IRS Guidance Explains Effect of Same-Sex Marriage on Health and Retirement Plans

A notice in question-and-answer format released by the IRS on Wednesday discusses additional changes that could be made to retirement or health and welfare plans, including cafeteria plans, in response to the Supreme Court’s decision in Obergefell, 135 S. Ct. 2584 (2015), which required states to allow same-sex marriages (Notice 2015-86).

Various required changes have already been announced by the IRS in response to the Supreme Court’s earlier decision in Windsor, 133 S. Ct. 2675 (2013) (see Rev. Rul. 2013-17 and Notice 2014-19). Wednesday’s notice allows some discretionary changes as well.

Retirement plans

In the notice, the IRS clarifies that all required amendments to a qualified retirement plan should have already been made after Windsor, under Notice 2014-19, which required most plans (other than governmental plans) to make those changes by Dec. 31, 2014. Nonetheless, there are a few amendments that can still be made that are described in the notice.

First, plans were allowed to be amended after Windsor to permit a participant who began receiving a single-life annuity before Windsor was decided to elect to receive a qualified joint and survivor annuity for the participant and the same-sex spouse now that the law permitted it. This notice permits plan sponsors to make a similar change in response to Obergefell, as long as the change complies with all qualification requirements.   

Second, the IRS notes that, after the Windsor decision was issued, qualified retirement plans were permitted to include same-sex spouses in plans retroactively, so that they would include same-sex spouses for periods before June 26, 2013, the date Windsor was decided. The IRS clarifies that plan sponsors are still permitted to apply this change retroactively to their plans, again as long as the change complies with all qualification requirements.

The third change discussed in the question-and-answer section explains that any discretionary change to retirement plans made in response to Obergefell and this notice must comply with Sec. 436(c), which requires plans to make additional contributions to the plans to meet funding targets.

The deadline to make any of the above discretionary amendments is the end of the plan year in which the changes will be operationally effective, except for governmental plans, which have a different deadline.

Health and welfare plans

The final part of the notice notes that Obergefell generally does not require changes to health plans, except when the plan bases its eligibility for spouses on state law, which has changed as the result of Obergefell. In that case, same-sex spouses must be eligible for coverage on that date.

In addition, if, at the beginning of a plan year, a Sec. 125 cafeteria plan does not permit the plan to cover same-sex spouses and the plan is amended during the year to permit coverage of same-sex spouses, the plan can allow a participant to revoke an existing election and make a new one during the plan year. This would be considered a significant improvement in coverage and therefore would be allowed.

Finally, if the terms of the cafeteria plan do not permit participants to change their elections in response to a significant improvement in coverage, the plan may be amended to allow it, as long as it is done before the last day of the plan year, including the later of (1) the date same-sex spouses first became eligible for coverage under the plan, or (2) Dec. 9, 2015. This change can be retroactive to the date same-sex spouses were first eligible for benefits under the plan.

—Sally P. Schreiber (sschreiber@aicpa.org) is a Tax Adviser senior editor.