New York State became the sixth and largest state to legalize same-sex marriages when it passed the Marriage Equality Act (Act) on June 24, 2011. In 2008, New York began recognizing same-sex marriages that were legally performed in other jurisdictions. However, it was not until the Act became effective on July 24, 2011 (30 days after Governor Cuomo signed it into law), that same-sex couples could obtain marriage licenses in New York State. The Act states: “[n]o government treatment or legal status, effect, right, benefit, privilege, protection or responsibility relating to marriage, whether deriving from statute, administrative or court rule, public policy, common law or any other source of law, shall differ based on the parties to the marriage being or having been of the same-sex rather than a different sex.” The recognition of same-sex marriages will impact employers in New York State that extend benefits to employees’ spouses. However, the specific impact will depend on the type of employer and the specific type of benefit plan.
ERISA Plans vs. Non-ERISA Plans. Most private sector employers’ plans are subject to ERISA, which, as a federal law, generally preempts state law as it relates to employee benefit plans. Therefore, a plan (such as a medical plan) that is subject to ERISA would not be required to follow the Act and would not be required to recognize same-sex spouses for purposes of providing coverage. It should be noted, however, that a plan subject to ERISA could provide such coverage, so long as the term "spouse" was defined to include same-sex spouses. To avoid any ambiguity (and potential lawsuits), employers with plans subject to ERISA should clearly define the term “spouse” as it relates to their plans.
In contrast, church plans and government plans (such as plans sponsored by school districts or municipalities) are not subject to ERISA and are subject to state law. As such, government and church plans are generally required to recognize same-sex spouses for purposes of eligibility for their plans that provide coverage to spouses.
Insured vs. Self-Insured Plans. ERISA also does not preempt state insurance law. Therefore, insurance policies issued in New York State are subject to the Act and are required to recognize same-sex spouses. As a result, if an employer, including an employer subject to ERISA, has a plan that is insured by a policy issued in New York State, that policy is required to recognize same-sex spouses for purposes of coverage.
DOMA and the Code. In addition to the type of employer, the impact of the Act will also depend on the type of plan. The Defense of Marriage Act (DOMA), enacted in 1996, requires all federal laws and regulations that use the term spouse or marriage limit the definition of those terms to mean a marriage between one man and one woman. Because the Internal Revenue Code (IRC), a federal law, uses the term "spouse," such references do not include a same-sex spouse. As a result, retirement plan spousal benefits that are derived from the IRC, such as Qualified Joint and Survivor Annuities (QJSAs) and Qualified Pre-Retirement Survivor Annuities (QPSAs), will not automatically apply to same-sex spouses. Also, so-called Code Section 105(h) plans, such as health flexible spending accounts, cannot reimburse medical expenses incurred by a same-sex spouse, unless the same-sex spouse otherwise qualifies as the employee participant's tax dependent.
State vs. Federal Income Tax. Because the IRC does not recognize same-sex spouses, the value of employer provided coverage provided to a non-dependent same-sex spouse will be considered taxable income to the participant for federal income tax purposes. However, because the Act requires recognition of same-sex spouses for all state purposes, the value of the employer provided coverage will not be subject to New York State income tax.
Because of the interplay between ERISA, DOMA, and the Act, employers must carefully review their plans that offer benefits to spouses to determine which definition of spouse can or, in some cases, must apply in each situation. The definition of spouse that is used should be clearly defined and communicated to plan participants. The availability of coverage should be coordinated with the plan's insurer or stop-loss carrier. Finally, the employer's payroll department or third party administrator should be alerted to the complex tax treatment of coverage provided to same-sex spouses.