When you heard about the invalidation of the part of the Defense of Marriage Act (DOMA) that defined marriage as between a man and a woman by the United States Supreme Court, you probably thought: “Now my plan is going to have to provide joint and survivor benefits to same sex spouses.” That is true, but it is only one of the many plan provisions, tax benefits and plan practices impacted by the U.S. Supreme Court’s decision.
While the Court’s decision leaves many compliance questions unanswered, every plan sponsor will want to start by reviewing its plan definition of “spouse” to see if it needs to be amended. For example, we sometimes see plan provisions that explicitly define “spouse” as a person of the opposite sex to whom a participant is legally married. Obviously, this language will need to be changed. The determination will now be made by looking at each state’s law.
Beyond joint and survivor annuities for same-sex spouses, here are just a few of the other employee benefits you may not have thought about that are impacted by the DOMA decision:
- Plans that don’t provide annuities, such as many 401(k) plans, require spousal consent before the participant may name another beneficiary. Same sex spouses must now provide this consent.
- Cafeteria and flexible benefit plans must permit mid-year election changes when participants marry a same sex spouse or when a same sex spouse loses coverage.
- COBRA (health plan continuation) coverage must be offered to same sex spouses.
- Same sex spouses must be given the same rights to defer payment of death benefits and make rollovers as opposite sex spouses.
The federal tax treatment of same sex spouses is also changed. An employee will no longer be taxed on the value of employer-provided health coverage for a same sex spouse who is not the employee’s tax dependent, and employee premiums for this coverage may now be paid on a pre-tax basis. Employers will need to change their payroll withholding.
Future plan administration must change. It is unclear at this time whether past practices will have to be corrected or how far back claims can go. But we fully expect that same sex spouses will make claims for past benefits, as well as prospective benefits. We can envision, for example, same sex spouses claiming that they are entitled to retroactive survivor annuity benefits. Will these be required? Will employers have to issue revised W-2s? Will prior beneficiary designations be invalidated?
The answers will depend on future guidance, which will determine how expensive and complicated compliance will be.