Administering Retirement Plans in a Post-Windsor World

Employer sponsors of employee benefit plans have faced a myriad of challenges over the past year. Major policy changes in Washington have resulted in changes to the operation of employee benefit plans governed by the Employee Retirement Income Security Act (ERISA), most notably plans offering retirement and healthcare benefits to employees. The ever-changing machinations of the Affordable Care Act have garnered the most attention lately. But for many employers the most challenging questions have arisen from the U.S. Supreme Court’s ruling in the case of United States v. Windsor last summer. That case, and the constantly changing makeup of same-sex marriage laws in the states, raised many questions concerning the operation of ERISA-qualified retirement plans. Thankfully, recent guidance from regulators provides answers which will assist employer sponsors in properly administering their plans and avoiding disqualification for federal tax purposes.

The Windsor Case

To understand the issues, it is best to first review the scope of the Windsor case and the unresolved questions left after the Supreme Court’s decision. The case stemmed from the marriage of Edith Windsor and Thea Spyer, two women who were lawfully married in Ontario, Canada in 2007 and lived in New York. In 2009, Spyer died and left her entire estate to Windsor. Windsor sought to claim the federal estate tax exemption for surviving spouses. Windsor was barred from doing so under section 3 of the Defense of Marriage Act (DOMA), a 1996 law that excluded same-sex spouses from the definition of “marriage” under federal law. Section 3 had amended the Dictionary Act to read that the “word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers to a person of the opposite sex who is a husband or a wife.” 1 U.S.C, § 7.

The case was originally filed in 2010 at the U.S. District Court for the Southern District of New York. In 2012, the District Court found, and the Second Circuit Court of Appeals later affirmed, that DOMA section 3 was unconstitutional because it denied same-sex spouses due process and equal protection of the law as provided for under the Fifth Amendment to the United States Constitution. The lower court applied heightened scrutiny to DOMA’s exclusion of legally married same-sex couples from the definition of marriage under federal law. Both courts determined that the federal government did not have a legitimate purpose for denying those lawfully-married couples equal treatment under federal law. The Supreme Court granted certiorari to review the Appeals Court’s decision. On June 26, 2013, the majority issued an opinion affirming the lower courts and declaring DOMA section 3 to be unconstitutional.

The Windsor case stands for the proposition that federal regulators are no longer permitted to exclude lawfully-married same-sex spouses from the definition of marriage. This ruling affected approximately 1,000 citations in the U.S. Code, a majority of which concerned eligibility for federal benefits. The Windsor decision also prohibited federal tax law from discriminating against same-sex spouses. Thus, to be qualified for tax-preferred status under section 401(a) of the Internal Revenue Code, employer-sponsored retirement plans under ERISA can no longer operate, or define marriage, to the exclusion of a participant’s same-sex spouse.

What About DOMA Section 2?

Because the plaintiffs were married in Canada, the Windsor case did not address section 2 of DOMA. DOMA section 2 amended part of the Judiciary Act to carve out an exception to the general constitutional premise that the legislative acts and judicial decisions of any State, Territory, or Possession of the United States are afforded the same full faith and credit in every court within the United States. 28 U.S.C. § 1738; see also U.S. Const. art. IV. Section 2 provides that no State, territory, or possession of the United States, or Indian tribe, should be required to give effect to lawful same-sex marriages under the laws of other States, territory, possession, or tribe. 28 U.S.C. §1738C. Thus, while Windsor prohibits discrimination against lawfully-married same-sex spouses for the purposes of federal law, it did not address the constitutionality of state laws prohibiting same-sex marriage in the first place.

Predictably, challenges to the underlying state laws and constitutions prohibiting same-sex marriages and DOMA section 2 have been filed in courts across the country. Though based on a variety of legal theories, most allege that these laws violate the Fourteenth Amendment’s due process and equal protection clauses. For a number of reasons, including concerns over federalism (the role of the state and federal governments in defining marriage), the limited jurisdiction of federal courts under Article III of the Constitution, and scope of the Full Faith and Credit clause of Article IV, these decision will likely take years to snake their way through state and federal court systems.

Conflicting State Marriage Laws and the “State of Celebration” Rule

The continued validity of DOMA section 2 and state law prohibitions against same-sex marriage have created a landscape in which the validity of a marriage can change by simply crossing state lines. Employers located in states such as New Hampshire that permit same-sex marriage, but with employees with same-sex spouses living in states that prohibit the same, are especially vulnerable. In the months after the Windsor decision, federal regulators issued guidance to resolve such conflicts for their respective programs. For instance, the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) issued guidance on September 18, 2013 addressing this point for ERISA-governed employee welfare plans. In Technical Release 2013-04, the EBSA wrote that the law of the state where an employee is married controls the definition of the terms “spouse” and “marriage.” Thus, for the purposes of administering health insurance plans, for example, the marriage laws of the “state of celebration” — rather than the employee’s domicile — controls eligibility for participation, taxation of spousal health insurance benefits, and COBRA coverage rights, to name a few.

Of note to employers, however, is conflicting guidance from the Department of Labor’s Wage and Hour Division. Under administrative guidance issued shortly after Windsor (Fact Sheet #28F), the Division defined “spouse” for the purposes of the Family and Medical Leave Act (FMLA) as a husband or wife “as defined or recognized under state law for purposes of marriage in the state where the employee resides….” This “state of residence” rule means that, for FMLA purposes, employers must keep abreast of the gender of their employees’ spouses, their employees’ legal domiciles, and the marriage laws applicable to that jurisdiction. Although certainly an outlier, and expected to be amended at some point in 2014, the Wage and Hour Division’s guidance creates a potential conflict between an employer’s FMLA leave and health insurance coverage obligations.

Tasked with the responsibility to regulate ERISA-governed employee retirement plans, the Department of Treasury and the Internal Revenue Service also issued guidance on September 16, 2013. In Revenue Ruling 2013-17 the IRS stated that the marriage laws of an employee’s “state of celebration” control the definition of “spouse” and “marriage” for the purposes of ERISA-qualified retirement plans. Because the Supreme Court did not note whether the Windsor decision was to apply retroactively, the IRS made the “state of celebration” rule prospective from September 16, 2013 for all federal tax purposes, “including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.” Rev. Rul. 2013-17 also clarified the IRS’s position that civil unions and domestic partnership were not “marriages” for the purpose of ERISA spousal benefits.

Amending Retirement Plans for Same-Sex Spouses

Rev. Rul. 2013-17 left open the issue of retrospective application of the state of celebration guidance for qualified retirement plans. Of particular concern was the qualification of plans in consideration of ERISA rules governing survivor benefits and spousal consent, qualified domestic relations orders (QDROs), plan loans, hardship withdrawals, required minimum distributions, and rollovers. On April 21, 2014, the IRS published Notice 2014-19 to clarify the issue. That guidance established that qualified retirement plan operations must reflect the outcome ofWindsor as of June 26, 2013 and the IRS’s “state of celebration” rule as of September 16, 2013. Consequently, a plan which did not recognize a same-sex spouse of a participant prior to June 26, 2013, or did not recognize a same-sex spouse of a participant prior to September 16, 2013 because they were domiciled in a state which prohibited same-sex marriage, will not be treated as failing to qualify under ERISA for those reasons.

Notice 2014-19 has immediate consequences for plan sponsors who either operated their plans erroneously after the June 26, 2013 or September 16, 2013 or who have plan documents that define “marriage” with reference to DOMA section 3 or to the exclusion of same-sex spouses. For plans that did not define marriage, but were operated erroneously and to the exclusion of same-sex spouses, after the effective dates of Notice 2014-19, employers may take advantage of the IRS’s Employee Plans Compliance Resolution System (EPCRS) to make corrections to operational failures. For plans whose documents defined or define marriage in violation of Windsor, Notice 2014-19 was written to “provide sufficient time for plan amendments and any necessary corrections so that the plan and benefits will retain favorable tax treatment for which they otherwise qualify.” Thus, the IRS gave plan sponsors until either the remedial amendment period for their plan specified under section 5.05 of Rev. Prov. 2007-44 or December 31, 2014, whichever is later. Governmental plans must be amended by December 31, 2014.

The IRS guidance only requires plan sponsors to make amendments effective as of June 26, 2013. Plan sponsors may make amendments applicable to periods before June 26, 2013 and may do so for some or all purposes. However, plan amendments applicable to periods before June 26, 2013 may have unintended consequences and should only be implemented after careful consideration of the amendment’s implications for plan funding and liabilities.


In July 2013, when Windsor was decided, only 11 states and the District of Columbia permitted same-sex marriage. As of this writing, 8 more states have passed same-sex marriage laws and another 11 have had their statutory or constitutional prohibitions against same-sex marriage overturned. With the tide of same-sex marriage moving steadily toward its allowance, conflicting interpretations will have less and less impact on employers. In the meantime, however, employers should take the time to review their policies and plan documents to ensure compliance with federal and state law concerning same-sex marriage.