On June 24, 2011, New York became the sixth state to legalize same-sex marriage when Governor Andrew Cuomo signed into law the Marriage Equality Act (the “Act”). The effective date of the Act was July 24, 2011. Prior to July 24, 2011, New York allowed for recognition of legal same-sex marriages performed in other states. Same-sex marriage is legal in Connecticut, Iowa, Massachusetts, New Hampshire, Vermont, and Washington. D.C. In addition, California continues to recognize same-sex marriages performed during the period in which same-sex marriage was legal in California (June 16 through November 4, 2008). Effective July 24, 2011, same-sex spouses who are married in New York are entitled to the same benefits previously provided to same-sex married spouses legally married outside of New York.
Primary Changes Made By the Act
The primary changes made by the Act include the following:
- An application for a marriage license in New York will not be denied on the ground that the parties are of the same sex;
- A marriage that is otherwise valid will be valid regardless of whether the parties to the marriage are of the same or opposite sex;
- Government treatment or legal status, effect, right, benefit, privilege, protection or responsibility relating to marriage in New York will not differ based on the parties to the marriage being or having been of the same sex rather than an opposite sex.
Impact on Employee Benefit Plans
Under the federal Defense of Marriage Act (DOMA), same-sex marriages are not recognized as valid under any federal statute, including the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (the “Code”). DOMA provides that the term “spouse” can only refer to married persons of the opposite sex. Thus, the impact of the Act on employee benefits offered by plan sponsors, as with other state laws that recognize same-sex marriages, depends primarily on the type of plan and the plan’s specific provisions.
Self-Funded Health and Welfare Plans
Self-funded health and welfare plans are subject to ERISA, which generally preempts state laws. Therefore, self-funded health and welfare plans are not required to provide benefits to same-sex spouses married under the Act. For self-funded group health plans, the terms of the benefit plan will dictate whether same-sex spouses of employees are eligible for coverage. Nevertheless, some plan sponsors may intentionally choose to extend spousal coverage to same-sex spouses in self-funded group health plans. Additionally, self-funded plans may unintentionally provide benefits to same-sex spouses. For example, a health and welfare plan that provides benefits for an employee’s spouse without defining that term or that defines spouse as a “legal spouse” or “the person to whom the employee is lawfully married” may be interpreted to provide benefits to same-sex spouses. Consequently, plans sponsors should review each plan’s definition of spouse to determine whether the plan provides benefits to same-sex spouses or may be interpreted to do so. If the plan’s provisions do not reflect the plan sponsor’s intent regarding benefits for same-sex spouses, the plan’s definition should be revised and clarified.
Fully Insured Health and Welfare Plans
ERISA preemption does not apply to insured health and welfare plans. Consequently, insured health and welfare plans provided pursuant to insurance policies that are subject to New York insurance laws must treat same-sex spouses the same as opposite sex spouses. For example, although a plan may not be required to cover spouses, if the plan does cover opposite-sex spouses, it may now be required to cover same-sex spouses. As a result of a directive issued by former Governor Paterson in 2008 (and pursuant to a Circular Letter issued by the New York Insurance Department as a consequence of that directive), New York State law already required that same-sex spouses (validly married in other states or jurisdictions) must be treated the same as opposite-sex spouses. Now, same-sex spouses who are married in New York will receive similar treatment. However, plan sponsors with insurance policies issued in states other than New York may not be subject to New York law. Employers should review the underlying insurance policies to determine whether New York law applies.
Whether a plan is fully or self-insured, COBRA health continuation coverage requirements arise out of federal law and generally are not subject to the requirements of the Act. This means that COBRA rights for spouses generally apply to opposite-sex spouses rather than same-sex spouses. However, an employer may voluntarily provide COBRA-like benefits to same-sex spouses.
For federal income tax purposes, as required by DOMA, health and welfare benefits provided to same-sex spouses are taxable to the employee unless the same-sex spouse qualifies as a dependent under the Code. Therefore, employers must impute income to the employee for federal income tax purposes equal to the fair market value of the health coverage provided to a same-sex spouse. Generally, employers with fully insured health plans determine the fair market value of coverage by calculating the difference between the amount an employer would contribute for the employee alone and the amount the employer would contribute for a couple or family. Employers with self-insured plans generally determine the fair market value of health coverage based upon COBRA coverage rates.
On July 29, 2011 the New York State Department of Taxation and Finance issued a technical guidance memo (“Memo”) that provides guidance with respect to the Act’s impact on New York’s personal income taxes (TSB-M-11(8)(C) available here). The Memo provides that same-sex married couples must file New York State personal income tax returns using a married filing status (e.g., married filing jointly, married filing separately), even though their marital status is not recognized for federal tax purposes. In addition, to compute their New York tax, same-sex married couples must recompute their federal income tax (e.g., their federal income, deductions and credits) as if they were married for federal income tax purposes.
Same-sex married couples who are married as of December 31, 2011 will be considered married for the entire year and they must file their returns using a married filing status in tax year 2011. However, the Act is not retroactive. A same-sex couple who was legally married in another state prior to July 24, 2011, is not married for New York tax purposes until July 24, 2011, and may not use a married filing status prior to the 2011 tax year.
Retirement benefits are generally governed by ERISA and the Code and therefore are not affected by the Act. Therefore, same-sex couples are excluded from many federal pension protections and benefits including qualified joint and survivor annuities, qualified preretirement survivor annuities, spousal consents, minimum required distributions, rollover distributions, hardship distributions, and qualified domestic relations orders. Nevertheless, plan sponsors may design a plan to intentionally provide benefits to same-sex spouses. For example, some plan sponsors have voluntarily chosen to provide pre-retirement survivor annuity benefits and various joint and survivor annuity options to same-sex spouses. Accordingly, plan sponsors may want to review plan documents to clarify that federally-required spousal benefits are not available to same-sex spouses and to implement plan design changes to provide same-sex couples with similar alternatives.
With the passage of the Act, employers should expect an increase in requests for spousal benefit coverage from employees who have legally married their same-sex partners. Employers with a presence in New York should consider the following to determine whether revisions to their employee benefit plans are necessary to comply with the Act:
- Review existing HR policies (including employee handbooks) to assess the current rights of same-sex spouses and consider any required or desired changes;
- Review benefit plan documents, summary plan descriptions, insurance contracts, benefit forms, and administrative procedures to determine the current rights of same-sex spouses and consider any required or desired changes;
- Review any domestic partner policy and any other employer policy that might be affected by the Act;
- Coordinate with insurance providers and third party administrators and the payroll department to address taxation issues; and
- Communicate benefit plan changes made pursuant to the Act to employees and their family members.