On June 26, 2013, the United States Supreme Court issued a landmark decision regarding same-sex marriage. While welcomed by proponents of marriage equality for same-sex couples, the decision left many unanswered questions regarding when same-sex marriages will be considered valid for purposes of employee benefit plans. Employers must now navigate through a field of potential landmines with little guidance issued to date.
In U.S. v. Windsor, the Supreme Court affirmed lower federal court decisions striking down section 3 of the Defense of Marriage Act (DOMA) as unconstitutional on equal protection grounds. Section 3 of DOMA had preempted state law and defined "marriage" for purposes of all federal statutes, regulations, rulings, and interpretations as "a legal union between one man and one woman as husband and wife," and "spouse" as "a person of the opposite sex who is a husband or a wife."
What It Means
Currently, 11 states (California*, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont and Washington) and the District of Columbia issue marriage licenses to same-sex couples, and recognize same-sex marriages entered into in other states. Two additional states, Minnesota and Rhode Island, will issue marriage licenses to same-sex couples effective August 1, 2013, and Rhode Island already recognizes same-sex marriages entered into in other states.
Without section 3 of DOMA, the definition of "spouse" and "marriage" is governed by state law. The Supreme Court’s ruling means that a same-sex marriage recognized at the state level is now considered a legal marriage at the federal level. For example, a same-sex couple domiciled in the State of New York whose marriage is recognized by that state will be treated as married for all federal purposes. However, the Supreme Court did not rule on section 2 of DOMA, which provides that states do not have to recognize same-sex marriages legally entered into in another state.
The Supreme Court’s ruling did not address important practical issues regarding when same-sex marriages will be recognized at the federal level or for employee benefit purposes, such as:
- If a same-sex couple legally marries in the state they live in, but then moves to a state that does not recognize same-sex marriages, is the couple still treated as married for federal/employee benefit purposes? What if only one party moves to the other state?
- If a same-sex couple lives in a state that does not recognize same-sex marriages, but has their marriage ceremony performed in another state that does recognize same-sex marriages, is the couple treated as married for federal/employee benefit purposes?
- To what extent, if any, will same-sex marriages be recognized retroactively?
- Does the Supreme Court’s decision and the associated change in tax treatment of same-sex spouse coverage constitute a current mid-year change in status under Internal Revenue Code Section 125 cafeteria plans, or a special enrollment event under the Health Insurance Portability and Accountability Act (HIPAA)?
It is important to note that the decision does not mean that all group health plans will be required to provide coverage to same-sex spouses. Insured group health plans are generally subject to state insurance laws, and therefore, may be required to provide coverage to same-sex spouses. For self-insured group health plans, however, employers still have the ability to choose the definition of spouse that will be used for purposes of eligibility and benefits. Employers that sponsor self-insured plans should review the definition of spouse set forth in each plan and adopt any necessary amendments to ensure that the plans accurately reflect the appropriate eligibility rules.
In addition, employers will need to take action now to start treating same-sex spouses from states that permit or recognize same-sex marriages as lawful spouses. This means employers will need to take action with regard to the following:
- Federal taxation of benefits, including imputed income under health plans. Employers should immediately stop imputing income for same-sex spouses covered under a plan, and allow employee contributions to pay for coverage to be made on a pre-tax basis. Depending on guidance regarding retroactivity of tax treatment, employers will also need to decide whether to seek refunds for the employer portion of FICA taxes paid on such imputed income.
- For tax-qualified retirement plans, these same-sex spouses must be treated as lawful spouses for purposes of maximum benefit limitations, spousal consent rules, rollovers, death benefits, minimum required distributions, availability of in-service hardship withdrawals, and assignment of benefits under qualified domestic relations orders.
- Allow employees the ability to modify elections under group health plans due to a Code Section 125 change in status or HIPAA special enrollment event that is associated with a same-sex spouse who is entitled to enroll in the plan.
- If coverage is provided to a same-sex spouse under the eligibility rules of a group health plan, provide for the availability of continuing health benefits under COBRA.
- Allow employees to take a leave of absence under the Family and Medical Leave Act where the need for a leave is associated with a same-sex spouse.
- Where necessary, update beneficiary designations to reflect the existence of a legal spouse.
Employers should review their benefit plans and identify which provisions are affected and need to be updated. Summary plan descriptions and election forms also should be amended, and plan administration will have to be revised accordingly. Additional communications may need to be sent to employees and former employees (and, depending on guidance on retroactivity, to their same-sex surviving spouses) informing them of the changes to their benefit rights.
Unfortunately, the Supreme Court’s decision has made same-sex spousal coverage a more complex and confusing area. Agency guidance regarding treatment of same-sex spouses would be welcome and hopefully will be forthcoming. Reed Smith will keep clients apprised of any developments in this area.
If you have any questions regarding the effect of the Supreme Court’s ruling on your company’s benefit programs, or any other employee benefits-related questions, please contact one of the authors or your Reed Smith attorney.
*California’s Proposition 8 (Prop. 8) had prohibited same-sex marriages in California since 2008. The U.S. Supreme Court dismissed Hollingsworth v. Perry, declaring that the proponents of Prop. 8 lacked legal standing to appeal in federal court the California state court rulings that invalidated Prop. 8. As a result, same-sex marriages may resume in California.