The IRS has recently issued a new Notice (Notice 2014-19) dealing with qualified retirement plans and same sex marriage. As you know, the Supreme Court struck down the provisions in the Federal Defense of Marriage Act banning the recognition of same sex marriages. Although this issue is and will probably remain a political issue, it is now a business and tax reality with which every business with a qualified plan must comply.
Under the Notice, the IRS has established a rule that same sex couples legally married in a state that has approved same sex marriage will be treated as married for federal tax purposes without regard to their current residence. By adopting the “state of celebration” rule, the IRS renders the actual state of residence irrelevant. The Notice provides for mandatory recognition of all same sex marriages occurring after June 26, 2013. Qualified Plans are not required to recognize same sex marriages prior to that date.
For instance, if a participant in the plan dies after June26, 2013, the surviving same sex spouse who is legally married as of the date of the participant’s death is entitled to and must receive the participant’s plan benefits regardless of any prior inconsistent elections or beneficiary designations by the participant to which the surviving spouse did not consent to in writing or even in the event of conflicting plan provisions. IRS FAQ-1 in an FAQ published June 20, 2014 (Issue 2014-25).
This rule requires that all qualified retirement plans be amended pursuant to the Notice by the later of December 31, 2014 or the end of the plan year in which the amendment becomes effective (which means most all plans will have to be amended by the end of this year).