Employers need to ensure their retirement plans are in compliance with new rules regarding same-sex marriage.
With the Supreme Court’s decision in June to strike down a key provision of the Defense of Marriage Act allowing the federal government to recognize same-sex marriages and subsequent clarification by the IRS and the Department Labor, many plan sponsors now have to recognize same-sex couples when it comes to retirement benefits.
Only 14 states and the District of Columbia allow same-sex marriage. But according to new rules which went into effect in mid-September, same-sex couples are entitled to all of the federal rights entitled to opposite sex couples, including workplace benefits —even if the couple resides in a state that doesn’t recognize same-sex marriage.
According to Laura Pergine and Janet Luxton of Vanguard Strategic Retirement Consulting, there are eight things plan sponsors must do to make sure their retirement plans are in compliance post-DOMA:
1. Review plan documents. Vanguard recommends that plan sponsors sift through plan documents to determine if there is a definition of “spouse.” If a definition is there, they need to make sure it is compliant. The company said that plan sponsors also should review provisions in their documents that refer to domestic partnerships or civil unions.
2. Review marital status when it comes to beneficiary determination. If a plan participant who is legally married to a same-sex spouse dies, but his beneficiary designation is for someone he isn’t married to, that person may not receive the promised benefits unless the same-sex spouse waives his spousal rights.
3. Review qualified domestic relations procedures.Legally married same-sex couples have the same rights and obligations as opposite-sex couples if their marriage is dissolved. Qualified Domestic Relation Order procedures need to be reviewed to make sure there are no gender-specific references. If there are, they should be removed, Vanguard said.
4. Hardship withdrawals for same-sex spouses are now available. Plan sponsors need to follow the same rules regarding hardship withdrawals as those that apply to opposite-sex spouses.
5. Required minimum distributions. Gender-specific references to required minimum distributions in plan documents need to be removed. Spouses have more options regarding the treatment of distributions received as beneficiary payments.
6. Gender-specific references to rollovers in plan documents or distribution forms need to be removed. Spouses have more flexibility than non-spouses in how they treat rollover distributions, according to Vanguard.
7. Gender-specific references should be eliminated from participant communications. Plan sponsors should consider targeted communication to those employees most likely affected by these changes. Same-sex couples should be reminded to update their beneficiary designations.
8. Previous payment/Denial of benefits based on marital status. The IRS plans to issue guidance on whether or not same-sex couples who were denied an annuity benefit prior to the DOMA decision can now receive that benefit because of the Supreme Court decision.