Need To Know: DOMA and retirement plan benefits

Robin Weingast DOMA

The Supreme Court declares DOMA unconstitutional

In June, the Supreme Court’s decision on Windsor v. United States found the federal Defense of Marriage Act (DOMA) unconstitutional. Under DOMA, a federally recognized spouse could only be of the opposite sex. The federal government did not recognize state-based legal, same-sex marriages. As such, same-sex spouses were not recognized for such laws as 1974’s Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. With the decision on Windsor, the federal government has expanded the definition of “spouse” to include state-recognized same-sex spouses.

Background on Windsor v. United States

When Edith Windsor’s same-sex spouse Thea Spyer died, Ms. Windsor paid more than $363,000 in federal estate tax as a result of inheriting Ms. Spyer’s estate. Ms. Windsor and Ms. Spyer were legally married in their state of residence, New York. If Ms. Windsor had been in an opposite-sex marriage, she would not have paid federal estate taxes. Ms. Windsor subsequently sued the United States on the basis of being unconstitutionally discriminated against based on her sexual orientation. Her case won at both the District and Appeal Court levels, and ultimately at the Supreme Court level, leading to the declaration that DOMA unconstitutionally prohibits a state’s right to legislate marriage.

What does this mean?

If you provide a benefit plan to your employees, you will need to:
• Assess your retirement plan to ensure that it provides federally protected rights and benefits to both same- and opposite-sex marriages.
• Evaluate your plan documents to ensure they are adequately addressing both same-sex and opposite-sex married couples
• Review your payroll system, tax reporting, and compliance practices

This decision may also impact the administration of:
• Qualified Joint and Survivor Annuities
• Qualified Pre-Retirement Survivor Annuities
• Default beneficiary designations
• Eligible rollover distributions
Minimum required distributions
• Distributions of account balances to a beneficiary from a defined contribution plan
• Hardship withdrawals and loans
• Qualified Domestic Relations Orders

There are still several outstanding issues in light of this decision, including dates to which the ruling applies, and what will happen in states that allow civil unions/domestic partnerships but not same-sex marriages. The expectation is that federal agencies will provide regulatory guidance on these matters.

Robin Weingast can help

Our team specializes in staying current on changing regulations and on evaluating and analyzing employee benefit plans to make sure they are compliant. If you have questions about your plan and whether or not it is compliant in light of the Supreme Court’s decision, contact us today.