n-15-86.pdf

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Application of Obergefell to Qualified Retirement Plans and Health and Welfare
Plans

Notice 2015-86

I. PURPOSE

This notice provides guidance on the application of the decision in Obergefell v.
Hodges, 576 U.S. ___, 135 S.Ct. 2584 (2015), to retirement plans qualified under
section 401(a) of the Internal Revenue Code (Code) and to health and welfare plans,
including cafeteria plans under section 125 of the Code. This guidance relates solely to
the application of federal tax law with respect to same-sex spouses.

II. BACKGROUND

.01 Windsor and Impact on Employee Benefit Plans

Prior to the decision of the Supreme Court in United States v. Windsor, 570 U.S. ___,
133 S.Ct. 2675 (2013), section 3 of the Defense of Marriage Act (DOMA), 1 U.S.C. § 7,
prohibited recognition of same-sex spouses for purposes of federal tax law. As a result,
same-sex spouses who were married under applicable state law were not recognized
as spouses for purposes of the federal tax rules that apply because an individual is
married, including the rules that apply with respect to employee benefit plans.

On June 26, 2013, the Supreme Court held in Windsor that section 3 of DOMA is
unconstitutional. As a result of this decision, marriages of same-sex spouses were
recognized for federal tax law purposes. On August 29, 2013, the Department of the
Treasury (Treasury) and the IRS issued Rev. Rul. 2013-17, 2013-38 I.R.B. 201. Among
other issues addressed in the ruling, Treasury and the IRS adopted a general rule for
federal tax purposes recognizing a marriage of same-sex couples that was validly
entered into in a state whose laws authorize the marriage of two individuals of the same
sex even if the married couple is domiciled in a state that does not recognize the validity
of such marriages. As a result of Windsor and Rev. Rul. 2013-17, marriages of same-
sex spouses that were valid in the state where they were entered into, including
marriages entered into in previous years, were recognized for federal tax law purposes.
1

Following Rev. Rul. 2013-17, Treasury and the IRS issued the following additional
guidance addressing various employee benefit and employment tax issues (collectively

1
Individuals who have entered into a registered domestic partnership, civil union, or other similar formal
relationship recognized under state law that is not denominated as a marriage under the laws of the state
are not recognized as spouses for federal tax law purposes. See Rev. Rul. 2013-17.

2
referred to in this notice as the Post-Windsor Guidance): Notice 2014-19, 2014-17 I.R.B.
979, amplified by Notice 2014-37, 2014-24 I.R.B. 1100 (applying Windsor and Rev. Rul.
2013-17 to qualified retirement plans); Notice 2013-61, 2013-44 I.R.B. 432 (applying
Windsor and Rev. Rul. 2013-17 to employment taxes, including procedures for
adjustments or claims for refunds or credits) ; and Notice 2014-1, 2014-02 I.R.B. 270
(applying Windsor and Rev. Rul. 2013-17 to elections and reimbursements for same-
sex spouses under cafeteria plans, flexible spending arrangements, and health savings
accounts).
2

.02 Limited Effect of Obergefell for Federal Tax Law Purposes

On June 26, 2015, the Supreme Court held in Obergefell that the Fourteenth
Amendment (i) requires a state’s civil marriage laws to apply to same-sex couples “on
the same terms and conditions as opposite-sex couples,” and (ii) prohibits a state from
refusing to “recognize a lawful same-sex marriage performed in another State on the
ground of its same-sex character.”
3
Because Obergefell requires that states recognize
marriages of same-sex couples performed in other states, certain marriages performed
in previous periods will be recognized for the first time for state law purposes. However,
because these same marriages have already been recognized for federal tax law
purposes pursuant to Windsor and the Post-Windsor Guidance, Treasury and the IRS
do not anticipate any significant impact from Obergefell on the application of federal tax
law to employee benefit plans.

Treasury and the IRS understand, however, that some plan sponsors may alter aspects
of their employee benefit plans, or how their plans are administered, in response to
Obergefell. In addition, some plan sponsors have asked for clarification of the
application of Obergefell to certain changes to employee benefit plans, such as a
discretionary expansion of benefits that is not required under the federal tax rules. The
following questions and answers provide guidance to address these issues.

III. QUESTIONS AND ANSWERS

Qualified Retirement Plans

Q-1. For federal tax law purposes, does Obergefell require that a sponsor of a qualified
retirement plan change the terms or operation of its plan?

2
For further information regarding Windsor, Rev. Rul. 2013-17, and Notice 2014-19, see IRS FAQs on
Application of the Windsor Decision and Post-Windsor Guidance to Qualified Retirement Plans
(http://www.irs.gov/Retirement-Plans/Application-of-the-Windsor-Decision-and-Post-Windsor-Published-
Guidance-to-Qualified-Retirement-Plans-FAQs).
3
On October 23, 2015, Treasury and the IRS published proposed regulations that reflect the holdings of
Obergefell, Windsor, and Rev. Rul. 2013-17, and that define terms in the Code describing the marital
status of taxpayers. Definition of Terms Relating to Marital Status, 80 Fed. Reg. 64378 (Oct. 23, 2015).

3

A-1. A qualified retirement plan is not required to make additional changes as a result
of Obergefell. Q&A-8 of Notice 2014-19 required qualified retirement plans to be
amended to reflect Windsor and Notice 2014-19 no later than December 31, 2014 (or a
possible delayed amendment deadline for governmental plans, as described in Q&A-8
of Notice 2014-19). Thus, under Windsor and Notice 2014-19, any plan amendments
required to recognize same-sex spouses and their marriages with respect to the section
401(a) qualification requirements are already required to be adopted and effective
(subject to a possible delayed amendment deadline for governmental plans). However,
a plan sponsor may decide to amend its plan following Obergefell to make certain
optional changes or clarifications. Examples of discretionary amendments a plan
sponsor may decide to make to its qualified retirement plan are described in Q&A-2 and
Q&A-3 of this notice.

Q-2. May a qualified retirement plan be amended to provide new rights or benefits with
respect to participants with same-sex spouses?

A-2. In response to Windsor, some plan sponsors may have amended their qualified
retirement plans to provide new rights or benefits with respect to participants with same-
sex spouses in order to make up for benefits or benefit options that had not previously
been available to those participants.
4
For example, such an amendment may have
provided participants who commenced a single life annuity distribution prior to June 26,
2013 (the date of the Windsor decision) with an opportunity to elect a qualified joint and
survivor annuity (QJSA) form of distribution as of a new annuity starting date. Following
Obergefell, some plan sponsors might similarly decide to make discretionary plan
amendments to provide new rights or benefits with respect to participants with same-
sex spouses. Plan sponsors are permitted to make such amendments, which must
comply with the applicable qualification requirements (such as the nondiscrimination
requirements of section 401(a)(4)).

Q-3. Q&A-3 of Notice 2014-19 provided that a qualified retirement plan could be
amended to recognize marriages of same-sex couples on a retroactive basis as of a
date earlier than June 26, 2013, the date of the Windsor decision. If a plan sponsor did
not make such a retroactive amendment to its qualified retirement plan following
issuance of Notice 2014-19, may the qualified retirement plan now be amended to
recognize marriages of same-sex couples on a retroactive basis and only for certain
purposes as described in Q&A-3 of Notice 2014-19?

A-3. In general, under Windsor and Notice 2014-19, a retirement plan fails to meet the
applicable section 401(a) qualification requirements (such as the qualified joint and

4
See, for example, FAQ-4 in IRS FAQs on Application of the Windsor Decision and Post-Windsor
Guidance to Qualified Retirement Plans (http://www.irs.gov/Retirement-Plans/Application-of-the-Windsor-
Decision-and-Post-Windsor-Published-Guidance-to-Qualified-Retirement-Plans-FAQs).

4
survivor requirements of section 401(a)(11)) if it does not recognize the same-sex
spouse of a participant as a spouse on and after June 26, 2013, the date of the Windsor
decision. However, a plan will not lose its qualified status if it also applies Windsor prior
to June 26, 2013.
5
A plan sponsor that has not yet made such a retroactive amendment
in accordance with Notice 2014-19 may decide to make such an amendment after this
notice is issued. Such an amendment will not cause the plan to lose its qualified status,
provided the amendment otherwise complies with Q&A-3 of Notice 2014-19 (for
example, the amendment must comply with applicable qualification requirements, such
as section 401(a)(4)).

Q-4. Is an amendment to a single-employer defined benefit plan that is intended to
respond to Obergefell or this notice (for example, by extending certain rights and
benefits to a same-sex spouse) subject to the requirements of section 436(c)?

A-4. In general, under section 436(c), a discretionary amendment to a single-employer
defined benefit plan that increases the liabilities of the plan cannot take effect unless the
plan’s adjusted funding target attainment percentage is sufficient or the plan sponsor
makes the additional contribution specified under section 436(c)(2). Because an
amendment that extends rights and benefits to a same-sex spouse in response to
Obergefell or this notice (for example, an amendment described in Q&A-2 or Q&A-3 of
this notice) is a discretionary expansion of coverage, the amendment is subject to the
requirements of section 436(c).

Q-5. What is the deadline for the sponsor of a qualified retirement plan to adopt a plan
amendment pursuant to this notice, such as an amendment described in Q&A-2?

A-5. Amendments to a qualified retirement plan that are contemplated by this notice are
not interim amendments within the meaning of section 5.02 of Rev. Proc. 2007-44, or
successor guidance, but are discretionary amendments. Thus, pursuant to section
5.05(2) of Rev. Proc. 2007-44, the deadline to adopt a plan amendment pursuant to this
notice is generally the end of the plan year in which the amendment is operationally
effective. However, pursuant to section 5.06(1) of Rev. Proc. 2007-44, in the case of a
governmental plan, the deadline for any amendment made pursuant to this notice is the
later of (i) the end of the plan year in which the amendment is operationally effective, or
(ii) the last day of the next regular legislative session beginning after the amendment is
operationally effective in which the governing body with authority to amend the plan can
consider a plan amendment under the laws and procedures applicable to the governing
body’s deliberations.

Health and Welfare Plans

5
See Q&A-3 of Notice 2014-19.

5
Q-6. For federal tax law purposes, does Obergefell require that a sponsor of a health or
welfare plan change the terms or operation of its plan?

A-6. Federal tax law generally does not require health and welfare plans to offer any
specific rights or benefits to the spouse of a participant. To the extent that a health or
welfare plan does offer benefits to the spouse of a participant, the federal tax treatment
of the benefits that are provided to a same-sex spouse has already been addressed in
Rev. Rul. 2013-17 and Notice 2014-1. Accordingly, no changes to the terms of a health
or welfare plan are required due to Obergefell.

If a health or welfare plan does offer benefits to the spouse of a participant, however,
Obergefell could require changes to the operation of the plan to the extent that the
decision results in a change in the group of spouses eligible for coverage under the
terms of the plan. For example, if the terms of a health or welfare plan provide that
coverage is offered to the spouse of a participant as defined under applicable state law,
and the plan administrator determines that applicable state law has expanded to include
same-sex spouses as a result of Obergefell, then the terms of the plan would require
coverage of same-sex spouses as of the date of the change in applicable state law. See
Q&A-7 below for a discussion of election changes under a section 125 cafeteria plan
under such circumstances.

Q-7. If, as of the beginning of a plan year, a health or welfare plan that is offered under
a section 125 cafeteria plan does not permit coverage of same-sex spouses, and the
terms or operation of the plan change during the plan year to permit coverage of same-
sex spouses, may the cafeteria plan permit a participant to revoke an existing election
and submit a new election?

A-7. Yes, if the terms of the cafeteria plan allow (or, under Q&A-8 of this notice, are
amended to allow) a participant to make a change in coverage due to a significant
improvement in coverage during the coverage period under an existing coverage option,
then the participant may revoke an existing election and make a new election as
permitted under § 1.125-4(f)(3)(iii). If the eligibility criteria for a qualified benefit offered
under a cafeteria plan change during a plan year to add eligibility for same-sex spouses,
this change constitutes a significant improvement in coverage under an existing
coverage option for purposes of § 1.125-4(f)(3)(iii). Such a change in eligibility criteria
could occur, for example, as a result of an amendment to the terms of the plan; a
change in applicable state law (to the extent the terms of the plan refer to state law); or
a change in the interpretation of the existing terms of the plan.

A cafeteria plan that allows participants to make a change in election due to a significant
improvement in coverage under an existing coverage option may permit a participant to
revoke an existing election and submit a new election if same-sex spouses first become
eligible for coverage under the terms of the plan during the period of coverage for any
reason, including but not limited to those listed in the preceding paragraph. This new
election may be an election by a participant to add coverage for a same-sex spouse to a
benefit option in which the participant is already enrolled, or an election by a participant

6
who had not previously elected coverage to add coverage for the participant and a
same-sex spouse.

Q-8. If the terms of a cafeteria plan do not allow participants to make a change in
election due to a significant improvement in coverage during the coverage period under
an existing coverage option, may the plan sponsor amend the terms of the cafeteria
plan to allow such an election?

A-8. Yes. The cafeteria plan may be amended at any time to permit participants to
make a change in election. In the case of a change described in Q&A-7, such an
amendment must be adopted no later than the last day of the plan year including the
later of (i) the date same-sex spouses first became eligible for coverage under the plan,
or (ii) December 9, 2015. Such an amendment may be retroactive to the date same-sex
spouses first became eligible for coverage under the plan.

IV. EFFECT ON OTHER DOCUMENTS

Notice 2014-19 is amplified.

V. NO INFERENCE

No inference should be drawn from this notice as to the application of any law other
than federal tax law, including the application of any provisions of the Constitution of the
United States or Title VII of the Civil Rights Act of 1964,
6
to the treatment of same-sex
spouses under employee benefit plans.

VI. DRAFTING INFORMATION

The principal authors of this notice are Jeremy Lamb and Shad Fagerland of the Office
of Associate Chief Counsel (Tax Exempt and Government Entities). For further
information regarding the qualified retirement plan aspects of this notice, contact Mr.
Lamb at (202) 317-6799 (not a toll-free call) and regarding the health and welfare plan
aspects of this notice, contact Mr. Fagerland at (202) 317-5500 (not a toll-free call).

6
Public Law 88-352, 78 Stat. 241.