Retirement Plan Requirements for Same-Sex Marriages

By Jason Watson (Google+)
Posted October 3, 2018

On June 26, 2013, the Supreme Court ruled in the Windsor case that section 3 of the Defense of Marriage Act was unconstitutional. As a result of this ruling, in August of 2013 the IRS announced that all legally married same-sex couples will be treated as married for federal tax purposes. Regardless of whether the couple lives in a state that recognizes same-sex marriage. What does this mean for administrators of qualified retirement plans?

The retirement plans must treat same-sex marriages as valid as of June 26, 2013.

Between June 26 and September 16, 2013 retirement plans are allowed to recognize only same-sex marriages that are domiciled in a state that recognizes same-sex marriage.

Beginning September 16, 2013 plans must recognize legal same-sex marriages regardless of whether the participants live in a state that recognizes same-sex marriage.

Administrators are allowed to amend qualified retirement plans to reflect Windsor prior to June 26, 2013 for married same-sex couples. However, if a plan is altered retroactively, be careful to avoid triggering other requirements and cause unintended consequences. One requirement to be weary of is the ownership attribution rules. These rules attribute stock ownership to employee’s family members.

For example, if an individual has at least a 5 percent ownership interest in a company, then his or her spouse, children, grandchildren, or parents are also considered 5 percent owners by the IRS. This can have the unintended consequence of making these same-sex couples and potentially their family members “highly compensated employees” in the eyes of the IRS for the years in which the changes to the plan were retroactively implemented. This could impact their tax liability as well as the tax liability of the other owners. Is anybody getting a migraine trying to follow that train of thought?

As an aside, attribution rules are used for all sorts of things, not just retirement type stuff. For example, educational assistance is available to an employee of your company. But if that employee is now your same-sex married partner, your educational assistance violates attribution rules.

If a retirement plan is adjusted before June 26, 2013 to reflect Windsor, it must specify the date as of which it will reflect Windsor. Retirement plan adjustments can also be implemented before June 26, 2013 to reflect Windsor for specific purposes if they do not impact the plan’s qualified status.

Plans must be amended to reflect Windsor by December 31, 2014. These amendments include any terms that are inconsistent with Windsor including references to the Defense of Marriage Act.