8 things employers must do to comply with post-DOMA rules
Originally posted November 21, 2013 by Paula Aven Gladych on https://www.benefitspro.com
Employers need to ensure their retirement plans are in compliance with new rules regarding same-sex marriage.
With the Supreme Court’s decision in June to strike down a key provision of the Defense of Marriage Act allowing the federal government to recognize same-sex marriages and subsequent clarification by the IRS and the Department Labor, many plan sponsors now have to recognize same-sex couples when it comes to retirement benefits.
Only 14 states and the District of Columbia allow same-sex marriage. But according to new rules which went into effect in mid-September, same-sex couples are entitled to all of the federal rights entitled to opposite sex couples, including workplace benefits —even if the couple resides in a state that doesn’t recognize same-sex marriage.
According to Laura Pergine and Janet Luxton of Vanguard Strategic Retirement Consulting, there are eight things plan sponsors must do to make sure their retirement plans are in compliance post-DOMA:
1. Review plan documents.Vanguard recommends that plan sponsors sift through plan documents to determine if there is a definition of “spouse.” If a definition is there, they need to make sure it is compliant. The company said that plan sponsors also should review provisions in their documents that refer to domestic partnerships or civil unions.
2. Review marital status when it comes to beneficiary determination. If a plan participant who is legally married to a same-sex spouse dies, but his beneficiary designation is for someone he isn’t married to, that person may not receive the promised benefits unless the same-sex spouse waives his spousal rights.
3. Review qualified domestic relations procedures.Legally married same-sex couples have the same rights and obligations as opposite-sex couples if their marriage is dissolved. Qualified Domestic Relation Order procedures need to be reviewed to make sure there are no gender-specific references. If there are, they should be removed, Vanguard said.
4. Hardship withdrawals for same-sex spouses are now available.Plan sponsors need to follow the same rules regarding hardship withdrawals as those that apply to opposite-sex spouses.
5. Required minimum distributions.Gender-specific references to required minimum distributions in plan documents need to be removed. Spouses have more options regarding the treatment of distributions received as beneficiary payments.
6. Gender-specific references to rollovers in plan documents or distribution forms need to be removed. Spouses have more flexibility than non-spouses in how they treat rollover distributions, according to Vanguard.
7. Gender-specific references should be eliminated from participant communications. Plan sponsors should consider targeted communication to those employees most likely affected by these changes. Same-sex couples should be reminded to update their beneficiary designations.
8. Previous payment/Denial of benefits based on marital status. The IRS plans to issue guidance on whether or not same-sex couples who were denied an annuity benefit prior to the DOMA decision can now receive that benefit because of the Supreme Court decision.
Shutdown stalls remaining DOMA guidance
Originally posted October 10, 2013 by Andrea Davis on ebn.benefitnews.com
While much attention has been focused on the federal government shutdown and its effect on Affordable Care Act regulations, employers are still awaiting guidance on another key piece of legislation with benefits plan implications, the Defense of Marriage Act.
“The good news is the most critical guidance has already been issued,” says Todd Solomon, partner in the employee benefits practice of Will McDermott & Emery. “The IRS and DOL have already come out with their notices that explain the state of celebration rule for federal tax purposes so we know the way forward for plan administration.”
Plan sponsors, however, are still awaiting federal guidance on two key issues: retroactivity and the deadline for plan amendments.
“The retroactivity is a bigger issue because plans can and probably will be getting claims with or without the IRS guidance,” says Solomon. “The theory was that the IRS was going to address what employers had to do with retroactivity, and employers were going to hold their breath and hope nothing came with respect to retroactive claims until the IRS guidance came out.”
A delay in the guidance will only affect employers if they get claims for retroactive benefits, says Solomon, with the most likely scenario being a claim for a survivor annuity within a pension plan.
“If a same-sex employee died six months ago, for example, and the plan didn’t pay a survivor benefit to the same-sex spouse, the spouse can make a claim. The plan has to decide whether it’s going to pay that benefit and there’s no clear answer right now on whether the plan is required to,” he says.
“Plans without guidance are in a bit of a box — on the one hand, you could say ‘just pay,’ because that makes the issue go away but, of course, just paying costs money to the trust and if it’s not something that’s required under the terms of the plan, money should never leave a retirement plan trust.”
The IRS also needs to issue guidance about a deadline for when plans need to revise their definition of the term ‘spouse.’
“Absent guidance, it would need to be done by the end of the year,” says Solomon. “If they [federal agencies] want to extend that, they’d need to do that fairly quickly. … it’s not hard guidance to issue so I would guess the shutdown should not impact that too much as long things don’t go on too long.”
Following the Supreme Court’s decision striking DOMA down last June, the Internal Revenue Service and Department of Labor issued regulations adopting a state-of-marriage approach — anyone who is legally married in a state or country recognizing same-sex marriage is now treated exactly the same as an opposite-sex spouse for all qualified plan purposes, including the taxation of medical, dental and vision benefits.
IRS Recognizes All Same-Sex Marriages for Pretax Benefits
Originally posted by Stephen Miller on https://www.shrm.org
Under a new Internal Revenue Service ruling, employees who pay for employer-provided health insurance for their same-sex spouse may treat these costs as excludable from federal income taxes, even if they live in a state that doesn't recognize their marriage. State income taxes are another matter, however.
The U.S. Department of the Treasury and the IRS ruled on Aug. 29, 2013, that same-sex couples who were legally married will be treated as married for federal tax purposes, including the pretax treatment of a spouse's health insurance coverage, in all 50 states and the District of Columbia. Revenue Ruling 2013-17 applies, in other words, regardless of whether the couple now live in a state that recognizes same-sex marriage or a state that does not recognize same-sex marriage.
The ruling implements federal tax aspects of the Supreme Court's June 26 decision in United States v. Windsor, which invalidated a key provision of the 1996 Defense of Marriage Act.
Revenue Ruling 2013-17 applies to all federal tax provisions in which marriage is a factor, including filing status, claiming personal and dependency exemptions, employee benefits, and claiming the earned income tax credit or child tax credit.
The ruling covers same-sex marriages entered into in one of the U.S. jurisdictions where such marriages are recognized as legally valid (sometimes referred to as the "state of celebration," as opposed to a couple's state of residency), as well as legal marriages performed in a foreign country. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.
Employee Benefits Affected
Under the ruling, same-sex couples will be treated as married for all federal tax purposes. Those who purchased same-sex spouse health insurance coverage from their employer on an after-tax basis may treat the costs of that coverage as pretax and excludable from income (for federal income tax purposes; state income taxes may still apply).
"Same-sex spouses legally married anywhere no longer are taxed on health benefits coverage for their spouses and can pay premiums pretax, even if they live in a non-recognition state such as Florida, Texas, etc. This is a huge development and a relief for these employers and employees," Todd Solomon,a partner in the employee benefits practice group of McDermott Will & Emery LLP in Chicago, told SHRM Online.
"However, state taxation of benefits may continue to be quite complex, although it remains to be seen how states will treat this," Solomon added. "On the flip side, the guidance may not be welcome for employers who currently do not offer same-sex partner benefits because now they are legally required to offer benefits to same-sex spouses in all states" (see box below).
Treasury and the IRS intend to issue streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously taxed health insurance and other benefits provided to same-sex spouses. Treasury and IRS also intend to issue further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of Revenue Ruling 2013-17.
Other agencies may provide guidance on federal programs they run that are affected by the Internal Revenue Code, Treasury said.
Are Employers Obligated to Provide Equal Treatment?
Are employers located in states that do not recognize same-sex marriage now required to grant access to health care benefits to the spouses of employees in legal same-sex marriages (entered into elsewhere), if they grant health benefits to spouses in opposite-sex marriages?
"This is an open question, and only time and legal challenges—which there are certain to be—will tell," commented Todd Solomon of McDermott Will & Emery LLP.
Employers are not "required" to offer medical plan coverage to same-sex spouses the way they are required to offer a qualified joint and survivor annuity (QJSA) and a qualified preretirement survivor annuity (QPSA) in a pension plan because there are no similar statutory benefit mandates in the welfare plan context, Solomon explained. However, "employers that do not cover same-sex spouses will be very vulnerable to discrimination claims, in particular sex discrimination under Title VII. State and local discrimination claims are also possible, but private sector employers can likely argue that these claims are preempted by ERISA. But ERISA does not preempt Title VII."
While Title VII does not protect against sexual orientation discrimination, Solomon pointed out that guidance from the Equal Employment Opportunity Commission suggests that it might interpret this type of exclusion of same-sex spouses as sex discrimination, and therefore "an employer denying coverage to a same-sex spouse will be at risk for having to defend a costly sex discrimination lawsuit."
Retroactive Application and Refund Claims
The IRS set a prospective effective date for the ruling of Sept. 16, 2013. Legally married same-sex couples must file their 2013 federal income tax return using either the “married filing jointly” or “married filing separately” filing status.
For prior tax years still open under the statute of limitations, individuals who were in same-sex marriages may opt to file original or amended returns choosing to be treated as married for federal tax purposes. Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011, and 2012. Some taxpayers may have special circumstances (such as signing an agreement with the IRS to keep the statute of limitations open) that permit them to file refund claims for tax years 2009 and earlier.
With respect to retroactivity for prior years, "employers are still in wait-and-see mode until the IRS issues further guidance," said Solomon. "What we know is that employees and employers have the right—but not the obligation—to file for refund claims on past taxes paid on same-sex spouse benefits in open tax years—typically 2010, 2011, and 2012."
"Employers can expect to get requests from employees for corrected Form W-2s from these prior years," Solomon noted. "But what is not clear yet is how to handle cafeteria plan participation and tax reporting for prior years and whether adjustments need to be made. The IRS will be issuing more guidance on this issue as well as the retroactive impact of the guidance on retirement benefits that have or in many cases have not been paid to same-sex spouses."
Along with Revenue Ruling 2013-17, the IRS released two related sets of frequently asked questions and answers:
- Answers to Frequently Asked Questions for Individuals of the Same Sex Who Are Married Under State Law.
- Answers to Frequently Asked Questions for Registered Domestic Partners and Individuals in Civil Unions.
The IRS ruling "assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change,” Treasury Secretary Jacob J. Lew noted in a released statement.
DOMA decision raises as many questions as answers
Originally posted on July 5 by Brian Magargle on https://ebn.benefitnews.com
The Supreme Court that struck down a key provision of the Defense of Marriage Act and required the federal government to recognize same-sex marriage will have far-ranging implications for employee benefit plans.
In 1996, Congress enacted the DOMA, which defined marriage as "only a legal union between one man and one woman as husband and wife. . . ." Last week's decision declared that section of DOMA to be unconstitutional, so couples that have married in states that recognize same-sex marriage are now entitled to the same federal protections and privileges that come with traditional marriage, including in the employee benefits arena. Pending additional federal guidance, employers and their advisers should now begin considering these issues and the benefit administrative areas affected.
Factual background of U.S. v. Windsor
In 1963, Edith Windsor and Thea Spyer met in New York City and began a long-term relationship. They registered as domestic partners when New York City provided that right to same-sex couples in 1993. In 2007, they traveled to Canada to be lawfully married under Canadian law since Ms. Spyer's health was deteriorating, but they continued to reside in New York City. The State of New York deemed their marriage to be valid because of the city ordinance recognizing domestic partnerships.
Ms. Spyer died in 2009 and left her entire estate to Ms. Windsor. Because DOMA denied federal recognition to same-sex spouses, Ms. Windsor did not qualify for the marital exemption from the federal estate tax. Without that exemption, Ms. Windsor paid more than $360,000 in estate taxes. She then filed suit against the Internal Revenue Service for a full refund by challenging the federal definition of marriage in DOMA, and her case eventually landed in the Supreme Court this year.
The Supreme Court's reasoning
In reaching its 5-4 decision, the court first noted that the definition and regulation of marriage has historically been treated as a state, not federal, matter. Since DOMA is a federal law, it affected marriages in all states, including those states which have opted to recognize same-sex marriage. The effect in those states was that the marriages of same-sex couples were valid under state law but invalid for purposes of all federal laws.
The court found the definition of marriage in DOMA to be unconstitutional because it violated basic due process and equal protection principles applicable to the federal government. Writing for the majority and joined by Justices Breyer, Ginsburg, Kagan, and Sotomayor, Justice Anthony Kennedy said that "[t]he avowed purpose and practical effect of the law here in question are to impose a disadvantage, a separate status, and so a stigma upon all who enter into same-sex marriages made lawful by the unquestioned authority of the States. Were there any doubt of this far-reaching purpose, the title of Act confirms it: The Defense of Marriage."
Issues and challenges for employee benefit plans
The Windsor decision has an impact on the application of more than 1,000 federal laws, including laws that apply to the administration of employee benefit plans, such as certain sections of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974. Benefit plans of all types are now faced with significant decisions about how the Windsordecision will affect the treatment of same-sex spouses. These decisions will be especially difficult because currently there are no regulations or guidance as to what is considered legally correct treatment of same-sex spouses.
In the states where same-sex marriage is recognized, decisions will be more straightforward because benefit plan administrators should be able to treat same-sex spouses the same as all other married couples. Same-sex marriage is currently recognized in Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington state and the District of Columbia. Also, as of last Friday, California again recognizes same-sex marriage after a surprisingly fast decision by the U.S. Court of Appeals for the Ninth Circuit permanently refusing to enforce the state's Proposition 8 gay marriage ban. So, in these states, we expect benefit plan administrators to have a relatively easy transition for covered same-sex spouses.
The real challenges arise in situations like the following: a same-sex couple gets legally married in a state that recognizes same-sex marriage but then moves to a state which does not. What then? These situations will be especially complex because the Supreme Court struck down only the definition of marriage in DOMA, which was Section 3 of the law.Section 2 was not at issue in or affected by the Windsor decision, and it says that no state "shall be required to give effect to any public act, record, or judicial proceeding of any other state … respecting a relationship between persons of the same sex that is treated as a marriage under the laws of such other state … or a right or claim arising from such relationship." In other words, a state that does not recognize same-sex marriage is not required to recognize the legal marriage of a same-sex couple married in one of the jurisdictions listed above.
This tension between state laws for couples who move from one state to another will be felt by retirement plan administrators when determining beneficiary/survivor rights under 401(k) plans and other pension plans. Administrators for both self-funded and insured health plans will need to consider how to approach covering same-sex spouses as dependents of active employees, spousal COBRA obligations after a qualifying event, and structures of health flexible spending accounts. In addition, since health coverage for same-sex spouses is no longer a taxable benefit under the Internal Revenue Code, payroll taxes and withholdings will need to be reviewed and probably revised for same-sex couples.
Action points
Until guidance is issued in some form on the treatment of legally married same-sex spouses in other states where such marriages are not legal, employers and plan administrators should take a reasonable, good-faith approach applied on a consistent basis across all locations. Although it is impossible to know with any certainty, we expect that when the federal government does issue guidance, it will largely favor recognizing same-sex marriages for benefit plan purposes even in states in which such marriages are unlawful.
In any event, employers should start considering these issues now so that they will be as prepared as possible when employees ask questions or when an enrollment or benefits decision needs to be made for a same-sex couple. Once organizational decisions are made, then employers will need to review and possibly amend their plan documents and summary plan descriptions accordingly.
Constangy's ERISA/Employee Benefits Practice Group is continuing to study the Windsor decision and to monitor federal and state developments as they may affect the treatment of same-sex spouses under benefit plans. In the meantime, all employers and especially multi-state employers should begin discussing what issues they may be facing and identifying which plan administration areas will be affected by this major court decision.
Used with permission by Constangy, Brooks & Smith, LLP. Magargle is an attorney in the firm’s Columbia, S.C. office.
The firm has counseled employers on labor and employment law matters, exclusively, since 1946. A "Go To" Law Firm in Corporate Counsel and Fortune Magazine, it represents Fortune 500 corporations and small companies across the country. Its attorneys are consistently rated as top lawyers in their practice areas by sources such as Chambers USA, Martindale-Hubbell, and Top One Hundred Labor Attorneys in the United States, and the firm is top-ranked by the U.S. News & World Report/Best Lawyers Best Law Firms survey. More than 140 lawyers partner with clients to provide cost-effective legal services and sound preventive advice to enhance the employer-employee relationship. Offices are located in Alabama, California, Florida, Georgia, Illinois, Massachusetts, Missouri, New Jersey, North Carolina, South Carolina, Tennessee, Texas, Virginia and Wisconsin. For more information, visit www.constangy.com.
DOMA ruling complicates benefits administration
Originally posted by Andrea Davis on https://ebn.benefitnews.com
The Supreme Court’s decision striking down the federal Defense of Marriage Act is being hailed as a huge victory for same-sex couples, but the ruling makes benefits administration for employers even more complicated than before.
“It’s not even crystal clear that anybody knows what the right legal answer is with respect to those people living in the 38 states that don’t recognize same-sex marriage,” says Todd Solomon, a partner in the employee benefits practice of McDermott, Will & Emery, and author of Domestic Partner Benefits: An Employer’s Guide. “It’s really easy in the other 12 states [that do recognize same-sex marriage] — that’s what we know — but we’ve got a huge, open $64,000 question with respect to the rest of the people. And that’s a big problem for employers. I think they’re going to be very puzzled and they’re going to want guidance from the IRS.”
The court decision notes there are over 1,000 federal laws containing provisions specifically applicable to spouses that will be affected by its ruling. At this point, the ruling makes it harder for multistate employers to administer benefits, believes Leslye Laderman, a principal in the Knowledge Resource Center with Buck Consultants.
“We don’t know, exactly, the full implications of the ruling,” she says. “In the Windsor case, the plaintiff, Edith Windsor, lived in New York. New York is a state that recognizes same-sex marriage and the court very much was looking at that, and that DOMA was stepping on the rights of states to regulate that. But it really isn’t clear from the ruling exactly what the implications are for someone who’s living in a state that does not recognize same-sex marriage. More guidance is needed.”
For employees who were married in states that recognize same-sex marriage and still reside there, however, the DOMA ruling “is a significant gain in rights both on the pension side and on the health benefits side,” says Solomon.
For others, the decision “leaves many questions to be resolved by subsequent regulation and undoubtedly litigation,” said George W. Schein, lawyer with Thompson Hine’s employee benefits and executive compensation practice, in a statement. “Conspicuously unresolved is the interplay between the states that recognize same-sex marriage and those that do not.”
Retirement plans
With respect to defined benefit plans, same-sex spouses will now be entitled to survivor annuity rights. “Say a participant turns 65 and retires under a pension plan, including a frozen plan, and their benefit was $1,000 a month. If they die and have a surviving spouse, the surviving spouse would get a benefit of $500 a month – at least half of the participant’s annuity – for the rest of their life,” explains Solomon. “That’s a significant survivor benefit.”
With the DOMA ruling, this survivor benefit also now applies to qualified pre-retirement survivor annuities. “If somebody dies pre-retirement – before they start drawing their pension – that means their surviving spouse gets at least 50% of their benefit for the [duration of the] surviving spouse’s life,” says Solomon.
Combined, these survivor annuity rights represent “a big gain for same-sex couples, a pretty significant benefit that they were previously typically excluded from,” says Solomon.
Under 401(k) plans, spouses are automatically deemed beneficiaries so the DOMA decision means same-sex spouses will now have beneficiary rights they weren’t previously entitled to.
Health plans
For self-funded employers, there’s never been an obligation to cover same-sex spouses, although many plans do, says Solomon. But because DOMA defined marriage as between one man and one woman, “a lot of employers relied on the DOMA definition and said ‘we’re only covering opposite-sex spouses under our plan,’” he says. With DOMA ruled unconstitutional, it now “gets very difficult for an employer [in any state] to deny coverage to a same-sex spouse in a self-funded plan.”
Self-insured plans will “really need to think about extending coverage to same-sex spouses or be at risk of discrimination claims,” says Solomon.
Insured plans, meanwhile, “are already accustomed to covering same-sex spouses in states that recognize same-sex marriage,” says Solomon. “But with respect to other states, to the extent they’re not extending coverage, they’ll have to extend coverage as well, presumably.”
Tax implications
Since DOMA’s been struck down, health coverage for same-sex partners will no longer be a taxable benefit under federal tax law. One of the important questions is whether the decision will have retroactive implications. “A lot of employers have structured their payroll taxes and benefit plan side of things in accordance with DOMA and will now need to think through what their reactions will be,” says Joanne Youn, an employee benefits attorney at Caplin & Drysdale.
“Many constitutional cases do have retroactive implications,” notes Solomon. “In terms of tax refunds, I think you could potentially see a number of employees filing for tax refunds for taxation of benefits, and you may see employers filing for Social Security tax refunds because employers pay payroll taxes on the income they impose on employees covering same-sex spouses.”
It’s not clear retroactivity applies as the Supreme Court did not specifically address it but “it’s an open question and one that I think will be pursued – how far does this go back and will employers see an uptick in claims for spousal death benefits, for example?” says Solomon.
Next steps
Solomon recommends four steps for employers:
1. Take stock. Look at what you do already for same-sex spouses, compare it to what’s legally required now and see what gaps exist. “Some employers are going to have small gaps and some are going to have fairly large gaps,” he says.
2. Figure out how to implement any new benefits as soon as possible. “Some of this presumably takes effect right now so, for example, putting in procedures so that if somebody with a same-sex spouse were to die tomorrow, how would you treat that? Make sure you understand the rules and have policies in place,” he says.
3. Get everything documented. “From a qualified benefit plan perspective, typically you have until the end of the year to make discretionary amendments and conforming amendments,” says Solomon. “The IRS might issue some guidance and give more time but, I would aim to amend plans by the end of this calendar year, for calendar-year plans, and certainly by the end of the plan year for other plans.”
4. Update tax policies and payroll procedures to start taxing benefits in accordance with the new rules. “Stop taxing the benefits for federal income tax purposes starting as soon as possible,” says Solomon.
“It’s hard because none of this is going to happen overnight but I think employers just have to do their best to get geared up to address seemingly quite a few issues,” says Solomon. “It’s a little more complicated now than it was before, actually.”
‘Don’t be first out the gate’
Before employers communicate anything to employees, it’s important to think through the issues “and not be the first one out of the gate with extensive communications on what this means,” says Solomon.
“The important thing is to not say too much until employers figure out how they’re going to handle some of the open questions,” he says. “What happens if someone is married in New York [which recognizes same-sex marriage] but lives in Florida [which does not recognize same-sex marriage]? Is the employer going to continue to tax them on the benefits, treating them as unmarried because they live in Florida? Or will they not tax the benefit because the state of ceremony should govern and that’s good enough? Employers need to make up their mind on that, and there’s no guidance to know what the legally correct answer is on that.”
Employers should expect questions, says Roberta Chevlowe, a senior counsel in Proskauer’s employee benefits, executive compensation and ERISA litigation practice center and a member of the firm’s DOMA taskforce. However, she cautions “employers will need to consider carefully the scope of the decision and various issues relating to the implementation and effective date of the decision with regard to these issues.”
COBRA, FMLA
The ruling could also have implications for spousal rights under other legislation, such as COBRA and the Family and Medical Leave Act.
“If someone’s living in a state that recognizes same-sex marriage and has a same-spouse, now the spouse will have full COBRA rights,” says Laderman. “What we don’t know is what happens in a state where they don’t recognize same-sex marriage? An employer can extend COBRA-like coverage to same-sex spouses even if the state doesn’t recognize the marriage but it does raise issues.”
Similarly, FMLA is a federal law and rights are extended to spouses. “Are employers required to [recognize same-sex spouses] in other states [that don’t recognize same-sex marriage]? We don’t know that, but an employer could certainly extend that type of coverage if it wanted to,” says Laderman.
Now What? Employer Benefits Obligations Post-DOMA
Originally posted by Stephen Miller on https://www.shrm.org
On June 26, 2013, the U.S. Supreme Court, in United States v. Windsor, found unconstitutional Section 3 of the federal Defense of Marriage Act (DOMA), which had prohibited the federal government from acknowledging marriages between same-sex couples. Same-sex marriages were recognized as legal by 12 states and the District of Columbia at the time of the ruling. In a related case, Hollingsworth v. Perry, the court ruled that those challenging a California state court decision that made same-sex marriage legal in California (by overturning a state ballot initiative known as Proposition 9) lacked standing to do so—a finding that will restore legal same-sex marriage in the state.
“The Windsor decision is as many expected," Roberta Chevlowe, senior counsel in law firm Proskauer's employee benefits practice center in New York, told SHRM Online. "While the court held that Section 3 of DOMA (which defines 'marriage' and 'spouse' as excluding same-sex partners) is unconstitutional on equal-protection grounds, the decision does not force same-sex marriage on the states, which appear to continue to be free to define marriage as they wish and not recognize same-sex marriage."
For employers, "the Windsor decision means that there is much work to do with regard to the employer's benefit plans, even for employers who do not operate in states that recognize same-sex marriage," Chevlowe added. "On the health benefits side, among other things, employers will need to revisit the definition of 'spouse' in their plans to ensure that the definition is consistent with the employer's intent, in light of the decision. Employers may also need to cease imputing income to employees for the value of the health benefits they provide to same-sex spouses. With regard to qualified pensions, plan language and procedures will need to be considered because same-sex spouses have additional rights to federally protected benefits."
In addition, "Employers should expect that employees will immediately start asking questions about their rights with regard to various employee benefits, and employers will need to consider carefully the scope of the decision and various issues relating to the implementation and effective date of the decision with regard to these issues,” Chevlowe said.
Expanded Obligations
In an e-mail, Todd Solomon, an employee benefits partner at law firm McDermott Will & Emery LLP in Chicago, identified the following as key benefits implications for private-sector organizations (but not necessarily state government and church employers) now that Section 3 of DOMA has been struck down.
For a legally married couple who live in a state where same-sex marriage is recognized:
- Federal laws governing employee benefit plans will require companies to treat employees’ same-sex and opposite-sex spouses equally for purposes of the benefits extended to spouses.
- Employers with self-insured welfare plans (meaning benefits are paid out of the company’s general assets) may not have to extend spousal-benefit coverage to same-sex spouses, because federal law does not require spousal welfare-benefit coverage and because state insurance law mandates do not apply to self-insured plans. However, employers that continue to provide benefit coverage only to opposite-sex spouses "are almost certain to face legal challenges under federal discrimination law," Solomon advised.
- Employees will no longer have to pay federal income taxes on the income imputed for an employer’s contribution to a same-sex spouse’s medical, dental or vision coverage. And workers can pay for same-sex spouses’ coverage on a pretax basis under a Section 125 plan.
- Businesses will have to offer COBRA continuation coverage to same-sex spouses.
- Employers with pension plans will be required to recognize same-sex spouses for purposes of determining surviving-spouse annuities. Same-sex spouses must also agree to receive payment of their deceased spouse’s pension benefits in a form other than a 50 percent joint and survivor annuity, with the same-sex spouse as the beneficiary.
- Organizations with 401(k) plans will have to recognize same-sex spouses for purposes of determining death benefits, and same-sex spouses must consent to beneficiary designations.
- Employees must be permitted to take family and medical leave to care for an ill same-sex spouse.
"The above rules only apply to same-sex spouses who were married in and live in a state where same-sex marriage is legal,” Solomon clarified. “The big open question is what happens to same-sex spouses who live in states such as Florida or Texas," which don't recognize same-sex marriages. "No one can answer the question until additional guidance is issued. It is possible that the answer can vary for different purposes—for example, state of residence will likely carry the day for tax filing and imputed income purposes, but it is possible the IRS could say that 'state of celebration' governs for pension plan purposes. In the meantime, it appears that employers can choose either approach, but it will be imperative to amend plans to add clear plan language to document the employer's approach."
The decision "will affect retirement plan administration because plans will have to obtain the consent of the same-sex spouse to permit a waiver of the qualified joint and survivor annuity (QJSA) form of benefit or for any other purposes for which the consent of an opposite-sex spouse is required," in states that recognize same-sex marriages, concurred Leslye Laderman and Marjorie Martin, principals at Buck Consultants LLC. "It is unclear from theWindsor ruling whether employers will be required, or permitted in the case of the QJSA, to recognize same-sex spouses of employees living in states that do not recognize same-sex marriages as spouses for purposes of these laws. Additional guidance is needed."
Retroactive Benefits
Another question is whether employees can claim benefits retroactively—for instance, seeking past tax relief for spousal health care benefits—if they've been married to their same-sex spouse in a state that recognizes same-sex marriage. Solomon observed: "It is certainly not clear yet, but I would think employees should be able to amend tax returns for open years to claim refunds. And employers should be able to get refunds of FICA taxes for prior open years."
Retroactivity “is one of the most important practical questions facing employers and plan sponsors" following the DOMA ruling, added Joanne Youn, an ERISA and benefits law attorney at Caplin & Drysdale in Washington, D.C. "While the court did not specifically address retroactivity broadly, the decision arose out of a claim for refund of estate taxes paid by a same sex-spouse in a prior tax year. The IRS has authority under existing law to grant relief from retroactivity; however, even if it were to do so, its authority would not extend to other statutes affecting employee benefits, such as ERISA. The decision itself references the fact that over 1,000 federal laws contain provisions specifically applicable to spouses that may be affected and should be coordinated. Therefore, I would expect that additional guidance will be issued in the coming months.”
Deferring to State Law
Rita F. Lin, a partner at Morrison Foerster in San Francisco, said that many federal laws governing spousal benefits do not contain a statutory definition indicating which law governs whether an individual is “married.”
"Typically, federal laws defer to state law on this issue,” Lin explained, “but it will often be an open question under choice-of-law principles whether the applicable state law is the law of the state in which the couple was married or the state in which the couple currently resides. Some federal statutes (e.g., Social Security) look to whether a couple is married at the time that benefits are sought, which may suggest that the law of the state of current residence will apply. Others (in the immigration context) look to the state where the couple was married."
Lin revealed that there are "rumors that the administration may be considering an executive order that directs federal agencies, in interpreting federal statutes, to treat the state where the marriage celebration occurred as the governing state for purposes of determining whether couples are married.” She added: “I would note that, though there may be some short-term confusion, this is not technically a new issue. The states vary in their definitions of marriage on issues like common-law marriage, first-cousin marriage and age of eligibility, so this could always be an issue when married couples move to a new state that does not recognize their marriage. Of course, the issue is now going to be presented on a much larger scale than before, so we may see an attempt to resolve this in a more uniform fashion."
Presidential Action
Similarly, Hunter T. Carter, a litigation partner at Arent Fox in New York and Washington, D.C., said: "The president is crucial to implement the Supreme Court decision overturning DOMA, and employers will be watching to see what the president does. Everywhere he can do so, President Obama is expected to approve regulations and interpretations that apply the term 'spouse' to same-sex couples who were legally married, regardless where the couple was from or has moved."
Changing regulations that define "spouse" may take longer than an executive order, Carter said, "but again, President Obama will be crucial. Currently, the IRS and Social Security determine marriage status by where the couple lives, not where they married, so anyone in the 38 states that don't yet recognize or allow same-sex marriage will be unmarried for IRS and Social Security purposes until regulations can be changed. This is true even though they are otherwise identical to their neighbors who may have married in another state, like New York, which also allows same-sex marriage. Other agencies will not need to change, like the Defense Department, which interprets marital status based on where the couple was married."