A mid-year retirement plan amendment has traditionally been off-limits for safe harbor 401(k) and 403(b) arrangements. The IRS changed that position through Notice 2014-37, granting plan sponsors a narrow but important exception tied directly to the Supreme Court’s ruling in _United States v. Windsor_. Understanding when and how a mid-year retirement plan amendment is permitted can help employers stay compliant while extending equal benefits to all legally married employees.
What the Windsor Decision Changed for Retirement Plans
The Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA) in _U.S. v. Windsor, et al._ (2013), ruling that the provision was an unconstitutional deprivation of equal protection. Before this decision, federal law defined marriage exclusively as the legal union between one man and one woman. That definition had a direct impact on qualified retirement plans because same-sex spouses were excluded from spousal benefits, survivor protections, and rollover rights that opposite-sex spouses received automatically.
Once the Court invalidated Section 3 of DOMA, the legal definition of marriage for federal purposes expanded to include same-sex couples who were lawfully married in any jurisdiction that recognized their union. The ruling did not depend on the couple’s state of residence: a same-sex couple married in a state that permitted same-sex marriage would be recognized as married for federal tax and retirement plan purposes even if they later moved to a state that did not recognize the marriage at that time.
The practical effect on retirement plan compliance was significant. Plan sponsors suddenly needed to review spousal consent requirements, qualified joint and survivor annuity rules, required minimum distribution calculations, and beneficiary designation defaults, all of which reference the participant’s spouse.
How the IRS Responded With Revenue Ruling 2013-17
Following the Windsor decision, the IRS issued Revenue Ruling 2013-17 to clarify the federal tax treatment of same-sex marriages. The ruling established a straightforward rule: same-sex couples who were legally married in a jurisdiction that recognizes their marriage would be treated as married for all federal tax purposes. This “place of celebration” standard meant the couple’s marital status was determined by where they married, not where they currently lived.
For retirement plan sponsors, Revenue Ruling 2013-17 meant that plan documents, administrative procedures, and nondiscrimination testing would need to account for same-sex spouses going forward. Plans that had previously excluded same-sex spouses from the definition of “spouse” needed to be updated. The question for many employers was whether they could make these changes in the middle of a plan year without jeopardizing their plan’s qualified status.
Why Mid-Year Amendments to Safe Harbor Plans Are Normally Restricted
To understand why the IRS needed to issue special guidance, it helps to know why 401(k) plan changes during a plan year are typically prohibited for safe harbor arrangements. A cash or deferred arrangement (CODA), such as a 401(k) plan, must satisfy certain nondiscrimination tests to maintain its qualified status under the Internal Revenue Code. Plans that elect safe harbor status, by making either a matching contribution or a nonelective contribution that meets specific requirements, can bypass the standard nondiscrimination tests. However, the trade-off is that safe harbor provisions must generally be in place before the start of the plan year and maintained for a full 12 months.
This restriction exists because the safe harbor rules are designed to ensure employees have advance notice of the plan’s contribution structure. Allowing sponsors to alter safe harbor terms mid-year could undermine that notice requirement and create opportunities for retroactive changes that benefit highly compensated employees at the expense of rank-and-file participants. The same timing requirements apply to 403(b) plans that use safe harbor provisions under Section 401(m).
IRS Notice 2014-19: Initial Guidance on Plan Amendments
Before issuing its mid-year amendment relief, the IRS first published Notice 2014-19, which addressed the broader effect of the Windsor decision on qualified retirement plans. This notice provided a framework for how plan sponsors should apply the ruling, including timelines for recognizing same-sex spouses and guidance on amendment deadlines.
Notice 2014-19, Question and Answer 8 (Q&A 8), specifically addressed the mechanics of adopting plan amendments related to the Windsor decision. It provided that plan sponsors could adopt certain amendments to reflect the recognition of same-sex spouses and set forth the conditions under which those amendments would be treated as timely. This guidance became the foundation for the subsequent mid-year amendment relief.
IRS Notice 2014-37: The Mid-Year Amendment Exception
IRS Notice 2014-37 directly addressed the tension between the need to amend plans following Windsor and the normal prohibition on mid-year changes to safe harbor arrangements. The IRS stated that a retirement plan amendment adopted mid-year to comply with the guidance in Notice 2014-19, Q&A 8, would not disqualify a plan from safe harbor status under Code Section 401(k) or 401(m).
Scope of the relief
This was a targeted exception, not a broad relaxation of the mid-year amendment rules. The relief applied only to amendments made to reflect the recognition of same-sex spouses as required by the Windsor decision and the IRS guidance that followed. Plan sponsors could not use Notice 2014-37 as authority for other types of mid-year safe harbor changes.
Types of amendments covered
The types of retirement plan amendments covered by the relief included changes to the plan’s definition of “spouse” to include same-sex spouses, updates to spousal consent and beneficiary provisions, and adjustments to nondiscrimination testing procedures that needed to account for the newly recognized spousal relationships. The notice applied to 401(k) plans, 401(m) arrangements, and 403(b) plans that were subject to the same safe harbor rules.
What Plan Sponsors Needed to Do
For plan sponsors, the practical steps involved several compliance tasks that often called for support from outside tax advisory services. First, they needed to review their plan document’s definition of “spouse” and determine whether it explicitly excluded same-sex spouses or relied on the now-invalidated federal DOMA definition. If the definition needed updating, sponsors could adopt a mid-year retirement plan amendment without losing safe harbor status, provided the amendment fell within the scope of Notice 2014-19, Q&A 8.
Updating administrative procedures
Second, plan administrators needed to update their operational procedures. This included reviewing beneficiary designations, recalculating any distributions that were affected by the change in spousal status, and ensuring that qualified domestic relations orders (QDROs) and spousal consent forms reflected the updated definition.
Retroactive application of the ruling
Third, sponsors needed to consider the retroactive application of the ruling. The IRS guidance provided that plans generally had to recognize same-sex marriages for purposes of retirement plan compliance as of June 26, 2013 (the date of the Windsor decision) or September 16, 2013 (the date of Revenue Ruling 2013-17), depending on the specific plan provision at issue.
Key Takeaways for Retirement Plan Compliance
The IRS guidance following the Windsor decision illustrates how court rulings can create unexpected retirement plan compliance obligations. Plan sponsors who maintain 401(k), 401(m), or 403(b) safe harbor plans should note that the IRS has the authority to grant mid-year amendment relief when a legal development requires plan changes that would otherwise conflict with the annual timing requirements. Staying current with IRS notices and revenue rulings is essential for any employer that sponsors a qualified retirement plan.
Employers who have not yet reviewed their plan documents in light of the Windsor decision and subsequent IRS guidance should consult with their plan counsel or benefits advisor to confirm that all required amendments have been adopted and that plan operations reflect the current legal requirements. A coordinated review through risk advisory services can help identify gaps in plan documents and administrative procedures before they surface in an audit.
Frequently Asked Questions
Can a 401(k) safe harbor plan be amended mid-year?
Generally, no. Safe harbor 401(k) plans must have their provisions in place before the plan year begins and maintain them for a full 12 months. However, the IRS granted a specific exception through Notice 2014-37, allowing mid-year amendments made to comply with the Windsor decision. Outside of this narrow relief, mid-year changes to safe harbor provisions can disqualify a plan from safe harbor status.
What is a safe harbor 401(k) plan?
A safe harbor 401(k) plan is a type of retirement plan that satisfies IRS nondiscrimination testing requirements automatically by providing either a matching contribution or a nonelective contribution that meets specific formulas. In exchange for meeting these contribution requirements, the plan does not need to perform the standard actual deferral percentage (ADP) and actual contribution percentage (ACP) tests each year.
How did the Windsor decision affect retirement plans?
The Windsor decision required qualified retirement plans to recognize same-sex spouses for all purposes, including beneficiary designations, spousal consent requirements, survivor annuity rules, and required minimum distributions. Plan sponsors needed to amend their plan documents to update the definition of “spouse” and adjust administrative procedures accordingly.
What is a CODA in the context of a retirement plan?
A CODA, or cash or deferred arrangement, is the formal term for the salary deferral feature in a 401(k) plan. It refers to the arrangement under which an eligible employee can elect to have the employer contribute a portion of the employee’s compensation to the plan on a pre-tax or Roth basis, rather than receiving it as current cash compensation.
Do 403(b) plans follow the same amendment rules as 401(k) plans?
403(b) plans that are subject to Section 401(m) safe harbor provisions follow similar mid-year amendment restrictions as 401(k) safe harbor plans. The IRS relief in Notice 2014-37 explicitly included 403(b) plans, meaning sponsors of these plans could also adopt mid-year amendments to comply with the Windsor decision without losing safe harbor status.
When must Windsor-related retirement plan amendments be adopted?
The IRS required plans to recognize same-sex marriages for retirement plan purposes as of either June 26, 2013 (the date of the Windsor decision) or September 16, 2013 (the date of Revenue Ruling 2013-17), depending on the specific plan provision. Plan sponsors were given specific amendment deadlines outlined in Notice 2014-19 to formally update their plan documents.
