- Tax Treatment of Employer and Employee Contributions for Coverage of Same-Gender Spouses. Historically, employees could not pay for health care coverage for their same-gender spouses on a pre-tax basis. In addition, employers were required to impute income to the employees when the cost of coverage was subsidized by the employer for the employees' same-gender spouses unless the spouse separately qualified as the employee's tax dependent. Under the Ruling, the federal tax treatment of same-gender spouses will be the same as opposite-gender spouses, allowing for pre-tax premium payments and no requirement to impute income for employer-paid coverage. This rule becomes effective September 16, 2013. Employers and individuals may obtain refunds for federal income, FICA and FUTA taxes on the value of employer-subsidized coverage for same-gender spouses for open tax years. The rules on applying for refunds can be complicated and we advise you to consult your legal advisor about your particular circumstances.
- Special Enrollment Rights. Employer-sponsored group health plans are required to allow mid-year enrollments upon certain life events such as marriage, birth and adoption. Under the Ruling, marriage to a same-gender spouse will trigger these special enrollment rights.
- COBRA Continuation Coverage. COBRA requires employers with 20 or more full-time employees to allow covered individuals the right to continue, as their own expense, health coverage for a period of time following a certain qualifying events, such as termination of employment, death and divorce. Same-gender spouses will now be protected with a separate COBRA right, in the same manner as opposite-gender spouses have been protected.
- Flexible Spending Accounts, Health Savings Accounts and Health Reimbursement Accounts. Federal tax laws will now permit the reimbursement of expenses of a same-gender spouse or the spouse's children under any of these plans.
- Dependent Care Reimbursement Accounts (DCRA). These accounts, which allow for an employee to pay for dependent care on a pre-tax basis, will now include a same-gender spouse's children.
Rights of Spouses over Form of Distribution. Applicable law requires certain types of retirement plans to provide for Qualified Joint and Survivor Annuities and Qualified Preretirement Survivor Annuities in which the employee's spouse is entitled to certain rights with respect to the payment of benefits. In general terms, an employee cannot elect a form of payment other than an annuity which provides a contingent annuity to the surviving spouse, unless the spouse properly waives the right.
While additional guidance is forthcoming, it is clear that from September 16, 2013 forward, same-gender spouses will have entitlement to these same rights. Thus, if an employee is about to enter pay-status under a "pension" plan (a category of retirement plan) subject to these rules, the employer should verify if there is a same-gender spouse and confirm compliance with these rules for that spouse. Such verification can be complex in certain circumstances and should not be attempted without advice of counsel. The treatment of distributions remains an open issue that should be addressed by future guidance prior to September 16, 2013.
- Spousal Consent Rights. Distributions, including loans and hardship withdrawals, from most pension plans cannot be made to married participants absent consent by the spouse. The IRS's Ruling has extended this consent requirement to same-gender spouses.
- Payment of Death Benefits. Absent a proper waiver, certain retirement plans must provide that that death benefits be paid to the surviving spouse. Same-gender spouses are now entitled to the same protections. Accordingly, employers would be wise to consult with legal counsel about requiring some or all employees to execute new beneficiary designation forms and, if a non-spouse is elected as beneficiary, having the employee affirmatively indicate that the employee is not married. As noted above, there are open issues with any retroactive application of these rules and whether same-gender spouses for whom death benefits have been paid to non-spouse beneficiaries were appropriate.
- Spousal Rollover Rights. Both spouses and non-spouses who are beneficiaries of a retirement plan participant's account balance may roll over a distribution from the retirement plan to an IRA; however, only spouses can roll over the death benefit to another qualified employer plan. Same-gender spouses will now be allowed to roll over an inherited plan benefit to their employers' qualified plans.
- Age 70½ Required Minimum Distributions. Surviving spouses may have special rights to defer distribution of death proceeds from a retirement plan. Under the IRS's Ruling, these rights also apply to same-gender spouses.
- Qualified Domestic Relations Orders (QDROs). Under an exception to ERISA's anti-alienation rules, a participant's retirement plan benefits can be required to be paid to a former spouse incident to a court-ordered QDRO. This same requirement can possibly now be claimed to apply in the context of same-gender spouses; although state-specific statutes may present obstacles to obtaining or enforcing a QDRO.