By a five to four decision in Obergefell v. Hodges, the U.S. Supreme Court has struck down state laws banning same-sex marriage. The Court's decision reverses a Sixth Circuit decision that upheld such laws in Kentucky, Michigan, Ohio and Tennessee. The Court held that the Fourteenth Amendment requires states to license marriages between two people of the same sex and to recognize such marriages that have been lawfully licensed in other states. As a result, laws banning same-sex marriages in 14 states are no longer valid, affecting employee benefit plans and labor and employment practices of employers doing business in those states.

The Obergefell decision follows the Court's June 26, 2013 decision in United States v. Windsor, in which it struck down section 3 of the Defense of Marriage Act (DOMA), which had limited the terms "marriage" and "spouse" for purposes of federal law to opposite-sex persons. The Windsor decision did not address section 2 of DOMA, which authorized states to refuse to recognize same-sex marriages performed in other states, or address whether state laws banning same-sex marriages were constitutional. The Obergefell decision answers both questions.

Impact on Employee Benefit Plans

Following the Windsor decision, the Internal Revenue Service (IRS) issued guidance relating to the definition of "spouse" and "marriage" for purposes of federal tax laws. The IRS adopted the state of celebration rule, recognizing any marriage of same-sex individuals validly entered into in a state or jurisdiction whose laws authorize the marriage, regardless of whether the married couple is domiciled in a state that recognizes the same-sex marriage. This guidance required employers sponsoring retirement, health and other employee benefit programs to amend and operate their plans for federal tax law purposes consistent with the IRS’s definition of spouse, even if employees lived in states that banned same-sex marriages. The Department of Labor (DOL) issued similar guidance relating to the definition of spouse under the Employee Retirement Income Security Act (ERISA) and the Family Medical Leave Act (FMLA). 

Even though employers should already be in compliance with existing IRS and DOL guidance relating to the definition of spouse and marriage, the Obergefell decision will still have an impact – and in some cases a significant impact – on employers sponsoring benefit plans:

  • Employers that have employees in multiple states will be able to simplify administration of their employee benefit plans, as there will be consistency among the states relating to the tax treatment of benefits provided to non-employee same-sex spouses.
  • Employers doing business in states that did not recognize same-sex marriage and that, therefore, may have had to impute state income tax for providing health benefits or other benefits to same-sex spouses, will no longer have to impute such taxes.
  • Employers with insured health plans doing business in states that did not recognize same-sex marriage will now be required to recognize same-sex spouses for coverage, COBRA, and other purposes.
  • Employers that offer domestic partner benefits under their benefit plans may want to reevaluate whether it is necessary to continue those benefits (to the extent not required to do so by state law) in the long term, although employers will generally want to provide a reasonable transition period for employees newly eligible to marry.
  • Employers, particularly governmental employers, sponsoring employee benefit plans that have eligibility or benefit provisions that are based on the gender of a spouse should carefully reevaluate those provisions in light of the Obergefell decision.