TIPS: Update on United States v. Windsor

On June 26, 2013, the U.S. Supreme Court issued a decision in the case of the United States v. Windsor (“Windsor”) that recognized same-gender marriages under federal law.  More recently, the Internal Revenue Service (“IRS”) and the Department of Labor (“DOL”) have issued additional guidance regarding the impact of the Windsor case (also referred to as DOMA, as a section of the Defense of Marriage Act was declared unconstitutional) on retirement plans. 

The IRS mandated that, as of September 16, 2013, the term “spouse” in all qualified plans must include the spouse of a same-sex couple who have entered into a legally recognized marriage.  The marriage must be recognized as valid under the jurisdiction where the ceremony was performed, regardless of where the participant lives or works.  For plans that have adopted the Paragon prototype or volume submitter plan, the definition of spouse is not gender-specific and already meets the IRS requirements – no further action is needed from a plan document standpoint.  Please note that these rules do not apply before September 16, 2013.  Please contact your Paragon Retirement Plan Consultant for further guidance should your plan need to take retroactive action before that date.

However, from an operational perspective, participants with same-sex spouses who were not formerly considered married will now be recognized as such.  Outlined below are some of the major highlights that may have an effect on your retirement plan:

v  A same-sex spouse will automatically be a participant’s beneficiary.  If a participant previously elected a beneficiary other than his/her same-sex spouse, that election is no longer valid, unless the same-sex spouse provides notarized consent waiving his/her rights as a beneficiary.

v  Generally, due to attribution rules, a spouse is considered to own shares that his/her spouse owns.  These rules may cause certain participants to become highly compensated or key employees and have an impact on non-discrimination or top heavy testing.  This may cause companies to become controlled groups that were previously considered as unrelated.  These rules are complex and should be reviewed with your Paragon Retirement Plan Consultant, your accountant and/or your legal counsel to determine the impact on your plan.

• Same-sex spouses are eligible for hardship distributions, if permitted under the Plan, that are available to spouses (medical, educational, funeral expenses).
• In the event of the dissolution of a same-sex marriage, same-sex spouses can receive a portion of a participant’s retirement benefit through a Qualified Domestic Relations Order (“QDRO”).
• Same-sex spouses will now be provided with additional payment and timing options for required minimum distributions that are available only to surviving spouses.

It is important for Plan Sponsors to review their process for identifying the marital status of all participants.  Once marital status records have been updated to reflect same-sex marriages, it is essential for a Plan Sponsor to collect updated Beneficiary Designation Forms from participants impacted by the Windsor decision.  Please do not hesitate to contact your Paragon Retirement Plan Consultant for additional information relating to this significant retirement plan update.