IRS Issues Guidance on application of Obergefell to Retirement Plans

The U.S. Supreme Court’s June ruling in Obergefell v. Hodges, 576 U.S. ___, 135 S.Ct. 2584 (2015), the decision that overturned state laws and constitutional amendments that defined marriage as occurring between a man and a woman had many consequences, and retirement plans are among the areas it affects. The IRS in Notice 2015-86 has provided guidance on how Obergefell applies to retirement plans.

Treasury and the IRS issued the notice in response to requests for clarification regarding how Obergefell applies to certain changes to employee benefit plans, such as a discretionary expansion of benefits not required under the federal tax rules.

Highlights of the guidance, which appears in question-and-answer form, include the following:

• Retirement plans are not required to make any additional changes due to Obergefell beyond those they already had to make by Dec. 31, 2014 to apply the Supreme Court’s 2013 Windsor decision in which the Court recognized same-sex marriage for purposes of federal law. Plan amendments recognizing same0sex spouses and marriages were to be adopted and effective by that date.

• Under Obergefell, some plans may adopt discretionary amendments to provide new rights or benefits regarding participants with same-sex spouses. Such amendments must comply with the applicable plan qualification requirements (such as the nondiscrimination requirements of section 401(a)(4)).

• In general, under Windsor and Notice 2014-19, a qualified retirement plan must recognize the same-sex spouse of a participant as a spouse on and after June 26, 2013, the date of the Windsor decision. However, a plan will not lose its qualified status if it also applies Windsor to same-sex marriages and spouses dating before June 26, 2013. A plan sponsor that has not made such a retroactive amendment may decide to do so without losing its qualified status, provided the amendment otherwise complies with Notice 2014-19.

• n general, under Code Section 436(c), a discretionary amendment to a single-employer defined benefit plan that increases the plan’s liabilities cannot take effect unless the plan’s adjusted funding target attainment percentage is sufficient or the plan sponsor makes the additional contribution Section 436(c)(2) specifies. Because an amendment that extends rights and benefits — for example, by providing new ones or making recognition retroactive — to a same-sex spouse in response to Obergefell or Notice 2015-86 is discretionary, such an amendment is subject to these Section 436(c) requirements.

• Amendments to a qualified retirement plan under Notice 2015-86 are not interim amendments, but are discretionary. Thus, the deadline to adopt a plan amendment under Notice 2015-86 generally is the end of the plan year in which the amendment is operationally effective. However, in the case of a governmental plan, the deadline for any amendment made pursuant to this notice is the later of (1) the end of the plan year in which the amendment is operationally effective, or (2) the last day of the next regular legislative session beginning after the amendment is operationally effective, in which the governing body with authority to amend the plan can consider a plan amendment.

Notice 2015-86 will appear in Internal Revenue Bulletin 2015-52, which will be issued on Dec. 28, 2015.