Skip to main content

You are here

Advertisement

Case of the Week: Impact of Same-Gender Marriage Laws

The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with a financial advisor in Minnesota is representative of a common scenario involving the question of who is defined as a spouse in states that have enacted same-gender marriage laws and the impact such laws have on 401(k) plan participants. The advisor asked:

“I understand the Supreme Court has weighed in on same-gender marriages. Can you explain what has changed and how qualified retirement plans are affected?”

Highlights of Discussion

* The Defense of Marriage Act (DOMA) is the law that defines marriage for federal law purposes. Prior to June 26, 2013, Section 3 of DOMA defined marriage as a legal union between one man and one woman.
* The Supreme Court ruled in United States v. Windsor that Section 3 of DOMA was unconstitutional. As a result, the federal government must recognize same-gender married couples that were married in states that permit such marriages. The Court’s decision did not affect Section 2 of DOMA, which continues to allow individual states to refuse to recognize the validity of same-gender marriages entered into in other states.
* However, the United States Department of the Treasury and the IRS announced in Revenue Ruling 2013-17 that same-gender couples who were legally married in jurisdictions that recognize same-gender marriages (i.e., either in U.S. states, U.S. territories or in other countries) will be treated as married for federal tax purposes.
* States that currently recognize same-gender marriages include California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington and the District of Columbia. There are 38 states that do not recognize same-gender marriages.
* This means, for example, that if a same-gender couple is married in Minnesota (a state that recognizes same-gender marriage) and subsequently moves to Texas (a state that does not recognize same-gender marriage), then the couple will still be considered married for federal tax purposes, including for employee benefits and contributing to an IRA, as well as for filing status, claiming personal and dependency exemptions, taking the standard deduction and claiming the earned income tax credit or child tax credit.
* The IRS’ FAQs on this topic include four Q&As specific to retirement plans (Q&As 16-20), one of which promises additional guidance on plan amendments and any necessary corrective measures plan sponsors may need to take.
* Qualified retirement plans must comply with these rules as of Sept. 16, 2013. While Rev. Rul. 2013-17 allows some taxpayers to rely on the rules in Rev. Rul. 2013-17 sooner, the earlier reliance exception does not extend to matters relating to qualified retirement plans.

Conclusion

While the Supreme Court, Treasury Department and IRS have given us some clarification regarding the treatment of same-gender married couples, we can expect more in the future. Financial advisors who are aware of the dynamic nature of this topic and stay up to date with developments are better positioned to support their clients.
Apex Logo
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2013 Columbia Management Investment Advisers, LLC. Used with permission.

Advertisement