IRS releases guidance on same sex marriage and retirement plan rollovers

The IRS in April issued two notices that provide some long awaited guidance related to retirement plan administration. One addresses treatment of same-sex marriages after the Supreme Court ruling in United States v. Windsor ruling the Defense of Marriage Act unconstitutional and the other deals with rollovers by qualified retirement plans.

Notice 2014-19 clears up some of the issues related to the timing requirements for qualified retirement plans as they relate to the June 26, 2013 DOMA decision and the issuance of notice 2013-17 on Sept. 16, 2013, that formalized the IRS’s recognition of same-sex marriages. Some key points from this note:

  1. Plans are not required to recognize same-sex marriages prior to June 26, 2013.
  2. Plans are not required to have adopted the celebration rule until September 16, 2013. Plans that used the domicile rule prior to that will not be penalized.
  3. Plans are permitted to choose to recognize same-sex marriage prior to June 26, 2013, and can choose the purposes for which same-sex marriages are recognized for periods prior to that date.
  4. Plans with terms that are inconsistent with the DOMA decision must be amended by the later of (i) the date the plan otherwise would have to be amended for changes in applicable law or (ii) Dec. 31, 2014.

Revenue Ruling 2014-9 is a little more procedurally specific. Normally, distributions from tax-qualified retirement plans and individual retirement accounts are taxable as ordinary income to the recipient of the distribution unless it is an eligible rollover distribution. However, there is no requirement that plans actually permit inbound rollovers. And if they do, they can impose additional restrictions, such as not allowing rollovers of after-tax or designated Roth contributions. If a plan does permit rollovers, the plan administrator of the receiving plan must “reasonably conclude” that the rollover is an eligible rollover distribution. If the plan administrator later learns that the rollover was not, in fact, a valid rollover contribution, the plan administrator must distribute the rolled over amount (plus any earnings) back to the participant within a reasonable amount of time.

2014-9 provides two new due diligence safe harbor procedures that allow a plan administrator to reasonably conclude that a rollover into the plan is a valid rollover contribution. They are simpler and eliminate the need for the plan to obtain supporting documentation from the transferring plan for many rollovers. It also provides for payment of rollovers via wire transfer or other electronic means, so long as the necessary information is communicated to the receiving plan administrator, something many plans were already doing.

Sponsors and administrators of retirement plans are encouraged to review both of these notices to ensure appropriate compliance.

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