Many states have enacted same-sex marriage laws, approved civil unions or domestic partnerships, according to Prudential, all of which present challenges for retirement plan sponsors.
According to its research, Massachusetts, Connecticut, New York, Iowa, Vermont, New Hampshire, Washington, California, Maryland and Washington, D.C., have same-sex marriage laws. Other states, like New Jersey, Illinois, Delaware, Hawaii and Rhode Island offer same-sex couples access to civil unions. Others have domestic partnership laws that grand varying state-level rights and responsibilities of marriage.
At the federal level, the Defense of Marriage Act, which was enacted in 1996, defines marriage as a legal union between one man and one woman for purposes of determining the meaning of any federal law or regulation. DOMA also allows states to prohibit same-sex marriages and refuse recognition to same-sex marriages validly created elsewhere. More than 37 states have enacted DOMA laws or have constitutional amendments prohibiting same-sex marriage.
It’s this conflict between federal and state laws that creates concerns for sponsors of retirement plans that are generally subject to federal law. Even sponsors that are not subject to ERISA and are therefore subject to state law face conflicts with Internal Revenue Code requirements, according to Prudential.
Sponsors of retirement programs that are not subject to ERISA must pay close attention to the evolving state laws, Prudential advised. Affected plans include qualified governmental and non-electing church plans, governmental and church 403(b) plans, 403(b) plans that are not subject to ERISA, and governmental section 457(b) plans. Sponsors of these plans will need to recognize and comply with applicable state marriage, civil union and domestic partnership laws. However, several federal tax aspects of their plans (such as required minimum distributions) will remain covered by federal law, including the DOMA definition of “spouse.”
Sponsors of retirement programs that are subject to ERISA are technically only required to comply with the federal DOMA rules when identifying participants’ spouses for various plan purposes. However, plan sponsors that have large employee populations in any of the states that recognize same-sex marriages, civil unions, or domestic partnerships that are the equivalent of marriage, may want to voluntarily incorporate those rules to the extent possible, the company said.
In its report, Prudential said that ERISA-covered plans may need to provide Qualified Preretirement Survivor Annuities to a participant’s surviving spouse, unless the coverage has been waived and the spouse has consented to the waiver; death benefits to a surviving spouse in the form of the participant's entire vested account balance; qualified plan QJSA payments, qualified optional survivor annuities, which provide a different level of survivor annuity to a participant’s surviving spouse; in-service withdrawals and plan loans, qualified domestic relations orders, which may require the division of a participant’s accrued benefit or account balance between the participant and a former spouse.
Spousal status also affects non-ERISA plans with respect to payment of required minimum distributions and tax withholding and reporting of distributions to a spouse.
Prudential Retirement suggests that affected plan sponsors discuss the treatment of same-sex marriage with their own legal counsel and that any discussion include the following key considerations:
Plan document review. Plan documents frequently contain vague definitions of “spouse” and related terms. As a result, many plan sponsors will wish to review and amend these documents to ensure that they reflect the intent of the sponsor.
State-by-state analysis. In determining what state laws require or permit, most plan sponsors will find it necessary to review state law, including the provisions of any state DOMA law and any state legal guidance on same-sex marriages.
Federal law limitations. The federal DOMA law may prevent a plan sponsor that wishes to recognize same-sex marriages from doing so for all purposes (e.g., tax reporting).