Updated language may be needed in retirement plan during restatement

Every six years, the IRS requires that all retirement plan sponsors restate their prototype or volume submitter retirement plan documents for any law changes since the last restatement period. The current restatement period started May 1, 2014, and runs through April 30, 2016.

If a business’s plan operates under a prototype or volume submitter document, it’s important for the business to work with its service providers to ensure its document is restated timely.

Now is a great time for businesses to make any voluntary plan design changes to their plans. By going through this procedure, it will eliminate the cost of doing a separate amendment later.

Since the last restatement period, several significant law changes have occurred.

One change in particular is causing companies to closely examine their retirement plan documents to determine what may need to be changed.

A 2013 U.S. Supreme Court decision repealed Section 3 of the Defense of Marriage Act (DOMA) and determined that it was the states’ responsibility to define the term “marriage.”

Smart Business spoke with Andrea McLane, manager, Rea & Associates, about the importance of keeping your organization’s retirement plan up to date with changes that have been made in the law.

What did the DOMA decision involve, and what was the outcome?

The Supreme Court’s DOMA case involved a same-gender couple that had been married in Canada, but lived in New York.

When one spouse died, the other inherited her estate and sought to claim the federal estate tax exemption for surviving spouses.

The IRS denied her claim and ordered her to pay $363,053 in estate taxes. It was appealed to the U.S. Supreme Court, and Section 3 was overturned under the equal protection basis.

Section 3 of the DOMA decision originally barred married same-gender couples from being treated as married under federal law. Only that section was ruled unconstitutional.

What do businesses need to know about DOMA and their retirement plans?

By holding Section 3 of DOMA unconstitutional, qualified retirement plans must now treat the relationship of same-gender married couples as a marriage in order to maintain the plans’ tax-qualified status. The term ‘spouse’ includes an individual married to a person of the same-gender if the individuals are lawfully married under state or foreign law.

If a business’s retirement plan defines a spouse by reference to Section 3 of DOMA or only as a person of the opposite gender, it must adopt an amendment by the later of Dec. 31, or the restatement period as it was defined.

In addition to ensuring the plan document reads properly, plans must recognize same-gender marriages for all plan purposes.

Therefore, businesses must be certain that participant-related documentation, such as beneficiary forms, loan or hardship requests, etc., follow the proper procedures, recognizing the marriage and obtaining spousal consent where required.

What if a business fails to amend its retirement plan documents by the deadline?

Actually, many businesses don’t realize that they need to periodically amend their plan documents by a certain date.

The IRS offers a special voluntary compliance program for businesses to restate their plan without the plan being disqualified.

There is a user fee, which gets larger as the number of participants increases.

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