Ever since the U.S. Supreme Court struck down the central provision of the Defense of Marriage Act (DOMA) defining marriage as between a man and a woman, employee benefit plan sponsors have been seeking guidance on how to recognize same-sex marriage under their plans. The IRS has just issued Revenue Ruling 2013-17 and related FAQs that answer a number of important questions about what administrators must do going forward, but leave open for now whether retroactive relief will be required.
Look to Place of Celebration
A small number of states currently recognize same-sex marriage, but some participants may have moved from, or were married in, a place where same-sex marriage is legal, and now live in a state, such as Florida, that doesn't recognize their marriage. Is a plan required to recognize these marriages if the participant lives in a state that doesn't recognize a same-sex marriage even if performed elsewhere?
Plan sponsors have been concerned about the complexity and burden of having to check into each state's laws on the validity of marriages performed elsewhere, but the IRS has decided to keep things simple by providing that valid marriages (valid in the "place of celebration") will be recognized no matter where the participant lives. This means that all plan sponsors will likely have to recognize some same-sex marriages under their plans. However, the guidance makes clear that domestic partnerships and civil unions do not have to be recognized.
Deadline for Compliance
The IRS is requiring plans to comply prospectively by September 16. This means, among other things, that same-sex spouses must be treated the same as opposite sex spouses for benefit elections and survivor benefits on and after that date.
Where Else Does This Matter?
There are many other pension benefit provisions, including hardship distributions in 401(k) plans, required minimum distributions, ability to get plan loans and rollover rights, that may depend on marital status. Welfare and fringe benefits often have provisions that depend on marital status as well, including: COBRA, health insurance portability and special enrollment rights under the Health Insurance Portability and Accountability Act (HIPAA), and exclusions from income for dependent care benefits. Perhaps most importantly, on the welfare plan side, participants who enroll their same-sex spouses under cafeteria plans will no longer have imputed income equal to the cost of that coverage, and employers should discontinue any withholding related to same-sex spouse coverage.
Married for Tax Purposes, but not for the FMLA?
It is possible to be married for tax purposes, but not for purposes of the Family and Medical Leave Act (FMLA), because so far, the Department of Labor has only recognized same-sex marriages for FMLA purposes if they are valid in the state where the employee resides. And we have yet to receive definitive guidance from the Social Security Administration going beyond a "state of residence" rule.
What About Retroactivity, since DOMA was Invalid Before September 16?
It is not yet clear whether benefits payable on deaths or as a result of elections implemented before September 16 will need to be adjusted. Technically, the Supreme Court said that the core provision of DOMA was always invalid, but retroactive compliance can be burdensome and costly. The federal pension system is giving participants in same sex marriages two years from the date of the Windsor decision to elect to change their form of payment to a qualified joint and survivor annuity, but participants pay the cost of the survivor annuity through a reduced lifetime annuity under the federal system.
If plan sponsors subsidize these benefits, plans will have an additional unanticipated cost if retroactive compliance is required. And what about the participant in a 401(k) plan who died in May (before the Supreme Court decision) or in July (after Windsor but before September 16) whose benefit was paid to another beneficiary, such as a child or parent, without a same-sex spouse's consent? Plan sponsors hope that they will not have to make double payments in that situation.
We don't yet know what the deadline will be for formal plan amendments, but plans that explicitly incorporate the DOMA definition of spouse may want to change that definition now, without waiting.
What is the Impact of a Grace Period for Amendments?
This won't affect administrative documents. Plan sponsors need to prepare forms and employee communications to implement the required operational compliance effective on September 16, and these cannot wait until a delayed amendment deadline.
Plan sponsors will also want to ask participants in same sex marriages to complete new beneficiary designations to make sure that benefits are distributed in accordance with the new consent and waiver requirements and to change their qualified domestic relations order (QDRO) procedures to recognize any same-sex QDROs that might be issued by state courts without waiting for any delayed amendment deadline.
Watch for Developments
In addition to looking for new guidance from the agencies implementing the Windsor decision, plan sponsors need to keep abreast of litigation. It is possible that some state laws on the DOMA model will be struck down or new rights to same-sex marriage will be created by courts on constitutional grounds under an analysis similar to that used by the U.S. Supreme Court. We have already had two cases applying a state of celebration rule to extend Windsor rights, and more decisions on same-sex marriage rights are likely to follow.
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