Same-Sex Couples Revisiting Retirement Planning Decisions

“Post-Windsor: Retirement Planning for Same-Sex Couples,” from the Insured Retirement Institute (IRI), examines the impact of the ruling in the Windsor case, which declared unconstitutional a portion of the Defense of Marriage Act (DOMA) and expanded the definition of “spouse” to include same-sex couples (see “Benefit Changes Ahead After DOMA Ruling”). The study surveyed same-sex couples residing in states (and the District of Columbia) that allow same-sex marriage, gauging their views on the Supreme Court’s decision as well as to gather information on their retirement and financial planning behaviors and attitudes.

As a result of the Windsor decision, same-sex marriages recognized under state law also must be recognized for federal law purposes. The study finds that the ruling, combined with guidance issued by the Internal Revenue Service (IRS) and the Department of Labor (DOL), “paves the way for massive changes to employee benefits, as well as tax, estate and retirement planning for same-sex couples.”

According to the study, these changes will lead many same-sex couples to revisit their retirement and estate planning decisions. Since the Windsor decision, nearly half of unmarried same-sex couples are planning to change their relationship status to married, and six out of 10 couples currently in civil partnerships plan to marry. More than half believe that many areas of their finances will be affected, namely tax, estate, and retirement planning as well as insurance coverage. Consequently, at least 40% of married same-sex couples replied that they have been motivated to financially plan.

The study’s authors point to an opportunity for financial professionals to serve a rapidly changing market in the same-sex couple community, since four out of 10 have more than $250,000 saved for retirement and that nearly nine out of 10 (87%) say they invest. About two-thirds do not have a financial planner, but those that do work with them for an extended period. Findings also show that while this community is highly educated and expects to be treated accordingly, a significant number lack confidence that they will have enough money for retirement and in their ability to prepare financially for retirement.

The study also finds that since the Windsor decision:

• Fifty-three percent of those queried have either been added/plan to be added by their spouse or have added/plan to add their spouse as a beneficiary to their defined benefit plan;
• Thirty-eight percent of same-sex couples have made, or plan to make, changes to a will;
• Twenty-three percent have added, or were added, to their spouse’s health plan;
• Eighteen percent have filed amended taxes on prior year tax filings;
• Those same-sex couples who have a financial planner cultivate lasting relationships, with 61% working with the same planner for five years or longer;
• Eighty-seven percent have money saved for retirement, with 40% having saved $250,000 or more, though this is largely skewed towards those ages 55 and over;
• The majority of same-sex couples (78%) have added to their retirement savings in the past year, though 40% have not calculated the amount needed to live comfortably in retirement and 24% do not know when they will retire;
• Most respondents (83%) say that the tax deferral is an important characteristic of a retirement investment, with rate of return and past performance noted as important;
• About half (48%) of respondents indicated that they believe they will have the same or less financial security in retirement than their parents. This is driven by those under age 55 (53%);
• Seven out of 10 respondents are not fully confident that they will have enough money to live comfortably in retirement; and
• Most respondents (86%) admit they require help in at least one financial area, with retirement planning noted as the primary area where such help is needed (49%). Other areas where help is needed are investing, tax planning, estate planning and general financial management.

Guidance materials issued by government agencies after the Windsor ruling are noted in the study. For example, the Internal Revenue Service (IRS) issued a ruling (Revenue Ruling 2013-17) under which same-sex couples who are legally married in jurisdictions that recognize their marriages will be treated as married for federal tax purposes, even if they move to a state that does not permit same-sex marriages (see “Same-Sex Marriages Recognized for Tax Purposes” and “Employers Need to Make DOMA-Related Updates”).

The IRS ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deductions, employee benefits and contributing to an IRA. The IRS is planning to issue additional guidance for plans.

Subsequently, the IRS adopted special administrative procedures (Notice 2013-61) for employers and employees to make claims for refunds with respect to overpayments of FICA taxes and federal income taxes that result from the retroactive application of Revenue Ruling 2013-17. Validly married, same-sex spouses are generally permitted to amend their filing status and receive a refund of the difference in taxes owed as a result of the filing change for all open tax years—generally three years from the date the return was filed or two years from the date the tax was paid, whichever is later.

The DOL also issued guidance (Technical Release 2013-04) interpreting the Windsor decision. The guidance specifies that the terms “spouse” and “marriage” in Title I of the Employee Retirement Security Act (ERISA) and related DOL regulations should be read to include same-sex couples who are legally married in jurisdictions that recognize their marriages, regardless of their current state of residence.

The study cautions that many companies are still waiting on guidance from other federal agencies and state insurance departments on the implications of the Windsor decision.

A copy of the study can be downloaded here.

The IRI is a nonprofit association within the retirement income industry. Its aim is to provide an objective forum for communication and education, as well as advocating for sustainable retirement solutions.