On June 26, 2015, the U.S. Supreme Court issued its decision in Obergefell v. Hodges,* ruling that the 14th Amendment requires all states (and the District of Columbia and U.S. territories) to recognize same-sex marriage. The ruling also requires states to recognize same-sex marriages lawfully performed in another state.
Previously, in 2013, the Supreme Court had ruled in United States v. Windsor** that Section 3 of the Defense of Marriage Act (DOMA) was an illegal denial of equal protection rights guaranteed by the Constitution. DOMA is an all-encompassing statute that applies to more than 1,100 federal laws and regulations administered by federal departments and agencies, including the Internal Revenue Service (IRS) and the Department of Labor (DOL).
Section 3 of DOMA had defined the term “marriage” as “a legal union between one man and one woman as husband and wife” and the term “spouse” as “a person of the opposite sex who is a husband or a wife,” thereby precluding same-sex couples from being considered married under federal law. After the Supreme Court held Section 3 of DOMA to be unconstitutional, same-sex married individuals in states allowing same-sex marriage became entitled to the same general rights as opposite-sex married partners.
Qualified Plan Spousal Rights
Prior to Windsor, spousal qualified plan rights were not available to same-sex partners, but now they are available nationwide, with the following retirement plan rights and requirements applying to both same-sex and opposite-sex married couples:
- The need for spousal consent to name someone other than the spouse as beneficiary
- Qualified joint and survivor annuity (QJSA) protections
- For plans subject to the QJSA rules, the need for spousal consent for such things as distributions, loans, or hardship withdrawals
- Availability of hardship distributions for a spouse’s hardship
- For purposes of calculating required minimum distributions, use of the joint life tables that apply where the spouse is more than 10 years younger than the account owner
- Ability of a spouse to roll over plan assets into his or her own individual retirement account (IRA) or his or her own qualified plan account, if the plan permits such rollovers
- Ability of the spouse to roll over the IRA of the deceased spouse into the surviving spouse’s own IRA or into an inherited IRA
- Availability of qualified domestic relations orders (QDROs)
- Family attribution rules must reflect the spousal relationship for purposes of determining highly compensated employees, key employees, and controlled groups
State and local governments are subject to the 14th Amendment guarantee of equal protection. The Supreme Court held that same-sex couples may not be deprived of that right and liberty. The Obergefell decision holds that the 14th Amendment now requires a state to license a marriage between two people of the same sex and to recognize a same-sex marriage lawfully licensed and performed out of state.
Retirement Plan Impact
Retirement benefits and spousal benefits under employer-sponsored plans in the private sector are regulated by federal law. As a result, after the Windsor decision and IRS guidance on income tax and qualified plan matters, private sector retirement plans recognized same-sex spouses as spouses for all qualified plan purposes. However, certain types of retirement plans sponsored by public sector employers and churches are not subject to ERISA, which is a federal law, and therefore were not impacted by the Windsor decision. Thus, the Obergefell decision will have a greater impact on public sector and church plans.
States that recognize domestic partnerships or civil unions have a greater chance of being affected by the Obergefell decision than the Windsor decision since same-sex marriages are now legal in all states. The purpose of civil unions and domestic partnerships was to afford individuals some of the benefits of marriage (such as medical power of attorney) because the state did not have same-sex marriage laws. If a couple that entered into a domestic partnership or civil union does not wish to get married, perhaps due to the expense of restructuring all the documents they created under the domestic partnership or civil union rules, then the members of the domestic partnership or civil union will not be recognized as marital spouses. Thus, they will not be entitled to rely on the qualified plan spousal rules.
An additional rule concerns retroactive application of the Obergefell decision. Generally, when the Supreme Court holds a law to be unconstitutional, it is as if the law never existed. After the Windsor decision, the IRS issued guidance which, for the most part, eliminated any requirement for retroactively changing decisions made in the past under qualified plans. This issue is particularly critical for defined benefit plans and plans subject to spousal consent under which distributions have previously been made. For example, if a participant’s beneficiary received a distribution prior to the Windsor decision and there was no spousal consent deemed necessary for the designation of that beneficiary — because same-sex spouses were not recognized — the IRS’s position was that Windsor would not apply retroactively. Whether the IRS will see a need to issue any additional guidance after the Obergefell decision remains to be seen.
As a best practice, plan sponsors should remind all plan participants to review their current beneficiary designations on a recurring basis to ensure they are accurate and up to date. Many commentators suggest that reviews be made every five years and whenever there is a life event, such as a birth, death, marriage, or divorce.
* 576 U.S. ___ (2015)
** 570 U.S. ___ (2013)