On June 26, 2013, the Supreme Court ruled in United States v. Windsor that the definition of marriage in the Defense of Marriage Act (DOMA) is unconstitutional. As a result, the federal government will now recognize same-sex marriage for federal law purposes. The change in law will have a significant impact on employee benefits administration, which is largely governed by federal law.
The Court’s decision has important implications for retirement plans, health and welfare plans, including COBRA coverage and HIPPA special enrollment rights, and FMLA leave:
Retirement Plans – For retirement plans, the DOMA decision has implications for hardship distributions, qualified domestic relations orders, default beneficiary and spousal consent provisions, required minimum distributions and annuity provisions. All of these retirement plan administrative matters can involve issues that rely on the definition of “spouse.”
Health and Welfare Plans – For health and welfare plans, the most important change is probably that health benefits provided to a same-sex spouse will no longer be subject to federal tax. Other important aspects of health plan administration will also be affected: “Qualifying Events” to modify benefit elections will now include marriage to a same-sex spouse; HIPAA special enrollment rights will apply to same-sex spouses; and same-sex spouses will now be considered “qualified beneficiaries” for purposes of COBRA continuation coverage. Tax-favored treatment of Flexible Spending Accounts will now also be available to same-sex spouses.
FMLA Leave – Employees will now be able to take FMLA leave to care for a same-sex spouse.
It is important to note that the Court’s decision did not declare same-sex marriage to be a constitutional right and does not require that states recognize same-sex marriages formed in other states. Furthermore, the decision does not expressly require employers to offer employee benefits to same-sex spouses nor does it appear to modify preemption of state laws relating to employee benefit plans pursuant to the Employee Retirement Income Security Act (ERISA).
Although many employee benefit plans had relied on the DOMA definition of marriage, it would appear that employers whose plans are governed by ERISA continue to be able to design their benefit plans to define “spouse” for benefit eligibility purposes as they wish. However, the DOMA decision now recognizes federal rights for same-sex spouses. Thus, an employer could have a situation in which same-sex spouses are not eligible for coverage under the health plan but are recognized as having spousal rights under the retirement plan.
A host of open questions remain after the Court’s DOMA decision and it is expected that the IRS and other agencies will issue guidance concerning the effect of the Court’s ruling on various aspects of employee benefits administration. The Court did not address, for example, when the decision takes effect or whether the decision has retroactive effect, such that same-sex couples in states that recognize their relationships could claim retroactive treatment of their benefits. Another open question is whether to apply the law of the state in which a same-sex marriage was formed or the law of the state in which the couple reside.
Consider a situation in which a same-sex marriage is formed in a state in which it is recognized but the couple moves to a state in which it is not recognized. In such circumstances, early signals from the Obama Administration indicate possible nationwide recognition of legal same-sex marriages based on the state of formation as opposed to the state of residence, but no formal guidance has been seen yet. It is expected, however, that state, as opposed to federal, laws that do not recognize same-sex marriages would likely continue to be observed based on residency. Therefore, in a state not recognizing same-sex marriages, an employer providing health benefits to a same-sex spouse could find itself imputing income for state tax purposes but not imputing income for federal tax purposes. We anticipate that this should become clearer through the issuance of state and federal guidance and through additional litigation.
In fact, in Obergefell v. Kasich, only 26 days after the Supreme Court’s DOMA decision, an Ohio Federal District Court judge ordered the State of Ohio to recognize a same-sex marriage formed in the State of Maryland, notwithstanding that Ohio does not recognize such marriages pursuant to its own constitutional and statutory laws. In that decision, the court reasoned that where Ohio recognizes some out-of-state marriages even where such marriages could not be formed in Ohio, for example the marriage of first cousins, then singling out marriages of same-sex couples for different treatment violates the 14th Amendment of the U.S. Constitution and its guarantee of equal protection. We anticipate more decisions along these lines.
The Court’s DOMA decision does not directly affect civil unions and domestic partnerships. Plan references to those arrangements, plan references to the word "spouse," and plan provisions referring to the rights of spouses should all be reviewed to ensure compliance with the law and to ensure that the terms used in the plan documents represent the employer’s intent.