Two recent private letter rulings by the Internal Revenue Service confirm that domestic partners – even when granted the same rights as married couples under state law – cannot be treated as spouses by retirement plans.
The IRS issued the private letter rulings to two governmental deferred compensation plans intended to be eligible under Tax Code Section 457(b). These plans were maintained in a state that grants registered domestic partners the same treatment as married couples.
In each letter, the IRS ruled that the federal Defense of Marriage Act required the plans to interpret Tax Code-required plan provisions referencing a “spouse” as if that term meant only “a person of the opposite sex who is a husband or wife.” If the plans did not interpret spousal provisions in this way, the IRS said they would not be in compliance with Code Section 457.
The lesson of these private letter rulings is clear: Whatever the state law status of domestic partnerships or same-sex marriages may be, a retirement plan cannot interpret or define “spouse” to mean anything but a married person of the opposite sex. To do otherwise would give “spouse” a meaning not recognized by federal law, and thus risk forfeiture of the federal tax-advantaged status of the plan.
Although the private letter rulings involved only government plans eligible under Code Section 457, the same logic applies to all qualified plans, 403(b) plans, and eligible 457 plans. The plan provisions impacted by these rulings will typically include provisions involving the timing of distributions, the treatment of surviving spouses, and the handling of qualified domestic relations orders.
Plan administrators and sponsors should ensure that their plan documents and procedures treat as spouses only those who are spouses as defined by the Defense of Marriage Act. In many cases, both participants and plan employees may be confused by high-profile laws and court rulings. It may be helpful for plans to formally adopt a plan amendment or an administrative ruling that “spouse” shall be interpreted consistent with the Defense of Marriage Act.