Group ignites debate on retirement plan benefits for same-sex couples

Spark Institute proposes uniform rule based on where couples were married

Aug 15, 2013 @ 3:44 pm

By Darla Mercado

Uncertainty over how to handle retirement plan benefits for employees in same-sex marriages continues to hang over the heads of plan sponsors and 401(k) service providers.

The Spark Institute Inc., an advocacy group for record keepers, insurers and other plan service providers, sent a letter to officials of the Labor and Treasury departments today, requesting that the two agencies provide guidance on how to best administer retirement plans after the U.S. Supreme Court's decision to repeal Section 3 of the Defense of Marriage Act.

The biggest concern hanging over the heads of retirement plan sponsors and their providers is how to determine marital status for the purpose of the retirement plan itself: Will same-sex spouses be considered beneficiaries regardless of where they reside? What happens if they live in a state that recognizes only civil unions or domestic partnerships?

In the letter, Spark's general counsel, Larry H. Goldbrum, suggested that the Labor and Treasury departments make things simpler for plan sponsors and providers by applying a uniform rule: Determine marital status based on where these couples were married rather than their domiciliary state — where they end up residing.

“It's easier to have a state-of-celebration status,” Mr. Goldbrum said in an interview. “Once you're married, you can't change where you got married. But a couple can move afterward. With a state of domicile rule, there are traps for individuals who may not be aware of how the plans operate and the implications.”

For instance, a gay couple who marry in Maryland are entitled to rights and protections there because the state recognizes same-sex marriage. The spouses can be beneficiaries of each other's retirement plans. But if the couple winds up moving to Virginia, such a move could result in a change of beneficiary under the retirement plan unless the spouse is already named in the plan forms, Mr. Goldbrum explained.

Retroactive rights are another matter of concern: What about same-sex spouses who may have not been considered married when certain plan features were triggered, such as a benefit payment or a domestic-relations order?

“It will likely be impracticable to provide retroactive notice and rights to a spouse who was not treated as such when an employee/plan participant requested a lump-sum distribution from a plan that would have otherwise required spousal consent before making such a payment,” Mr. Goldbrum wrote. It would be “onerous” for plan sponsors to chase down those would-be beneficiaries, he noted.

As an alternative, Spark suggests that the Treasury and Labor departments weigh those difficulties when arriving at a decision on how far back DOMA will apply to retroactive benefits. Ideally, plan sponsors would be able to limit, when appropriate, the retroactive effect to July 21, which is the date the Supreme Court's ruling went into effect, Mr. Goldbrum wrote in the letter.

Above all, Spark is asking both departments to go easy on plan sponsors and permit them to make good-faith efforts toward complying with whatever guidance the agencies release. “Plan sponsors shouldn't be facing unreasonable enforcement actions when there is no precedence or guidance,” Mr. Goldbrum said.

Sen. Ben Cardin, D-Md., also wrote Treasury Secretary Jack Lew and Acting Commissioner Daniel Werfel yesterday, requesting clear guidance on the tax treatments for same-sex couples and asking the IRS to address whether civil unions in certain states could be treated as marriages.

“Especially for taxpayers in same-sex marriages who, perhaps anticipating the Windsor decision, filed extensions for their 2012 returns, it is critical that the Internal Revenue Service promptly issue guidance confirming their filing status,” Mr. Cardin wrote in his letter.

Calls to Mike Trupo, a spokesman for the Labor Department, and Sabrina Siddiqui, a spokeswoman for the Treasury Department, were not immediately returned.


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