Benefits Blog

IRS Increases FSA Limit to $2,600 in 2017

Posted by Jim Hayes on Tuesday, October 25, 2016 @ 09:26 PM

The IRS Increases Medical FSA Limit to $2,600:

The IRS announced today (10/25/2016) that the Medical FSA and Limited Purpose FSA cap will increase to $2,600 (an increase $50) for plan years beginning on or after January 1st, 2017. If your plan document was created by 24HourFlex the language will reference the maximum amount permitted, in which case no change is required.

Keep reading below for commonly asked questions related to this update.


Does This Change Require and Amendment to our Plan Document and Summary Plan Description (SPD)?

Usually, these documents do not need to be amended because the language in your plan document or Summary Plan Description does not specifically reference the $2,500 limit, or, it describes the limit as the "maximum amount permitted under code section 125(i)". Other descriptive marketing material created by you may reference a $2,550 limit and should be updated.

Employees have already enrolled for 2017 with the $2,550 limit, can we automatically change those elections to $2,600?

No, the Medical FSA election that your employees made is a specific election and can not be automatically increased. Most calendar-year plans are most likely still within the open-enrollment period. You could choose to notify your employees that the Medical FSA cap has increased to $2,600 and allow the participants to modify their 2017 election.

What Other Areas Could This New $2,600 Cap Impact?

If your payroll or enrollment system has a cap on the Medical FSA of $2,550 you would need to work with those vendors to update the cap to $2,600. You should also verify that information on local intranets, company websites, or other collateral created by you is updated.

Did the Dependent Care FSA Limit Change?

No, the Dependent Care FSA limit did not change. It is stil $5,000.


Tags: IRS, FSA

The New Healthcare Cadillac Tax - Why it Matters to YOU

Posted by Nathan Carlson on Thursday, December 03, 2015 @ 09:05 AM


Your employer may soon have to cut back on the healthcare benefits provided to you to avoid an onerous 40% federal tax called the “Cadillac Tax”.  Starting in 2018, companies that are too generous to their employees by providing attractive healthcare insurance will be hit with a huge tax.  The Kaiser Family Foundation, a respected, nonprofit research group, estimates that one in four companies will be affected by this tax, and to avoid it, will have to cut back on their healthcare benefits.

To add insult to injury, the law says that starting in 2018, any pretax amount YOU put into your own Medical Flexible Spending Account or Health Savings Account has to be counted as employer-provided healthcare benefits and could trigger this 40% Cadillac tax.  Yes, you read that correctly.  Such contributions count as EMPLOYER contributions when calculating this tax, which means that starting in 2018 when you make these pretax payroll contributions to your own Medical Flexible Spending Account or your own Health Savings Account (HSA), your employer may have to cut back even further on the healthcare benefits provided to you if this onerous 40% tax is to be avoided.

As our Congressmen and Senators are becoming aware of the unfair nature of this tax, a bipartisan coalition is forming to change the law.  This provision of Healthcare reform is so bad that even Labor Unions and Republicans have joined together to amend this portion of the Act.  Politics makes for strange bedfellows at times.

Isn’t 2018 a long way off?  Why do I care now? 

In anticipation of this upcoming “Cadillac” tax, companies are already cutting back on their healthcare benefit packages by only offering healthcare insurance with larger deductibles, knowing that big changes to benefits packages cannot be done in just one year.

What Can You Do?

24HourFlex has joined forces with ECFC, the Employer’s Council for Flexible Compensation, to change the law.  Ideally, we would like the “Cadillac” Tax provisions repealed entirely.  At this time that may not be realistic.  However, at a minimum we want the law changed so that YOUR pretax contributions to YOUR Medical Flexible Spending Account or YOUR Health Savings Account are NOT counted as EMPLOYER contributions when calculating this tax. 

After all, this money is yours and not your employer’s.

Join us in getting this law changed.  Go to

Tags: IRS, Health Care

You Will Start Getting Robo Calls on Your Cell Phone Unless the Law is Changed

Posted by Nathan Carlson on Wednesday, November 25, 2015 @ 11:29 AM


Hidden away and buried deep within the recently-passed and signed federal budget bill is a provision authorizing robocalls to cell phones. This bad provision got pushed through Congress in a rush to avoid a government shutdown.

It is currently illegal for debt collectors to robocall your cell phones without your permission. This recently passed provision will change that unless Congress passes the HANG UP ACT quickly.

Join the Consumers Union petition to support the HANG UP ACT which will repeal this particular budget provision.

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Tags: Test, Test, Test, Test, Test, Test,

2016 FSA Limits

Posted by Jim Hayes on Tuesday, November 03, 2015 @ 03:23 PM

The IRS has announced the annual contribution limits for 2016 (IRS News Release IR-2015-119, Oct. 21, 2015).  Most benefit limits will remain unchanged for plan years starting on or after January 1st, 2016. Qualified parking is the only benefit with a change, increasing $5 per month from $250 to $255. 

The following limits are detailed in IRS Revenue Procedure 2015-53:

  • Qualified Parking: $255/month – increased from $250/month in 2015
  • Qualified Transportation: $130/month
  • Medical Flexible Spending: $2,550
  • Limited Purpose Flexible Spending: $2,550
  • Dependent Care Flexible Spending: $5,000

Also, if your plan offers a Health Savings Account (HSA), the annual contribution limits for 2016 are detailed in IRS Revenue Procedure 2015-30 as follows:

  • Individual Coverage: $3,350
  • Family Coverage: $6,750 – increased from $6,650 in 2015
  • Catch-up for age 55+: $1,000

Tags: IRS

What Can Organ Donation Rules Teach Us About 401(k) and 403(b) Plans?

Posted by Nathan Carlson on Monday, September 21, 2015 @ 01:03 PM


The percentage of individuals in Europe that donate their organs upon their death varies greatly from one European country to the next.  For example, only twelve percent of the German citizens choose to donate their organs but if one steps across the border and enters Austria, close to one hundred percent (99.98%) donate their organs.  In Denmark only 4.25% donate their organs, but if one leaves Copenhagen and drives across the Oresund Bridge, down the two-mile long undersea Drogden Tunnel and into Sweden, 86% of the population donate their organs.  Why these strange differences amongst very similar demographics?


Germany, United Kingdom, Netherlands, and Denmark all require an explicit consent before organs can be donated whereas the other seven countries in the study presume that consent has been given unless the citizen specifically opts out of the organ donation program.[1]

In a traditional 401(k) or 403(b) plan at least 30% of the employees never get around to enrolling in the plan, whether or not there is an employer match.  However, when eligible employees are automatically enrolled in the plan (consent is presumed) and then given the option to opt out, about 91% stay enrolled in the retirement plan.[2]

Yes, organ donation rates can teach us about human tendencies and retirement plans.  For further information about adding Auto-Enrollment provisions or to visit with an ERISA professional at Retirement Planning Services, click on the button below.

Have any questions?

Speak With An ERISA Expert

[1] Max Bazeman, Psychology of Negotiations, Harvard Business School, 2014

[2] Auto-enroll provisions can only be added to an existing 401(k) or 403(b) plan at certain times during the plan year and only with the necessary plan document amendments and employee notices.  Such provisions must be installed by a competent ERISA professional.


Bold Steps You Need To Be Taking For Your Retirement

Posted by Nathan Carlson on Monday, August 10, 2015 @ 03:08 PM

Good research needs to be shared.  Such is the case with the following study recently released by American Century Investments.  Seventy-three percent of plan participants said they could have afforded to save more and would have done so if they just knew one key number -- the amount they needed for retirement.  Over one in four participants, ages 25-54, would give themselves a "D" or an "F" in putting money away for the future.  
Take the right steps towards retirement
Furthermore, nearly seven in 10 support automatic enrollment at a 6 percent starting contribution rate and more than eight in 10 participants would have favored at least a moderate annual increase in their personal retirement savings of 1% a year until a savings rate of 10% was achieved.
Research like this encourages companies that sponsor 401(k) plans to take bold steps.  Add auto-enrollment, auto-increase, and auto-invest options.  A few participants will object but the vast majority will thank you and you will have the calm assurance of knowing you did the right thing.
The ERISA specialists at Retirement Planning Services can help clients implement these features, for when done properly, the fiduciary liability is actually reduced.
Read the full report here:
Click Here

Tags: Retirement Planning

IRS Announces New 2015 Flex Limits

Posted by Nathan Carlson on Friday, October 31, 2014 @ 09:20 PM

Yesterday the IRS announced annual inflation adjustments for forty tax provisions for 2015.  Here is a summary of the changes that affect Cafeteria and Flexible Spending accounts 

Various Limits Affecting Cafeteria, Flexible Spending Accounts, and Qualified Transportation Plans




Annual dollar limit on employee contributions to a Medical FSA



Monthly limitation:  commuter highway vehicle and any transit pass



Monthly limitation: qualified parking



You will notice that the annual Medical FSA cap increased $50 to $2,550 for 2015. 

Does this change require an amendment to our Cafeteria Plan Document or Summary Plan Description?                                

Usually, these documents do not need to be amended because the language in your plan document or Summary Plan Description does not specifically reference the $2,500 limit, or, it describes the limit as the "maximum amount permitted under code section 125(i)".  However, other descriptive marketing material created by you may reference a $2,500 limit.  If so, these should be modified.

Most of my employees have already enrolled in the Medical FSA for 2015.  For those that elected the maximum of $2,500, can I automatically change their election to $2,550?

No, the Medical FSA election that your employees made is a specific election.  However, any calendar-year plans are still within the open-enrollment period.  Therefore, you could notify your employees that the Medical FSA cap has increased to $2,550 and allow the participants to modify their 2015 election.

Should I make any other changes?

Sometimes, payroll systems have a cap on the Medical FSA of $2,500, which would need to be changed for the 2015 election. 

Did the Daycare cap change as well?

No, the $5,000 Daycare cap is not indexed and therefore will not change unless  Congress changes the law.

Tags: Test, Test, Test, Test, Test, Test,

Terminating a SIMPLE Can Be Simple, if Done Right

Posted by Nathan Carlson on Monday, October 27, 2014 @ 01:56 PM

There are many different forms of qualified retirement plans--among them, 401(k), profit sharing,Retirement Planning Services
defined benefit, ESOPs, 403(b), SIMPLE IRAs, and SIMPLE 401(k) plans.  One of the unique requirements of SIMPLE IRAs and SIMPLE 401(k) plans is that they must be the sole, exclusive plan of the employer for the entire calendar year.  In other words, an employer sponsoring a SIMPLE IRA or SIMPLE 401(k) cannot, in the same calendar year, also sponsor a regular 401(k) plan or any other qualified retirement plan. 

Since a SIMPLE plan can only be set up on a calendar-year basis (regardless of the employer's fiscal year), it can only be terminated at year-end.  To terminate a SIMPLE plan at year-end, an employer must notify its employees within a reasonable time prior to November 2nd of that year.


Employer X maintains a SIMPLE IRA in 2014 and wishes to switch to a 401(k) plan in 2015.  Employer X must issue a written termination-notification to its employees prior to November 2, 2014.  If Employer X does not issue this notice prior to 11/2/2014 it must continue to sponsor the SIMPLE IRA in 2015. 

SIMPLE IRA and SIMPLE 401(k) plans cannot be terminated mid-year.  They can only be terminated at year-end and with the appropriate and timely written notice. 

A couple other points:

  • The IRS does not need to be notified of the plan's termination.

  • A SIMPLE plan never files Form 5500, even when it terminates.

  • The termination-notification can be as simple as, "November 1, _____.  ABC Company has decided to terminate is SIMPLE [IRA or 401(k)] Plan effective December 31, _____."

  • Although the SIMPLE plan terminates at year-end, distributions or rollovers from the SIMPLE cannot occur until the plan is fully funded.  Employee contributions must be deposited as soon as administratively feasible but no later than 30 days after the close of the month for which the contributions were withheld.  Employer contributions must be made to the SIMPLE plan by the due date of the employer's federal tax return, including extensions.

  • At the election of the participant, distributions from a SIMPLE plan can be taken as taxable income or rolled to another qualified retirement plan, IRA, or another SIMPLE plan.

  • A 10% penalty applies to all cash distributions taken from a SIMPLE plan prior to age 59½[i].  Unless an exception applies, this penalty is increased to 25% if the withdrawal is taken within the first two years of when the employee first became a participant, measured from the date of the participant's first deposit into the SIMPLE plan. 

  • If the 25% penalty applies, the participant can 1) pay the penalty and take the distribution, 2) leave the funds in the SIMPLE plan until the two-year requirement has been met and then take a distribution (the 10% penalty would still apply if the participant is under age 59½, unless an exception applies), or 3) roll the distribution to another SIMPLE plan.  These funds cannot be rolled to any plan other than a SIMPLE plan as long as the 25% penalty applies.

For further information, contact the experts at Retirement Planning Services, Inc.

Discuss with a Pension Expert

[i] Certain exceptions do apply such as payments from the SIMPLE plan in substantially equal payments made over the life expectancy of the participant or joint life expectancy of the participant and spouse, or payments made on account of disability or death of the participant.

Tags: 401(k), SIMPLE IRA, Compliance

Colorado Same-Sex Marriage Developments: Impact for Employee Benefits

Posted by Nathan Carlson on Thursday, September 11, 2014 @ 02:00 PM

Guest blog by Mark W. Major, J.D. (of the Law Office of Mark W. Major P.C.) on "Colorado Same-Sex Marriage Developments: Impact for Employee Benefits"


Given the issuance of marriage licenses to same-sex couples in certain Colorado counties in thedescribe the image wake of the federal court rulings impacting employers in this state, employers may have questions
regarding their obligations, particularly under employee benefit plans.

Following the U. S. Supreme Court’s Windsor decision last summer recognizing same-sex marriages as valid for federal law purposes, the country continues to experience a tide of court cases involving the validity under the U.S. Constitution of state laws prohibiting same-sex marriages.  As relates to Colorado employers, the U.S. Court of Appeals for Tenth Circuit (the decisions of which are controlling in Colorado, Utah, Oklahoma and other neighboring states), recently held in the Utah case of Kitchen v. Herbert  that Utah’s ban against same-sex marriage is unconstitutional.  As a result, the County of Boulder and certain other Colorado counties began issuing marriage licenses to same-sex couples.  What followed was series of legal skirmishes primarily involving the Colorado State Attorney General and various same-sex couples raising issues regarding the validity of the licenses and Colorado’s state constitutional and statutory ban on same-sex marriage.

Reports of the various actions initiated in Colorado in both state and federal court may leave an employer somewhat confused with regard to handling day-to-day decisions, such as whether to recognize as “spouses” for a variety of employee benefit purposes a same-sex couple with a Colorado marriage license.  For example, Windsor requires a same-sex spouse to be given COBRA rights if covered under a health plan with the other spouse.  Other benefit-related rights can also be involved such as those under FMLA and spousal rights under retirement plans.  Spousal status can even impact critical issues such as nondiscrimination testing and determining whether two businesses must be treated as one employer under Affordable Care Act rules because one spouse’s ownership might be attributed to the other spouse.  (See “Key Benefit Plan Impacts Under Windsor” list at end of article for additional areas of impact.)

For now, it appears that employers in Colorado need not feel compelled to make any changes in current employee benefit practices (assuming those practices have already been updated for the Windsor decision).  This is based on the July 23, 2014, Order entered by Judge Raymond P. Moore of the U.S. District Court in Colorado in Burns v. Hickenlooper (as accessed on July 24, 2014 at ).  In Burns, Judge Moore ordered that the defendants, most notably the Governor of Colorado and Colorado State Attorney General, are prohibited from enforcing Colorado’s same-sex marriage ban “as a basis to deny marriage to same-sex couples or to deny recognition of otherwise valid same-sex marriages entered in other states.”  However, the Judge temporarily “stayed” this prohibition (that is, delayed its effective date) until Monday, August 25, 2014, in order to allow the Colorado State Attorney General time to seek relief from a higher court, and, indeed, the Attorney General has since filed an appeal with the Tenth Circuit Court of Appeals.  On August 21, 2014, the Tenth Circuit Court of Appeals extended the stay of the Burns v. Hickenlooper decision to last beyond August 25th so that nothing will change until Judge Moore’s decision can be thoroughly reviewed on appeal by the Tenth Circuit Court of Appeals or, more likely, until a superseding decision is issued by the U.S. Supreme Court.[1]

What exactly does this mean for an employer?  Basically, the Colorado same-sex marriage ban will likely remain in place until the U.S. Supreme Court decides (hopefully in its next term beginning in October of this year) whether state laws can prohibit same-sex marriages.  Although individual employers or their benefit plans might be made parties to litigation involving the status of same-sex spouses in the meantime, it would appear highly unlikely that a decision in any other court in Colorado would become effective until the U.S. Supreme Court rules on the constitutionality of these state prohibitions generally.

Nevertheless, given Windsor and the current trend of decisions in lower courts declaring state law prohibition of same-sex marriage unconstitutional, employers would be wise to begin planning for an eventual requirement that spouses in same-sex marriages celebrated in Colorado and all other states must be treated the same as opposite sex spouses for all purposes.  To some extent, individuals who have been recognized as civil union partners in Colorado have already received such treatment under various Colorado laws, including the laws governing insurance coverage.  However, differences still remain with regard to employee benefits and other rights not governed by Colorado law.  

One of the most important implications to be considered is the potential retroactive effect of the recognition of same-sex marriage under Colorado law.  A number of such retroactive issues arose as a result of the Windsor decision.  However, with same-sex marriage licenses only recently being issued in Colorado (with some question as to their effectiveness), the extent of potential retroactive exposures should be minimal. Still, employers should be prepared to address the various issues that can arise should an employee claim a Colorado same-sex spouse for employee benefit purposes.

As previously described the exposure faced by employer sponsors of qualified retirement plans arising from the Windsor decision.  The example, below, may help in understanding how employers should have already dealt with Windsor compliance (as delineated by IRS Notice 2014-19).  The example also describes the additional potential impact of Burns v. Hickenlooper.


ABC Christian Ministry, which has a personnel policy of not hiring any employee engaged in a same-sex relationship, maintains a qualified Money Purchase retirement plan.  John, who works for ABC Christian Ministry, unbeknownst to his employer, was married to Steve in New Jersey before he terminated employment at ABC Christian Ministry on December 1, 2013 (after the September 16, 2013, compliance date under IRS Notice 2014-19 for recognizing the “state of celebration rule” for same-sex marriage).   When John terminated employment, he received a $100,000 lump sum distribution from the plan without Steve’s written spousal consent, as required by federal law.  

This retirement plan has violated the terms of federal law and upon investigation could become disqualified by the IRS.  Steve could initiate a claim against the qualified plan and enforce such an action with the assistance of the Department of Labor and IRS.  If the plan is unable to recover its lump sum distribution from John, it may need to purchase a Joint and Survivor Annuity with Steve as the spousal, surviving beneficiary.

Burns v. Hickenlooper impact:   If the marriage ceremony for John and Steve had taken place in Colorado instead of New Jersey in this example, no violation of federal retirement plan law would have occurred because Colorado’s ban on same-sex marriages would have prevented the legal recognition of the marriage for federal law purposes under the “state of celebration” rule.  However, under Burns v. Hickenlooper, same-sex marriages originating in Colorado would have arguably begun to be recognized as of July 23, 2014, except that the effect of the court’s order has been delayed by the stay imposed by Judge Moore and extended by the Tenth Circuit Court of Appeals.

The delay in giving effect to Judge Moore’s decision that same-sex marriages entered into in Colorado must be recognized under the law means that employers are still not required to recognize a same-sex marriage entered into in Colorado for either federal or state law purposes.[2]  It’s not likely that such recognition will be required until the U.S. Supreme Court decides whether state laws can prohibit same-sex marriages.

Assuming, as most analysts appear to suggest, that the U.S. Supreme Court eventually decides that states may not prohibit same-sex marriages, a number of issues will likely need to be addressed in Colorado as well as other states regarding the implementation of that decision.  For example, would same-sex marriages entered into in Colorado need to be recognized for any purpose prior to the July 23, 2014, decision in Burns v. Hickenlooper, or prior to the date of the decision by the U.S. Supreme Court?  How much time will employers have to adjust health, welfare and retirement plans, as well as other policies, as a result of such a decision?  The intent of the stay on the Burns v. Hickenlooper order of Judge Moore appears to be that recognition will not be required until after a Supreme Court decision.  In addition, based on the approach by federal regulators after Windsor, employers should be able to make adjustments prospectively after a U.S. Supreme Court decision.  Nevertheless, with the significant trend of decisions striking down state laws prohibiting recognition of same-sex marriages, it would be prudent for employers to begin discussing with their advisors the potential changes in benefit plans, as well as human resources policies in general, that may be required in that event. 

Key Benefit Plan Impacts Under Windsor:

Retirement Plans

  • Beneficiary notices and designations

  • All spousal consents for

  • Distributions

  • Participant loans

  • Qualified Joint & Survivor consents

  • Qualified Domestic Relations Orders

  • Determination of Highly Compensated employees

  • Determination of stock ownership, stock attribution, and controlled group status


  • Same-sex spouse must be given COBRA general notice and Qualifying Event notices

  • Same-sex spouses must be given special enrollment rights under HIPAA

Flexible Spending Account

  • Same-sex Spouse’s medical and daycare expenses are eligible for reimbursement

  • Same-sex spouse is an eligible beneficiary of the FSA

  • Same-sex spouse has FSA COBRA rights


  • Same-sex spouse’s medical expenses are eligible for reimbursement

  • Same-sex spouse is an eligible beneficiary of the HSA

  • Restriction on spousal contributions applies to same-sex spouses


* Mark Major is an independent attorney specializing in advising large and small employers and others on legal compliance matters for employee benefit plans.  Mark prepared this bulletin as a general advisory for RPS & 24HourFlex clients and friends.   Nothing herein constitutes legal advice or creates an attorney client relationship.  Mark can be contacted at or through his website at

[1] At this point, the Tenth Circuit Court of Appeals has not considered the merits of the Burns case and has simply extended the stay on the District Court decision.  In the meantime, the U.S. Supreme Court may take up one of several cases challenging state laws prohibiting same-sex marriage.  If the Tenth Circuit  happens to reach a decision on the merits of  Burns before the U.S. Supreme Court decides the issue under a similar case, it is likely that the Tenth Circuit will stay any decision striking down Colorado’s ban on same-sex marriage until the U.S. Supreme Court makes its own decision as a result of reviewing Burns or some similar case accepted by that Court. The effective date of the Tenth Circuit’s decision in Kitchen v. Herbert invalidating Utah’s ban was previously delayed in this same manner.  Such a stay will continue to delay the effect of any decision as described in this bulletin.

[2] Although a same-sex marriage entered into in Colorado would not be recognized as a marriage, the relationship may still qualify as a civil union partnership under Colorado’s Civil Union Partnership Act, which provides for treatment of a civil union partner in a manner parallel to a  married spouse for many rights under state law, including, for example, insurance coverage.  However, civil union partners are not similarly recognized for federal law purposes, such as for laws governing federally qualified retirement plans.


Tags: Benefits Information, Colorado, Same-Sex Marriage

New IRS Same‐Sex Marriage Rules Affect Qualified Retirement Plans

Posted by Nathan Carlson on Tuesday, May 13, 2014 @ 03:13 PM

Recently the IRS issued written guidance(1) that significantly impacts all qualified plans and the benefits received under those plans by individuals who have entered into a same‐sex marriage. Among other things, this new guidance impacts 401(k) nondiscrimination testing, the definition of highly compensated employees, beneficiary designations, hardship distributions, participant loans, qualified joint and survivor annuities, rollovers, required minimum distributions, and the overall requirements for a retirement plan to remain “qualified” under the Internal Revenue Code. 

These new same‐sex rules affect all sponsors of qualified retirement plans including for‐ profit, non‐profit, governmental, churches, denominations, and para‐church organizations. Furthermore, these rules affect all qualified retirement plans including 401(k), profit sharing, defined benefit, ESOP, money purchase, cash balance plans, etc., as well as ERISA and non‐ERISA 403(b) plans.


On June 26, 2013 the United States Supreme Court issued a landmark ruling (called the Windsor decision) that invalidated Section 3 of the Defense of Marriage Act (DOMA)(2) which stated that for a marriage to be valid under federal law it had to be between a man and a woman.

Following the Windsor decision, the IRS issued guidance(3) on August 29, 2013 (which applied prospectively as of September 16, 2013) which stated that for tax purposes the federal government would determine one’s legal marital status based upon the state of celebration, not the state of residency.

Example 1:

John and James live in Colorado but were married in New Jersey, one of the 16 states that recognize same­sex marriage. Although Colorado does not recognize same­sex marriage, the federal government considers John and James to be married and entitled to the same federal tax treatments afforded a heterosexual couple.

This IRS Revenue Ruling stated that future IRS guidance would explain how these new rules may impact qualified retirement plans retroactively. IRS Notice 2014‐19, issued April 5, 2014, provides the clarity that we have needed with respect to the Windsor decision.

Summary of IRS Notice 2014­19

For a retirement plan to remain a “qualified” retirement plan under Section 401(a) of the Internal Revenue Code, the retirement plan must grant a same­sex spouse the same rights it would an opposite­sex spouse. More specifically, a qualified plan’s operations must reflect the Windsor decision retroactively as of June 26, 2013. However, such plans only have to recognize the above‐referenced state of celebration rule from September 16, 2013 forward.

Impact of Disqualification

A retirement plan that does not comply with these rules will face disqualification by the IRS meaning that, for the period of disqualification, the Plan Sponsor (usually the employer) generally would lose its tax deductions for all contributions to the plan and would potentially need to amend past tax returns and pay additional taxes and penalties. Furthermore, the investment trust account of the retirement plan would lose its tax‐exempt status and have to file Form 990‐T and pay taxes on any trust earnings. Any distributions from this plan would be ineligible for rollover to an IRA or qualified plan, and possibly the account balances of the “highly compensated4” employees would immediately become taxable.

Example 2:

ABC Christian Ministry, which has a personnel policy of not hiring any employee engaged in a same­sex relationship, maintains a qualified Money Purchase retirement plan. John, who works for ABC Christian Ministry, unbeknownst to his employer, was married to Steve in New Jersey. On December 1, 2013 John terminated employment with ABC Christian Ministry and received a $100,000 lump sum distribution from the plan without Steve’s written spousal consent, as required by federal law.

This retirement plan has violated the terms of federal law and upon investigation could become disqualified by the IRS. Steve could initiate a claim against the qualified plan and enforce such an action with the assistance of the Department of Labor and IRS. If the plan is unable to recover its lump sum distribution from John, it may need to purchase a Joint and Survivor Annuity with Steve as the spousal, surviving beneficiary.

Example 3:

XYZ For­Profit Company maintains a 401(k) plan with an employee loan provision. Sandy, one of the plan participants, has a same­sex spouse. She requests a $25,000 loan from the 401(k) plan (which requires spousal consent for all participant loans) but does not obtain a spousal consent signature for the loan. XYZ For­Profit Company must deny this loan until Sandy provides a written consent from her same­sex spouse.

Example 4:

Joe and Bill have a same­sex marriage. Joe owns Joe’s Crab Shack and Bill works for him as an employee earning $25,000/year. Once Joe and Bill are determined to have a same­sex marriage, Bill is a “highly compensated employee” (HCE) because of the spousal attribution rules, despite the fact that he only earns $25,000/year. This new HCE designation will affect the 401(k) plan’s non­discrimination testing, ADP test, and many other aspects of the plan’s administration.

Steps Plan Sponsors Should Take:

  • Obtain new Beneficiary Designation forms from all plan participants, with an explanation of the change in DOMA. It is important that the Plan Sponsor (or a designee of the Plan Sponsor) know who is married, whether in a heterosexual or same‐sex marriage. 

  • Review all plan distribution and loan activity from June 26, 2013 to the present. (This date may change to September 16, 2013 depending on when the plan implemented the state of celebration rule. If the plan discovers that it processed loans or distributions without the required consent of a same‐sex (or opposite sex) spouse, the plan needs to take corrective action with the assistance of an ERISA expert or attorney.

  • Change policies and procedures so that employees are aware that they must disclose the fact that they are engaged in a same‐sex marriage.


1 IRS Notice 2014‐19.
2 Passed by both houses of Congress, and signed into law by President Clinton on September 21, 1996.

3 Rev. Rul. 2013‐17.
4 Generally anyone who owns more than 5% of the employer or anyone who earns more than $115,000. 

Tags: Retirement Planning, 401(k), DOMA