10 things you need to know about
same-sex marriage
Since the U.S. Supreme Court struck down part of the Defense of Marriage Act (DOMA) in 2013 with the
Windsor ruling, employers have faced significant changes to their benefits administration. This has raised
questions for many employers and employee-benefit practitioners. You may be wondering: Do you need
to amend plan documents to comply with the Windsor ruling, and with IRS and DOL guidance that followed
the ruling? If so, when? Would the Windsor ruling be applied retroactively?
To address this uncertainty, the IRS issued Notice 2014-19 in April 2014. The Notice confirmed a plan
amendment is needed if the plan terms define a marital relationship according to Section 3 of DOMA,
or otherwise inconsistent with the outcome of Windsor or Revenue Ruling 2013–17.
Further, IRS Notice 2014-19 clarified that a plan will not
be treated as failing to meet Internal Revenue Code
requirements simply because the plan didn’t recognize
same-sex marriages prior to the Windsor ruling on June
26, 2013. Accordingly, a plan will not be disqualified for
transactions processed without a same-sex spousal
consent prior to the Windsor ruling. A plan may be amended
to reflect the outcome of the Windsor ruling for some or all
purposes as of a date prior to June 26, 2013; however, the
IRS Notice acknowledges that retroactive administration
may trigger requirements that, as a practical matter, could
prove difficult to implement. The IRS Notice also confirmed
that the Windsor ruling and related IRS guidance apply to
both qualified plans and section 403(b) plans. The notice
does not address 457 plans.
For 401(a) qualified plans—with the exception of
governmental plans—adopting an amendment, the filing
deadline is generally December 31, 2014. For governmental
plans, the deadline is a little more complex: These plans
must be amended by the close of the first regular session of
the legislative body with authority to amend the plan that
ends after December 31, 2014.
The amendment deadline guidance does not apply to 403(b)
plans and the IRS has not yet announced a deadline for
those plans.
We understand that you may feel overwhelmed by the scope
of the Windsor ruling and the subsequent guidance provided
by the DOL and IRS. To help you understand and manage
your compensation and benefits, our experts answered 10
common questions.
1. Do I need to make plan design changes?
According to the Windsor decision, you must have in place
administrative and operational policies and procedures to
meet plan compliance requirements. As part of your
compliance process, you may need to update your plan
language. You should also carefully review your plan
documents and Summary Plan Descriptions (SPDs) for
provisions relating to DOMA and spousal rights, including
the definition of “spouse.” Also:
WW You
should update employee handbooks and policy
manuals to reflect the new spousal definition, if needed.
WW If
you increase your employees’ salary to account for the
income tax liability associated with the value of a samesex spousal benefit, you may discontinue this practice in
most cases. This additional salary or payment is
commonly known as a “gross-up payment” while the
actual income received is known as “imputed income.”
WW Employees
that received gross-up payments may now be
eligible for refunds. If this is the case, then you will have
to determine how to handle the extra payments awarded
to employees.
10 things you need to know about same-sex marriage
2. What changes might have
an impact on and require changes to
our benefit plan forms?
and distribution: You may need to update
beneficiary and distribution forms to reflect the inclusion
of same-sex spouses in the definition of a marriage. For
example, same-sex spouses are now eligible for some
retirement plan distribution options, such as Qualified
Joint and Survivor Annuities (QJSAs) and Qualified PreRetirement Survivor Annuities (QPSAs), and past forms
may not account for these new options.
WW Beneficiaries
consents: The rights of same-sex spouses are
protected under ERISA to the same extent as the rights
of opposite-sex spouses. Accordingly, required spousal
consent rules, for example in the case of distributions
and loans, need to be implemented in the same compliant
manner for same-sex spouses. You should consider
offering employees the opportunity to review beneficiary
designations that were made prior to Windsor to ensure
that their accumulations ultimately go to the intended
recipients. It is possible that certain documents are now
invalid or inappropriate if they list a non-spouse beneficiary
without spousal consent.
Governmental plans are likely to experience a more
limited impact from the post-Windsor guidance than
the plans of tax-exempt organizations. The plan
features most likely to be affected include rollover
distributions, as same-sex spouses will now have the
right to these distributions, and the minimum
distribution rules. Additionally, a non-ERISA plan that
electively requires spousal consents may face
practical implementation challenges in states that
don’t recognize same-sex marriages.
WW Spousal
withdrawals: If your plan allows for it, a
participant can now obtain a hardship withdrawal due to
the qualified needs of a participant’s same-sex spouse or
their dependents. Your forms should account for this.
WW Hardship
Non-participant spouses may now be eligible to
receive benefits pursuant to a Qualified Domestic
Relations Order (QDRO) in the event of divorce.
WW Divorce:
Same-sex couples may now be eligible for
additional rollover options beyond just a personal or
inherited IRA rollover, which may require updating rollover
forms. A same-sex spouse can also treat an inherited IRA
as his or her own, and can take advantage of the more
generous rollover rule.
WW Rollovers:
distribution requirements (RMDs): More lenient
distribution rules now apply to same-sex spouses.
WW Minimum
3. What payroll tax changes should I make
regarding healthcare?
Same-sex marriages are now recognized for all federal tax
purposes and you should update your employer withholding
procedures and payroll systems to reflect this. If you are
imputing income for the value of employer-paid healthcare
expenses for same-sex spouses, you should discontinue
this practice going forward for federal tax purposes. Note
that imputed income for state tax purposes may vary by
work state and/or residence state. Prior to Windsor,
contributions for same-sex employee benefits premiums
were subject to federal taxation. However, you should now
treat these contributions on a pre-tax basis. Once again, it
is important to remember that the treatment of premium
contributions at the state level may vary based on state of
work and/or residence.
4. How are cafeteria plans affected?
Although employees are not required to make new cafeteria
plan elections for medical FSAs, you should encourage them
to review their options. Changes in employee elections could
result in tax-advantaged savings. Participant same-sex
spouses are now eligible for reimbursement and healthcare
enrollment changes could change a participant’s anticipated
qualified expenses. Other impacts to cafeteria plans affect
allowable contribution levels. Your employees may have to
change their contribution amounts if the combined contribution from both spouses exceeds the family maximum.
10 things you need to know about same-sex marriage
5. How should I handle state taxes
in states that don’t recognize
same-sex marriage?
State taxes are treated differently in these states, but the
reality is that most states start with federal AGI or taxable
income to compute state tax obligations. This means that
there would be no difference in withholding treatment for
same-sex spousal benefits. Although this would be the
case in most states not recognizing same-sex marriage,
employers should seek counsel from their tax advisor to
determine their treatment under relevant and applicable
state law.
6. Do I need to require documentation
of marital status for same-sex couples?
Generally speaking, you should consider applying your
spousal documentation requirements for opposite-sex
spouses to same-sex spouses. You should also encourage
employees to update their W-4, and take care to update any
documents that affect spouses.
7. How do I apply for payroll tax refunds?
Employers and employees may need to consider whether to
file federal or state refund requests to recover taxes paid on
the cost of same-sex spousal coverage in prior tax years. To
accomplish this for open tax years, you may adjust payroll
tax returns on Form 941-X. However, the IRS has indicated
that it will provide further guidance regarding a streamlined
solution for getting refunds.
Note: You must contact employees who received excludable
benefits—fringe benefits not subject to taxation—and give
them an opportunity to participate in the claim for refund. To
request a refund of employee-paid FICA, you must receive
consent from the employee. Without this consent, you can
only request a refund of employer-paid portion of the FICA
taxes and the employee will likely have a hard time receiving
a refund from the IRS through other means.
8. What should I communicate
to plan participants?
Your communications plans should inform employees of the
changes that affect them and their potential implications.
Many of these overlap with the benefit plan form changes
listed under Question 2. These changes could include:
WW Same-sex
spouses have rights to benefits under many
retirement plans upon an employee’s death unless the
same-sex spouse consents to waive this right.
WW Same-sex
spouses are entitled to spousal rights that apply
under ERISA to opposite-sex spouses.
WW Non-spouse
beneficiary designations on retirement plans,
life policies and AD&D insurance may be invalid.
WW Same-sex
spouses have access to Consolidated Omnibus
Budget Reconciliation Act (COBRA) and Health Insurance
Portability and Accountability Act (HIPPA) rights.
WW Marriages,
divorces and adoptions are “qualifying events”
for cafeteria-style benefits.
WW Needs
of same-sex spouses are eligible for hardship
withdrawal triggers.
WW Same-sex
spouses are eligible for Family and Medical
Leave Act (FMLA) leave, as well as Social Security and
other federal benefits.
WW Qualified
Domestic Relations Order (QDRO) may be used in
the event of divorce.
WW Same-sex
spouses’ qualified expenses are eligible for
reimbursement through flexible spending accounts (FSAs),
health savings accounts (HSAs) and health reimbursement
arrangements (HRAs).
WW Surviving
same-sex spouses now generally have a longer
time period to begin required minimum distributions (RMDs).
WW Same-sex
spouses can roll over death benefit proceeds to
their IRAs or other eligible retirement plans.
WW A
retirement plan may require same-sex spousal consent
prior to completing a plan loan.
10 things you need to know about same-sex marriage
9. What other steps should I suggest
to affected employees?
WW Reconsider
their filing status in addition to updating
their W-4.
WW Review
all beneficiary designations.
WW Determine
whether to file an amended tax return for
a refund of taxes paid on prior years’ benefits.
10. Any other administrative suggestions?
WW Establish
procedures to identify marital relationships for
same-sex spouses.
WW Make
sure your HRIS system has an option for and can
handle a same-sex spouse classification.
Let us help guide you
The Windsor ruling opened the door to many complex
questions and although the DOL and IRS have helped to
clarify the ruling’s impact on a plan’s qualified status and
other matters, it is still unclear how to address claims that
may arise under ERISA. Additional guidance from the DOL
would be helpful for purposes of administering and
processing these claims, but the DOL has not indicated if and
when they will provide this guidance. TIAA-CREF will continue
to monitor developments closely and provide assistance to
our plan sponsors in making decisions that affect their
plans and participants. As the DOL and IRS release
additional guidance, we will update this fact sheet to keep
you up-to-date on changes that affect your benefits plans.
WW Confirm
that third-party administrators are updating
policies and preparing to provide required notices to
same-sex spouses.
WW Send
out new spousal consent forms if needed.
WW Update
your payroll system for same-sex spouses.
WW Prepare
benefit help desks to answer employees’
questions and update relevant procedures and policies.
This material is for informational purposes only and the statements made above represent TIAA-CREF’s interpretation
of applicable law. It is presented with the understanding that TIAA-CREF (or its affiliates, distributors, employees,
representatives and/or insurance agents) is not engaged in rendering legal or tax advice.
TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute
securities products.
© 2014 Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF), 730 Third Avenue, New
York, NY 10017
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201921_427905
A14359 (05/14)