Definition of Spouse
Rev. 10/05/07, E-mail Alert 2007-13, Rev. 06/11/04, E-mail Alert 2004-12

ERISA provides certain basic protections for plan participants' spouses. For instance, if a participant chooses to name a beneficiary other than his or her spouse, the spouse's consent is required. Joint and survivor annuity requirements also provide spouses with benefits. Therefore, a retirement plan document must define “spouse” for these purposes. What happens when a state law permitting same-sex marriages conflicts with the Federal Defense of Marriage Act?

What is a spouse?
Our plan defines a spouse as the person you are married to. Marriage has traditionally — and legally — been between a man and a woman. And as such, the plan definition was simple, obvious, and clear. But change is second nature to retirement plan practitioners. In our business, we frequently have changes coming at us from many directions and various governmental entities such as the DOL, IRS, new laws from Congress and Court rulings. So let's take a look at the definition of spouse currently.

Who is a spouse?
Same-sex marriage became legal in Massachusetts on May 17, 2004. Our definition of spouse in the plan document seems to hold up as it indicates that a spouse is the person you are married to. But we have to contend with both state and federal laws. Generally, marriage is under the jurisdiction of state law. So, if a state confirms the validity of a marriage, then the marriage is generally recognized under Federal law. For example, being married means you are legally entitled to file a joint income tax return with your spouse. However, Federal law can trump state law. So, before we conclude that our document definition is applicable to same-sex marriages, we need to review the Federal law since most retirement plans are subject to ERISA, the Internal Revenue Code, and other Federal laws and regulations, as well as state laws.

Who is a spouse under Federal law?
The word “spouse” as defined in a Federal law entitled “The Defense of Marriage Act” (DOMA) which was enacted in 1996. The definition explicitly states that a spouse is a person of the opposite sex. The law is all encompassing, in that it applies to all Federal laws, regulations, and agencies of the United States.

To be precise, Section 3(a) of DOMA states that “In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word 'marriage' means only a legal union between one man and one woman, and the word 'spouse' refers only to a person of the opposite sex who is a husband or wife.”

What is a marriage?
Marriage is a legal institution under state law. However, the impact of DOMA is that a same-sex marriage does not meet the Federal law's definition of a marriage, even though it may be recognized as a marriage by a state, such as Massachusetts. One basic repercussion of this inconsistency is perhaps the inability of a same-sex couple to file a joint tax return because the Federal government does not recognize a same-sex marriage, even if a state does.

When is one considered married according to IRC Section 417(d)?
Did you know that you are not really married until 12 months after the ceremony? What if the first year of marriage was on a one-year renewal basis? Well, we jest about this point when we are lecturing, but it is true that you must be married for at least one year before your spouse is covered under the QJSA protection rules. So, theoretically, during the first year of marriage, a participant could take out his or her retirement assets (assuming there has been a distributable event) without spousal consent and could have someone other than the spouse as beneficiary. This would obviously complicate plan administration, since the census information would not only include participant compensation and possibly hours of service as it does now, but it would need to track the date of marriage. Plus, the plan administrator would possibly need to know the laws of different states regarding issues such as the various states' definition of a common-law marriage. An additional rather interesting administrative issue may arise if the participant dies in the first year of marriage to a second or third spouse. To avoid these extra administrative burdens, our document does not have this 12-month provision. Under our plans, the spouse is covered from the day of marriage. In individually designed plans, it is not uncommon to see the 12-month rule applied.

Impact of DOMA on retirement plan administration
As we said, the DOMA definition of spouse is applicable to all Federal laws, agencies, and regulations. And although our written plan document is unaffected by DOMA, in practice, the parties to a same-sex marriage are not recognized as spouses for retirement plan purposes. Thus, there are no spousal rights. What does this mean administratively?

Since the DOMA definition of spouse is not met, the Federal laws involving the word spouse do not apply. Therefore:

• No spousal consent is needed to name someone other than the spouse as beneficiary.
  
• No qualified joint and survivor annuity (QJSA) requirements or protections are provided.
  
• No qualified pre-retirement survivor annuity (QPSA) requirements or protections apply.
  
• No spousal consent is needed for distributions, loans or hardship withdrawals.
  
• The joint life tables for required minimum distributions cannot be used if the same-sex spouse is more than 10 years younger.
  
• No spousal rollover of the deceased participant spouse's plan assets is permitted.
  
• In certain defined benefit plan designs, if the participant dies before the earliest retirement age under the plan, no benefits will be paid from the plan on that participant's behalf if the qualified pre-retirement annuity provisions are not enabled.
  

QDRO Quandary
What if a same-sex couple is to seek a Qualified Domestic Relations Order (QDRO) as part of a divorce or separation agreement? It is doubtful that it will be considered a QDRO since the QDRO rules are Federal law, and the marriage isn't recognized under Federal law.

Thus, the employer could not, at present, qualify an order with a same-sex spouse as alternate payee. Hypothetically, if a Domestic Relations Order (DRO) was written, and the plan paid out amounts to the alternate payee, withdrawal of restricted moneys in a plan (such as elective deferrals, QNEC's, QMACs, and safe-harbor contributions) would not be allowed to be distributed before age 59½. Why? Because there can be no QDRO without a spouse. Thus, if funds subject to withdrawal restrictions prior to age 59½ are paid prior to that age without a distributable event, the plan may be disqualified, even though the plan may have believed it was only paying on a QDRO to an alternate payee.

So, what is a marriage?
Like so many other questions in the retirement plan world, even this basic fundamental definition must now be answered with the preamble “it depends” and followed by a rather interesting discussion — not the kind most couples have before marriage, but of the above current state of affairs. Stay tuned for further developments in our changing world.

Pension Protection Act (PPA) of 2006 Brings Some Changes
The PPA brought two changes that will help certain situations for those living in domestic unions, same-sex marriages, civil unions or those who care for someone but are in an unmarried state.

Hardship Change
Specifically, PPA added the ability for a participant to take a hardship when his or her beneficiary is the one having the hardship. This provision was added for the tuition, medical expense and funeral hardship reasons. As any place where the participant was able to take a hardship for spouse, children or dependent, the word beneficiary was added. This means primary beneficiary.

However, this opens the door for same-sex unions to obtain the ability to take care of each other in such hardships without having to confront the definition of spouse, but rather by simply having the other as the primary beneficiary.

Nonspouse beneficiary rollover
A nonspouse beneficiary may now roll over the deceased participant’s plan assets to an inherited IRA.

Though both of these provisions were written generically to help any beneficiary, they also resolve some of the issues for those in a same-sex union.

Rich Hochman and Bill Grossman