The Supreme Court’s recent decision in U.S. v. Windsor, invalidating Section 3 of the Defense of Marriage Act (DOMA), affects over 1,300 federal laws, including the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA). As a result, the federal government must recognize same-sex marriages that are valid under state law for tax and employee benefits purposes.
The effect of the decision on a particular employer’s benefit plans depends on where the employer and its employees are located.
States With Same-Sex Marriage
For employers in states with same-sex marriage (including Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont, Washington, the District of Columbia, and, after August 1, 2013, Rhode Island and Minnesota), same-sex marriages will be recognized by the Internal Revenue Service (IRS) and Department of Labor (DOL) for the purposes of the following:
• Spousal consent requirements for distributions and beneficiary designations (previously consent of a same-sex spouse was not required)
• Spousal distribution rights and privileges (previously same-sex spouses were not recognized as spouses for these purposes)
• Spousal rollover rights, hardship withdrawal rights, and required minimum distribution requirements (previously same-sex spouses were treated as non-spouse beneficiaries)
• Spousal rights to retirement plan benefits in divorce (previously a participant’s retirement benefits were not available to same-sex spouses and former same-sex spouses in divorce)
• Tax-free treatment of medical, dental, and vision coverage (previously employees were imputed taxable income of the value of coverage provided to same-sex spouses)
• Reimbursements under flexible spending accounts (FSAs), health reimbursement accounts (HRAs), and health savings accounts (HSAs) for expenses incurred by a same-sex spouse (previously the reimbursement rights of same-sex spouses were significantly limited)
• Federal insurance contributions act (FICA) and federal unemployment tax act (FUTA) taxes (previously FICA and FUTA taxes were charged on the imputed income noted above)
• COBRA and HIPAA special enrollment rights (previously same-sex spouses were not treated as spouses for these purposes)
States With Domestic Partnership but not Same-Sex Marriage
It is not yet clear whether the IRS and DOL will recognize domestic partnerships as same-sex marriages. Depending on the similarity of rights granted to a same-sex couple under a state’s domestic partnership law compared to a marriage, the treatment of domestic partnerships under federal law may vary from state to state. Additional guidance is expected but we do not know how soon such guidance may be provided.
States Without Same-Sex Marriage or Domestic Partnership
The Supreme Court’s decision does not require any state to allow same-sex marriage. It only requires the federal government to recognize same-sex marriages validly entered into in states that allow them. Whether a valid same-sex marriage in one state is recognized in another state is a complicated constitutional question and the answer may vary from state to state. It is significant that the Windsor decision did not invalidate Section 2 of DOMA, which provides that no state will be required to recognize a same-sex marriage from another state.
It is unclear whether, for benefits purposes, employers in states without same-sex marriage will be required to recognize valid same-sex marriages from other states. Additional guidance is expected but we do not know how soon such guidance may be provided.
Significant Questions Remain
Even in states that allow same-sex marriage, additional guidance is needed from federal regulators before employers can take significant steps to comply with the Windsor decision, including guidance on the following issues:
• The extent that domestic partnerships will be treated as same-sex marriages.
• Whether and under what circumstances an employer in a state without same-sex marriage will be required to recognize a valid same-sex marriage from a state with same-sex marriage. For example, will Idaho employers be required to recognize a same-sex marriage obtained by an Idaho resident in Washington? What if an employee with a same-sex spouse resides in Washington but commutes to work in Idaho?
• When the Windsor decision will be effective for benefits purposes. Will regulators provide a transition period? Does the Windsor decision have retroactive effect?
• In states with same-sex marriage, whether employers that provide coverage to spouses can exclude same-sex spouses.
• How employers with employees in multiple states may define marriage in their benefit plans.
While waiting for additional guidance from the IRS and DOL, employers should do the following:
• Review the definitions of “spouse” and “marriage” in plan documents and participant communications. Many plans define spouse and marriage with reference to federal law, which is problematic in light of the Windsor decision.
• Consider what definition the employer wants to use going forward.
• Depending on whether employees reside in states with same-sex marriage and whether benefits are available for same-sex spouses, consider providing a notice to employees explaining available benefits for same-sex spouses and applicable plan changes.
• For plans that already recognize same-sex marriages, revise administrative procedures (including income tax and employment tax withholding, beneficiary designation, qualified domestic relations orders, COBRA, and special enrollment procedures, etc.). In many cases, the decision will simplify administration.
If you would like more information about this topic or other legal issues, please contact a member of our Health Law Group or call 208.344.6000.