(b)lines Ask the Experts – The Impact of the DOMA Ruling

Michael A. Webb, Vice President, Retirement Plan Services, Cammack LaRhette Consulting, answers:

The answer is yes, but not all of the details of the impact are clear yet. The Supreme Court struck own key provisions of the Defense of Marriage Act (DOMA) last week as unconstitutional, and also made a ruling regarding a California ban on same-sex marriage that could also be viewed as favorable to the legal climate of same-sex marriages.

Because the relevant sections of DOMA have been ruled unconstitutional, in your ERISA 403(b) plan as well as other ERISA-covered retirement plans, the definition of a spouse may now also include same-sex spouses in states where same-sex marriages are legal. Thus, your plan document may need to change its definition of “spouse” and/or “marriage.” And of course, since plan operation must accurately reflect the plan document, changes to recordkeeper practices, operating system practices, and operational compliance procedures may be necessary as well. Before you hurry to change you plan document, though, you may wish to await future regulatory guidance as to precisely HOW to amend your plan to reflect the DOMA ruling.

The impacts of the DOMA ruling on the operation of your plan are, as follows:

1. Spousal death benefit: If your plan provides for a Qualified Joint and Survivor Annuity, or QJSA benefit, that benefit used to be payable only to an opposite-sex spouse, but now same-sex spouses who reside in states where such marriages are legal must receive the benefit as well. And, in non-QJSA plans where the entire death benefit is payable to the participant’s spouse, such benefit would be payable to applicable same-sex spouses. Similarly, the Qualified Preretirement Survivor Annuity benefit in your 403(b) plan must be payable to an applicable same-sex spouse. As with opposite-sex spouses, same-sex spouses can consent to waive these benefits, and consent of same sex-spouses for loans in QJSA plans will be required as well.

2. Rollovers: as is the case with an opposite-sex spouse, a same-sex spouse will now be able to roll over a distribution to his/her own IRA/qualified plan rather than an inherited IRA.

3. Hardships: an applicable same-sex spouse is no longer required to be a “primary beneficiary” of the participant in order for the participant to request a hardship distribution for medical, tuition, or funeral expenses of the same-sex spouse

4. Minimum Required Distributions: there is much more flexibility for applicable same sex-spouses in this area since they will now be able to defer beneficiary-related distributions until the participant would have turned 70 ½ and need not be concerned about their age relative to their spouse in the calculation of these distributions. These favorable rules already exist for opposite-sex spouses, and they are a significant improvement over the non-spouse rules, which require commencement of payment within one year of death, as well as other restrictions.

5. QDROs: applicable divorcing same-sex spouses can now apply for Qualified Domestic Relations Orders (QDROs) and have their retirement plan benefits apportioned in a manner similar to opposite-sex spouses.

But what, you may ask, is the impact for same-sex spouse who reside in states where same-sex marriages are NOT legal, having been married in a state where it is legal? The Experts’ well-informed answer is — stay tuned! This issue has not been resolved as yet. Also yet to be resolved is the degree to which spousal benefits could be claimed retroactively; this is an important issue, as DOMA was passed nearly 20 years ago (1996).

In the interim, plan sponsors should work closely with their benefits counsel to stay apprised of developments in this area, as well as the timing of any required action.