New Law Protects Retirement Savings for Lesbian and Gay Couples

Posted by Erica Mauter

December 30, 2008

Before 2007, partners who inherited retirement plan savings typically faced immediate taxation on inherited benefits, unlike different-sex spouses, who could roll savings over to an individual retirement account (IRA) with no tax penalty. Under the [Pension Protection Act of 2006], as of January 1, 2007, qualifying plans could permit any nonspouse beneficiary—including a domestic partner, parent or sibling—to roll over inherited retirement benefits paid as a lump sum directly to an IRA. Qualifying plans include defined benefit plans (pensions), 401(k) plans, employee stock ownership plans (ESOPs), profit-sharing plans, money purchase plans, 403(b) plans and governmental 457(b) plans.

Unfortunately, this provision of the PPA was subsequently interpreted to be optional for employers, meaning each company had to affirmatively adopt this protection for partners under each qualifying plan. Under the [Worker, Retiree and Employer Recovery Act of 2008], all qualifying plans that pay lump sum benefits to nonspouse beneficiaries are required to provide the rollover opportunity as of January 1, 2010.

(via Eleventh Avenue South)