You Probably Don’t Need a Year-End Plan Amendment to Reflect the Supreme Court’s Same-Sex Ruling
If you’re worried that the U.S. Supreme Court’s ruling on same-sex marriage last summer might require a year-end amendment to your employee benefit plans,you have the paranoia of an ERISA attorney. You’re also in luck because the IRS recently issued Notice 2015-86, which confirms that you probably don’t need to amend your employee benefit plans unless you want to. Why you might want to adopt an amendment will be explained below, but first, some background.
On June 26, 2015, in Obergefell v. Hodges, the U.S. Supreme Court made two important rulings: (1) the Fourteenth Amendment requires a state’s marriage laws to apply to same-sex couples “on the same terms and conditions as opposite-sex couples”; and (2) a state is prohibited from refusing to “recognize a lawful same-sex marriage performed in another State on the ground of its same-sex character.” 135 S.Ct. 2584 (2015). These rulings caused certain states to recognize for the first time same-sex marriages previously performed in other states. This change in state law is important for a sponsor of an employee benefit plan because certain plans define spouse by reference to the definition under state law. If that describes your plan, the IRS notice gives comfort that no amendment is required, with a few exceptions.
Health and Welfare Plans
For most, Obergefell does not require any changes to the terms of a health or welfare plan because federal tax law generally does not require a plan to offer benefits to a participant’s spouse. If your plan does offer spousal coverage, you should already be treating same-sex and opposite-sex spouses equally in the wake of the U.S. Supreme Court’s 2013 decision in United States v. Windsor, which recognized the marriage of same-sex spouses for federal tax purposes. 570 U.S. 12 (2013).
You’ll only need to amend your plan in the following limited situation. If your group health plan offers coverage to spouses—as defined under state law—you might have determined that applicable state law changed due to Obergefell, making same-sex spouses eligible for coverage under the plan midyear. A change in eligibility criteria constitutes a significant improvement in coverage under an existing coverage option for purposes of a cafeteria plan established under Section 125 of the tax code. This means that a participant may revoke an existing election and make a new election (e.g., adding coverage for a same-sex spouse), but only if the terms of the cafeteria plan expressly permit the change in election. If you allowed this kind of midyear election change even though your cafeteria plan does not expressly permit participants to make a change in election due to a significant improvement in coverage during the coverage period under an existing coverage option, then you need to amend the plan to retroactively permit such an election change. The amendment must be adopted by no later than the last day of the plan year when same-sex spouses first became eligible for coverage under the plan (i.e., December 31, 2015, for calendar-year plans that allowed election changes in 2015; later for governmental plans).
A 401(k) plan or other qualified retirement plan is not required to make changes as a result of Obergefell. (Any amendment required by Windsor to recognize same-sex spouses and their marriages should have been adopted by December 31, 2014. If you missed that deadline, this article describes how to fix the problem.)
Although no amendment is required, the IRS notice permits you to amend your qualified retirement plan to offer new benefits to same-sex spouses retroactively. For example, you could amend your retirement plan to provide participants who commenced a distribution in the form of a single life annuity with an opportunity to elect a qualified joint and survivor annuity as of a new annuity starting date. Just remember that if you’re amending a single-employer defined benefit plan, any amendment that extends benefits to same-sex spouses in response to Obergefell is a discretionary expansion of coverage subject to Section 436(c) of the tax code. That means the amendment can’t take effect unless the plan’s adjusted funding target attainment percentage is sufficient or you make additional contributions required under Section 436(c)(2). The deadline to adopt a plan amendment is generally the end of the plan year in which the amendment is operationally effective (later for governmental plans).
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.