Impact of Obergefell Decision on Retirement and Health and Welfare Plans Detailed by IRS

In Notice 2015-86 the IRS issued guidance regarding the effect of the U.S. Supreme Court’s ruling in Obergefell v. Hodges on retirement plans and health and welfare benefit plans.

Generally the ruling notes that since the federal government was required to recognize same sex marriages that were valid at the time entered to following 2013’s decision by the United States Supreme Court in the case of United States v. Windsor there is a very limited impact of the Obergefell decision.

The notice provides:

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.

However the IRS determined some guidance was needed, noting:

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 notice provides guidance in a series of questions and answers, five of which deal with qualified retirement plans and three additional dealing with health and welfare plans.

For qualified retirement plans the notice generally provides:

  • Obergefell will not require a retirement plan to make any additional changes.  Rather the changes to plans discussed in Notice 2014-19 regarding conforming a plan to the Windsor decision remain the appropriate modifications
  • A plan wishing to amend its plan to provide additional rights or benefits for participants with same-sex spouses may do so, but must comply with the general requirements for plan amendments found in IRC 401(a)(4)
  • Again, subject to the requirements of Notice 2014-19 and IRC §401(a)(4), the plan can be amended to retroactively recognize same sex marriages earlier than the effective date of the Windsor decision
  • If the amendment described in the prior two bullet points (which are allowed but not required) is to a defined benefit plan, then those amendments can only be made if “the plan's adjusted funding target attainment percentage is sufficient or the plan sponsor makes the additional contribution specified under section 436(c)(2).”

With regard to health and welfare plans, the notice provides the following:

  • No changes to a health or welfare benefit plan are required due to the Obergefell decision as federal law does not mandate the provision of health benefits to a spouse.  However the operation of a plan could be impacted by Obergefell if a plan provided coverage limited to spouses defined under a particular state law.
  • The ruling also provides guidance on the ability of participants to change their elections under a §125 plan when due to Obergefell a plan that had previously not permitted coverage of same-sex spouses begins to do so. Generally a plan that allows a change in election due to a significant improvement in coverage is one where the affected participants will be eligible to make a change.
  • A plan may be amended to allow a change due to a significant change in coverage if it does not do so now.  Such an amendment must be adopted no later than the last day of the plan year that includes the later of the day same-sex spouses first became eligible under the plan or December 9, 2015