All Legal Same-Sex Marriages Must Be Recognized for Federal Tax Purposes

On August 29, 2013, the Treasury Department and Internal Revenue Service (IRS) issued Revenue Ruling 2013-17 applying a “state of celebration” rule on the federal tax treatment of same-sex marriages resulting from the U.S. Supreme Court’s decision in United States v. Windsor. The rule will allow retirement plan sponsors to begin moving forward on properly applying the definitions of “spouse” and “marriage” in the administration of their retirement plans in light of Windsor.

Under the”state of celebration” rule, qualified retirement plans must treat a same-sex spouse as a spouse for purposes of federal tax laws (including laws affecting qualified retirement plans such as ERISA) if the marriage took place in one of the 13 states including the District of Columbia where same-sex marriage is currently legally recognized, or in any foreign jurisdiction in which same-sex marriage is legal. As more states legally recognize same-sex marriage, the ruling will extend to them as well. Thus regardless of the location of the home office of the employer, the location of the plan, or the location at which the employee works, the plan must recognize the employee’s valid same-sex marriage, and extend all of the same rights and plan benefits to the same-sex spouse.

It is important to note that the ruling does not apply to individuals within registered domestic partnerships or civil unions, and they will not be considered spouses under this policy for qualified retirement plan purposes. However, employers are permitted to make domestic partners the default beneficiary.

The ruling requires qualified retirement plans to comply on and after September 16, 2013. Unfortunately the IRS has not yet provided guidance regarding the application of Windsor with respect to the period before September 16, 2013. This leaves questions lingering regarding the retroactive impact of the ruling to:

  • Survivor benefits in the form of Qualified Joint Survivor Annuities (QJSAs) and Qualified Preretirement Survivor Annuities (QPSAs)
  • Timing of death benefit payments
  • Qualified domestic relations orders (QDROs)
  • Hardship and minimum distribution requirements

Action Recommended 

Plan sponsors and their recordkeepers will need to re-evaluate the language of their plan documents to determine if it conflicts with the ruling. Provisions defining “spouse” or “marriage” should be scrutinized to confirm that they would not prohibit a legal same sex marriage from inclusion. If a conflict exists, the plan should be amended and supporting documents such as the Summary Plan Description, enrollment forms, and beneficiary designations should also reflect the change. Guidance is still needed on model amendment language, amendment timing, and necessary correction methods. We will keep you informed as this information becomes available.

If you have any questions or concerns, please contact your Lockton Retirement Services representative.

About thebenefitblog

Eric is a Producer at Lockton Insurance Brokers, Inc., the world’s largest privately held commercial broker. Eric has over 23 years of experience in the insurance industry and has spent the last 11 years with Lockton. Eric specializes in Health & Welfare Benefits, Retirement Planning, and Executive Benefits. Eric's clients utilize his expertise in the areas of Plan Due Diligence, Transaction Structure, Fiduciary Oversight, Investment Design, Compliance and Vendor negotiation to improve the operational & financial outcome for each client. The Benefit Blog is a place to share that expertise and industry news.
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