IRS Issues Guidance on Effect of Windsor Decision and Rev. Rul. 2013-17 on Retirement Plans, Including Required Amendments

[Dave Baker]

The IRS this afternoon issued IRS Notice 2014-19 (click): Application of the Windsor Decision and Rev. Rul. 2013-17 to Qualified Retirement Plans (PDF)

7 pages. Excerpt: "Whether a plan must be amended to reflect the outcome of Windsor and the guidance in Rev. Rul. 2013-17 and this notice depends on the terms of the specific plan ... If a plan's terms with respect to the requirements of section 401(a) define a marital relationship by reference to section 3 of DOMA or are otherwise inconsistent with the outcome of Windsor or the guidance in Rev. Rul. 2013-17 or this notice, then an amendment to the plan that reflects the outcome of Windsor and the guidance in Rev. Rul. 2013-17 and this notice is required by the date specified in Q&A-8 of this notice... If a plan's terms are not inconsistent with the outcome of Windsor and the guidance in Rev. Rul. 2013- 17 and this notice, an amendment generally would not be required. If no amendment to such a plan is made, the plan nonetheless must be operated in accordance with the provisions of Q&A-2 of this notice.... [if] a plan sponsor chooses to apply the rules in a manner that reflects the outcome of Windsor for a period before June 26, 2013, an amendment to the plan that specifies the date as of which, and the purposes for which, the rules are applied in this manner is required.... The deadline to adopt a plan amendment pursuant to this notice is the later of (i) the otherwise applicable deadline under section 5.05 of Rev. Proc. 2007-44, or its successor, or (ii) December 31, 2014."

[My 2 cents]

2014-19 says that any retroactive amendment to extend the Windsor decision back to before June 26, 2013 is permitted but Section 436 would have to be satisfied. Retroactive amendments under 2014-19 can limit what is being changed retroactively (i.e., for QJSA or QPSA purposes only) and can establish coverage limitations (i.e., participant died or retired on or after a specific date), but the effect must not discriminate in favor of highly-compensated employees. The IRS urges caution how a plan should be retroactively amended, since retroactivity can have unintended consequences (because in general, ownership of stock is attributed from one spouse to the other, and that could affect the makeup of the controlled group or who is a key employee or 5% owner). Amendments conforming plan language (i.e., definition of spouse) to the Windsor decision would not be subject to Section 436.

A plan can rely on this guidance and not adopt a retroactive amendment, but that would not necessarily stop (for example) the surviving legally married same-sex spouse of a vested participant who died in 2011 from asserting his or her rights under ERISA by suing the plan for QPSA benefits, especially if no death benefits were paid to anyone.