United States v. Windsor
The Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA) in United States v. Windsor by a 5-4 majority on June 24. Section 3 defined the word “marriage” as “a legal union between one man and one woman” and the word “spouse” as “a person of the opposite sex,” which effectively deprived legally married same-sex spouses of any protections or benefits available only to married people under federal law.
After Windsor, same-sex spouses with valid marriages under state law must be treated the same under federal law as opposite-sex spouses. This affects nearly 1000 federal laws, including significant parts of the Internal Revenue Code, ERISA, COBRA, and FMLA.
However, Windsor left unchanged Section 2 of DOMA, which allows states to refuse to recognize samesex marriages performed in other states. Therefore, additional guidance from the Internal Revenue Service and other federal agencies is required to clarify whether the law of the state of celebration, the state of residence, or some other state controls in determining whether a same-sex couple is “married” or each other’s “spouses” for purposes of determining entitlements under federal law.
Hollingsworth v. Perry
On the same day, the Supreme Court decided Hollingsworth v. Perry, which addressed whether Proposition 8, limiting marriage to opposite-sex couples in California, was constitutional. The Supreme Court’s decision was based on a lack of standing, causing the prior District Court decision, that Proposition 8 was unconstitutional and shouldn’t be enforced, to be the final ruling in the case. As a result, same-sex marriages are now legal in California, and same-sex spouses in California are entitled to spousal benefits provided under federal law as a consequence of Windsor.
Recommended Steps for Employers in Same-Sex Marriage States
Same-sex marriages are, or will soon be, permitted in California, Connecticut, Delaware, the District of Columbia, Iowa, Maine , Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington (“Same-Sex Marriage States”). Federal recognition of same-sex marriages will largely impact employee benefit plans in these states. Employers and plan administrators should consider the following immediate issues:
- Determine your company’s position on offering equivalent spousal benefits to same-sex spouses. While the holding in Windsor and guidance from federal agencies may require certain outcomes, companies should also begin discussing their stance on same-sex spousal benefits as soon as possible.
- Determine whether you have employees or plan participants with a same-sex spouse who are residents of any Same-Sex Marriage States. If so, same-sex spouses of those employees or plan participants should be treated as spouses under all federal laws providing spousal benefits, including death benefits under qualified plans and spousal rights under welfare plans (if same-sex spouses are eligible under such plans), such as COBRA continuation coverage, HIPAA special enrollment rights, and FMLA.
- Stop withholding income and employment taxes that are being imputed on the value of health benefits provided to a same-sex spouse. This may require plan amendments and new communication materials.
- Determine whether you will wait for employees to come forward to inform you of their valid samesex marriage or proactively send a communication to employees in the Same-Sex Marriage States to inform them of the effect of Windsor on taxes and plan benefits of employees who are in same-sex marriages.
- Consider filing protective claims for refund of employment taxes paid for prior years on the imputed taxes applied to same-sex spouse health care coverage that has been provided.
Unresolved Employee Benefits Issues after Windsor
Many issues remain unresolved after Windsor. We are hopeful that federal agencies will provide guidance in the near future to clarify some of these issues.
Here are some of the unresolved issues that affect employee benefits plans:
- Will Windsor have retroactive effect? If retroactive rights are available to individuals in valid same-sex marriages, they may be able to file claims seeking retroactive COBRA election rights for themselves and their children and spousal death benefits under tax-qualified retirement plans. They may also be able to file amended federal income tax returns for open years as married people.
- Will a marriage be valid for federal law purposes if a same-sex married couple moves from a state in which the marriage was performed to another state that does not recognize same-sex marriage?
- Will federal law recognize same-sex marriages that are performed abroad for people living in Same-Sex Marriage States? In other states?
- Will employers in Same-Sex Marriage States be permitted to define marriage to exclude same-sex spouses for purposes of providing health and welfare benefits?