The Same Sex Marriage Compliance Challenge

Same sex marriage is now recognized for Federal tax and benefit purposes regardless of the law in your state.

Federal law recognizes the validity of all same sex marriages performed in states where the ceremony is legal (the “state of celebration”). Consequently, a same sex marriage performed in Iowa will be recognized as legal even if both members of the married couple are Illinois residents where same sex marriage is not sanctioned until June 1, 2014 (a judicial ruling has accelerated the right to a same sex union in Illinois if one of the same sex partners has a serious illness).

So, even if same sex marriage is not legal in your state, your qualified retirement plans need to treat same sex couples married in a ceremony that is lawful in the state of celebration as spouses (domestic partnerships, civil unions and other same sex arrangements sanctioned in some states do not constitute “marriage” for this purpose). This will extend rights under qualified joint and survivor annuities, spousal consent to beneficiary designations and even qualified domestic relations orders to same sex married couples. Your retirement plan’s administrative forms should be revised to reflect the rights of same sex married couples. Formal plan amendments are not required at this time but the IRS is expected to issue additional guidance in the near future regarding what plan change will be necessary.

The challenge of same sex marriage is just one administrative matter that requires urgent attention. Prudent plan administrators will also want to review their plan’s administrative procedures and fiduciary compliance. This review should consider plan expenses, participant fees and plan investments as well as plan operations, design and documentation. Bear in mind that a retirement plan’s best defense to any adverse claim is well drafted plan documents that are both unambiguous and consistent.

Do not hesitate to contact us if you would like a sample compliance check list to start your compliance review.

Also bear in mind that individually designed “Cycle C” retirement plans (plans of employers whose EIN ends in “3” or “8”) have until January 31, 2014 to file on-cycle determination applications with the IRS.