n-14-19.pdf

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Application of the Windsor
Decision and Rev. Rul. 2013-17 to Qualified
Retirement Plans

Notice 2014-19

I. PURPOSE

The purpose of this notice is to provide guidance on the application (including the
retroactive application) of the decision in United States v. Windsor
, 570 U.S. ___, 133 S.
Ct. 2675 (2013), and the holdings of Rev. Rul. 2013-17, 2013-38 I.R.B. 201 (Sept. 16,
2013), to retirement plans qualified under section 401(a) of the Internal Revenue Code
(Code).

II. BACKGROUND

01. Qualified Retirement Plan Rules Relating to Married Participants

Several Code sections provide special rules with respect to married participants in
qualified retirement plans, including, but not limited to, the following:

• Under section 401(a)(11), certain qualified retirement plans must provide a
qualified joint and survivor annuity (QJSA) upon retirement to married
participants (and generally must provide a qualified preretirement survivor
annuity (QPSA) to the surviving spouse of a married participant who dies before
retirement). If a plan is subject to these rules, the QJSA (or QPSA) may be
waived by a married participant only with spousal consent pursuant to
section 417. If such a plan permits loans to participants, then section 417(a)(4)
requires a plan to obtain the consent of the spouse of a married participant
before making a loan to the participant.

• Under section 401(a)(11)(B)(iii), certain qualified defined contribution retirement
plans are exempt from the QJSA and QPSA requirements provided that a
married participant’s benefit is payable in full, on the death of the participant, to
the participant’s surviving spouse, unless the surviving spouse consents to the
designation of a different beneficiary.

• Under the required minimum distribution rules of section 401(a)(9) and the
rollover rules of section 402(c), additional alternatives are provided for surviving
spouses that are not available to non-spousal beneficiaries.

• Under section 1563(e)(5), generally a spouse is treated as owning shares owned
by the other spouse for purposes of determining whether corporations are
members of a controlled group under section 414(b).

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• Under section 318(a)(1), generally a spouse is treated as owning shares owned
by the other spouse for purposes of determining whether an employee is a key
employee under section 416(i)(1), including whether an employee is considered
a 5% owner.

• Under section 409(n), an employee stock ownership plan (ESOP) that acquires
certain employer securities generally must prohibit the allocation or accrual of
those securities for the benefit of certain individuals, including the spouse of the
seller and the spouse of any individual who owns 25% or more of the securities.

• Under section 409(p), no portion of the assets of an ESOP attributable to
employer securities consisting of S corporation stock may accrue during a
nonallocation year for the benefit of any disqualified person or certain family
members of the disqualified person (including the spouse) in certain
circumstances.

• Under section 401(a)(13)(B), the anti-alienation rules do not apply to the creation,
assignment, or recognition of an alternate payee’s right to receive all or a portion
of the benefits payable to a participant under a plan pursuant to a qualified
domestic relations order (QDRO) described in section 414(p), and, under section
402(e)(1), an alternate payee who is a spouse or former spouse of the participant
is treated as the distributee of a distribution under a QDRO.

02. Defense of Marriage Act

Until the decision of the Supreme Court in Windsor
found it unconstitutional, section 3 of
the Defense of Marriage Act (DOMA) prohibited the recognition of same-sex spouses
for purposes of Federal tax law. Specifically, section 3 of DOMA provided that:

In determining the meaning of any Act of Congress, or of any ruling, regulation,
or interpretation of the various administrative bureaus and agencies of the United
States, the word ‘marriage’ means only a legal union between one man and one
woman as husband and wife, and the word ‘spouse’ refers only to a person of the
opposite sex who is a husband or a wife.

1 U.S.C. § 7. As a result, same-sex spouses were not recognized for purposes of the
Code with respect to qualified retirement plans.

03. Effect of the Windsor
Decision and Rev. Rul. 2013-17

In the Windsor
decision, the Supreme Court held on June 26, 2013 that section 3 of
DOMA is unconstitutional because it violates Fifth Amendment principles. Subsequent
to the Windsor
decision, Rev. Rul. 2013-17 held the following:

(1) For Federal tax purposes, the terms “spouse,” “husband and wife,” “husband,”
and “wife” include an individual married to a person of the same sex if the individuals

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are lawfully married under state law, and the term “marriage” includes such a marriage
between individuals of the same sex.

(2) For Federal tax purposes, the Internal Revenue Service (Service) adopts a
general rule recognizing a marriage of same-sex individuals that was validly entered
into in a state whose laws authorize the marriage of two individuals of the same sex
even if the married couple is domiciled in a state that does not recognize the validity of
same-sex marriages.

(3) For Federal tax purposes, the terms “spouse,” “husband and wife,” “husband,”
and “wife” do not include individuals (whether of the opposite sex or the same sex) who
have entered into a registered domestic partnership, civil union, or other similar formal
relationship recognized under state law that is not denominated as a marriage under the
laws of that state, and the term “marriage” does not include such formal relationships.

The holdings of Rev. Rul. 2013-17 apply for all Federal tax purposes, including for
purposes of the Federal tax rules that apply to qualified retirement plans under
section 401(a). The ruling provides that the holdings will be applied prospectively as of
September 16, 2013. The ruling also provides that taxpayers may rely on the holdings
retroactively with respect to any employee benefit plan or arrangement (or any benefit
provided thereunder) for limited purposes with respect to certain employer-provided
health coverage and fringe benefits that are specified in the ruling. The ruling further
states that:

The Service intends to issue further guidance on the retroactive application of the
Supreme Court’s opinion in Windsor
to other employee benefits and employee
benefit plans and arrangements. Such guidance will take into account the
potential consequences of retroactive application to all taxpayers involved,
including the plan sponsor, the plan or arrangement, employers, affected
employees and beneficiaries. The Service anticipates that the future guidance
will provide sufficient time for plan amendments and any necessary corrections
so that the plan and benefits will retain favorable tax treatment for which they
otherwise qualify.

04. Authority under Section 7805(b)(8)

Under section 7805(b)(8), the Commissioner is authorized to prescribe the extent, if
any, to which any judicial decision, or any administrative determination other than by
regulation, relating to the internal revenue laws is to be applied without retroactive
effect.

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05. Remedial Amendment Period under Section 401(b)

Section 401(b) provides a period during which a plan may be amended retroactively to
comply with the Code’s qualification requirements. The deadline for amending a plan is
generally the time prescribed by law for filing the return of the employer for its taxable
year in which the amendment was adopted or such later time as the Secretary may
designate.

Rev. Proc. 2007-44, 2007-28 I.R.B. 54, provides rules regarding the timing of
amendments made to qualified retirement plans. Section 5.05 of Rev. Proc. 2007-44
provides that when there are changes to the plan qualification requirements that affect
provisions of the written plan document, the adoption of an interim amendment
generally is required by the later of the end of the plan year in which the change is first
effective or the due date of the employer’s tax return for the tax year that includes the
date the change is first effective.

III. QUESTIONS AND ANSWERS

GENERAL RULES
Q-1. How does the Windsor
decision affect the application of the Federal tax rules to
qualified retirement plans?
A-1. In the Windsor
decision, the Supreme Court held that section 3 of DOMA (which
applied for purposes of determining an individual’s marital status under Federal law) is
unconstitutional. In the absence of section 3 of DOMA, any retirement plan qualification
rule that applies because a participant is married must be applied with respect to a
participant who is married to an individual of the same sex. For example, a participant
in a plan subject to the rules of section 401(a)(11) who is married to a same-sex spouse
cannot waive a QJSA without obtaining spousal consent pursuant to section 417.
Q-2. As of what date are qualified retirement plans required to be operated in a manner
that reflects the outcome of Windsor
and the guidance in Rev. Rul. 2013-17?

A-2. Qualified retirement plan operations must reflect the outcome of Windsor
as of
June 26, 2013. A retirement plan will not be treated as failing to meet the requirements
of section 401(a) merely because it did not recognize the same-sex spouse of a
participant as a spouse before June 26, 2013. For Federal tax purposes, effective as of
September 16, 2013, Rev. Rul. 2013-17 (i) adopts a general rule recognizing a marriage
of same-sex individuals that is validly entered into in a state whose laws authorize the
marriage of two individuals of the same sex, even if the individuals are domiciled in a
state that does not recognize the validity of same-sex marriages, and (ii) provides that
individuals (whether part of an opposite-sex or same-sex couple) who have entered into
a registered domestic partnership, civil union, or other similar formal relationship
recognized under state law that is not denominated as a marriage under the laws of that
state are not treated as married. Accordingly, a retirement plan will not be treated as
failing to meet the requirements of section 401(a) merely because the plan, prior to

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September 16, 2013, recognized the same-sex spouse of a participant only if the
participant was domiciled in a state that recognized same-sex marriages. See Q&A-8
for the deadline to adopt plan amendments pursuant to this notice.

Q-3. May a qualified retirement plan be amended to reflect the outcome of Windsor
as
of a date earlier than June 26, 2013, and, if so, may the amendment reflect the outcome
of Windsor
for only certain purposes?

A-3. A qualified retirement plan will not lose its qualified status due to an amendment to
reflect the outcome of Windsor
for some or all purposes as of a date prior to June 26,
2013, if the amendment complies with applicable qualification requirements (such as
section 401(a)(4)). Recognizing same-sex spouses for all purposes under a plan prior
to June 26, 2013, however, may trigger requirements that are difficult to implement
retroactively (such as the ownership attribution rules) and may create unintended
consequences. Provided that applicable qualification requirements are otherwise
satisfied, a plan sponsor’s choice of a date before June 26, 2013, and the purposes for
which the plan amendments recognize same-sex spouses before June 26, 2013, do not
affect the qualified status of the plan. For example, for the period before June 26, 2013,
a plan sponsor may choose to amend its plan to reflect the outcome of Windsor
solely
with respect to the QJSA and QPSA requirements of section 401(a)(11) and, for those
purposes, solely with respect to participants with annuity starting dates or dates of death
on or after a specified date.

PLAN AMENDMENTS

Q-4. For purposes of satisfying the Federal tax rules relating to qualified retirement
plans, must a qualified retirement plan be amended to reflect the outcome of Windsor

and the guidance in Rev. Rul. 2013-17 and this notice?

A-4. 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,
as described in Q&A-5 through Q&A-7 of this notice.

Q-5. Must a plan sponsor amend a qualified retirement plan if its terms with respect to
the requirements of section 401(a) define a marital relationship by reference to section 3
of DOMA or if the plan’s terms are otherwise inconsistent with the outcome of Windsor

or the guidance in Rev. Rul. 2013-17 or this notice?

A-5. 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.

Q-6. If a qualified retirement plan’s terms are not inconsistent with the outcome of
Windsor
and the guidance in Rev. Rul. 2013-17 and this notice (for example, the term

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“spouse,” “legally married spouse” or “spouse under Federal law” is used in the plan
without any distinction between a same-sex spouse and an opposite-sex spouse), must
the plan be amended to reflect the change in meaning or interpretation of those terms to
include same-sex spouses?

A-6. 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. (Though not
required, a clarifying amendment may be useful for purposes of plan administration.)

Q-7. If a plan sponsor chooses to apply the rules with respect to married participants in
qualified retirement plans in a manner that reflects the outcome of Windsor
for a period
before June 26, 2013, is an amendment to the plan required?

A-7. Yes, 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 for this amendment is the date specified in Q&A-8 of
this notice.

Q-8. What is the deadline to adopt a plan amendment pursuant to this notice?

A-8. 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. Moreover, in the case of a governmental plan,
any amendment made pursuant to this notice need not be adopted before the close of
the first regular legislative session of the legislative body with the authority to amend the
plan that ends after December 31, 2014.

Q-9. Is an amendment to a single-employer defined benefit plan that implements the
outcome of Windsor
and the guidance in Rev. Rul. 2013-17 and this notice subject to
the requirements of section 436(c)?

A-9. In general, under section 436(c), an amendment to a single-employer defined
benefit plan that increases the liabilities of the plan cannot take effect unless the plan’s
adjusted funding target attainment percentage is sufficient or the employer makes the
additional contribution specified under section 436(c)(2). However, this notice provides
a special rule pursuant to § 1.436-1(c)(4)(iii). Under this special rule, a plan amendment
that is described in Q&A-5 of this notice and that takes effect on June 26, 2013, is not
treated as an amendment to which section 436(c) applies. In contrast, a plan
amendment that is described in Q&A-7 of this notice is an amendment to which section
436(c) applies.

IV. EFFECT ON OTHER DOCUMENTS

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Rev. Rul. 2013-17 is amplified by providing further guidance on the effect of the
Windsor
decision with respect to qualified retirement plans under section 401(a).

V. DRAFTING INFORMATION

The principal authors of this notice are Angelique Carrington of the Employee Plans,
Tax Exempt and Government Entities Division, and Jeremy Lamb of the Office of
Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For
further information regarding this notice, contact Ms. Carrington at
RetirementPlanQuestions@irs.gov or Mr. Lamb at (202) 317-6700 (not a toll-free call).