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Part II: How US v. Windsor Affects LGBT Clients – Retirement Savings

Same-sex couples whose marital status changed under the historic United States v. Windsor Supreme Court ruling have had a lot to consider over the last year. Here are a few aspects of the financial planning landscape that have changed after the fall of the Defense of Marriage Act:

Defined contribution and defined benefit plans

Financial considerations for same-sex couples.Many workplaces offer their employees defined contribution plans, the most common of which is a 401(k) savings account, which is funded by the employee and, often, the employer. Other employers used a defined benefit – or pension plan, which is usually funded by the employer and pays a retirement benefit based on formulas established by the employer.

Since DOMA was ruled unconstitutional, the rules of the Employee Retirement Income Security Act of 1974 – which is responsible for the protection of retirement savings accounts – now apply to most same-sex couples. As the body that oversees ERISA, the Department of Labor has released new guidelines that indicate that the state of residence of any same-sex couple does not matter when it comes to ERISA-covered plans. As long as the couple was married in a state that recognizes same-sex marriage, they will be legally recognized as spouses for the purposes of defined contribution plans. This is true regardless of the state in which the employer is based.

Survivor benefits

For defined benefit plans, should one spouse die before he or she is able to take advantage of retirement savings, the spouse is entitled to a qualified preretirement survivor annuity, which is payable immediately to the surviving spouse. Should either spouse wish to name another party as the recipient of the QPSA, he or she must provide a notarized written consent to do so. Immediate annuity payout options are also available with some defined contribution plans. Read more here.

Withdrawals

In many cases, defined contribution plans allow participants to withdraw against their plans should there be an immediate and severe financial need, which are known as hardship withdrawals. These needs often included medical or tuition bills or funeral expenses related to opposite-sex spouses. These withdrawals are now available to same-sex spouses, as well.

While hardship withdrawals are relatively common, they are not the only means by which a participant can access the money from his or her defined contribution plan. Most plans also allow participants to take loans out from their accounts. With the fall of DOMA, such loans subject to spousal annuity requirements will require the written consent of the participant’s same-sex spouse for loans over a certain amount.

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