plan benefit design, so Notice 2014-19, which focuses only on tax qualification issues, doesn't expressly apply, Newman said.         

“It may be that a plan administrator interprets a plan as to not reflect the Windsor decision prior to Windsor because that wasn't understood to be the governing law at the time,” Newman said.         

But a participant could bring a claim saying that “under the terms of the plan as they existed, ‘I should have been given the right to either consent or be given a QJSA or a QPSA or whatever it is,' ” Nielsen said. Although no other court cases have been brought so far that address this type of claim, “it is important to recognize that there is at least one federal court out there that has applied the Windsor decision on a retroactive basis, and it is possible that we are going to see other courts go this way, too,” Nielsen said.         

In fact, said Newman, guidance on retroactivity for benefits claims will likely come from the courts, rather than the Department of Labor or the IRS.         

The webinar was titled More IRS Guidance on Same Sex Marriage Issues for Employee Benefit Plans.         

How Far Back?          

The Supreme Court decision, which struck down a key part of the Defense of Marriage Act, isn't limited in time, so from the time DOMA was enacted, it was unconstitutional, but potential claims will still be limited, Newman said. First, a claim would need to be brought based on a same-sex marriage, not a domestic partnership or civil union, but no states recognized such marriages until 2004, he said.         

Massachusetts was the first state to legalize same-sex marriages; currently, 17 states and the District of Columbia recognize such marriages.         

Claims could be brought for marriages legally performed outside the U.S. prior to the Windsor decision—in fact, the couple at the heart of that case was married in Canada, Newman said. However, such cases aren't very likely, he said.         

A second condition limiting the potential number of claims is that a participant or beneficiary would have to have a triggering event before bringing a claim, Newman said.         

There might be only a small number of claims, but the dollar amounts in some could be significant, Nielsen said.         

Regardless of the extent of retroactivity, the IRS notice provided a deadline for plan compliance generally as of the end of 2014, so “plan sponsors might consider how to approach the past” as they amend their plans, Newman said.

Excerpted from a story that ran in Pension & Benefits Daily (2/10/2014).