Cause and effect is a fairly simple concept that can be applied to almost every decision, action, or in this case, legislative ruling. The Supreme Court’s recent decision, declaring a portion of the Defense of Marriage Act (DOMA) unconstitutional, has received much public attention. However, something that has been less discussed is the ruling’s effect on retirement plans.
Cause — Supreme Court Ruling:
The federal government now recognizes same-sex couples who are legally married as lawfully married couples. This new recognition under federal law also warrants new recognition within retirement plans.
Effect — Retirement Plan Adjustments:
Prior to this ruling, same-sex legally married couples were not recognized as spouses within retirement plans and therefore:
- Spousal consent was not needed if someone other than the spouse was named as a beneficiary
- No Qualified Joint and Survivor Annuities (QJSA) or Qualified Pre-retirement Survivor Annuities (QPSA) requirement or protections were provided.
- No spousal consent needed for distributions, loans or hardship withdrawals.
- Spousal Rollovers of the deceased participant’s assets were not permitted
Clearly, with newfound rights and legal recognition, operational changes for retirement plans of same-sex legally married couples will need to be made accordingly. Namely, spousal consent rules will go into effect and taxation will change.
Potential Impacts to Financial Professionals:
The Treasury Department, Internal Revenue Service (IRS), and the Department of Labor have all issued guidelines over the past couple of months around retirement plan impact. However, there will be more details to come in terms of specific plan features—and how to go about making changes to them.
For now, let this cause and effect scenario serve as an opportunity to discuss with plan sponsors the new recognition and rights some participants stand to receive.
The subject matter in this communication is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
Insurance products and plan administrative services are provided by Principal Life Insurance Company, a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.
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