On June 26, 2013, the US Supreme Court’s decision in United States v. Windsor struck down Section 3 of the federal law known as the Defense of Marriage Act (DOMA). Under DOMA and for purposes of federal law, the term “spouse” was limited to individuals of the opposite sex. The Court’s decision in United States v. Windsor means that the federal government must recognize, as spouses, individuals of the same-sex who are married in states which permit same sex marriages.
The case has significant impact on employee benefits and immigration. Many important questions have been raised by Windsor that will not be answered until subsequent guidance is issued by federal regulators. On June 27, 2013, the Internal Revenue Service acknowledged the importance of the Court’s decision and announced that it “will be moving quickly to provide revised guidance in the near future.” In the interim, employers will be struggling to develop the capacity for good faith compliance with the known implications of the Court’s decision. The following addresses some of the immediate issues associated with the areas of employee benefits and immigration.
The changes resulting from the Court’s decision include, but are not limited to:
- The requirement to ensure that a legally recognized same-sex spouse of a participant in a defined benefit plan or money purchase pension plan is offered the right to consent to, or to disapprove of, benefit distributions to the participant in any form other than a qualified joint and survivor annuity.
- The requirement to ensure that a legally recognized same-sex spouse of a participant in a defined benefit plan or money purchase pension plan is extended certain death benefits in the event of the participant’s death prior to retirement.
- The requirement to ensure that a legally recognized same-sex spouse of a participant in a 401(k)/profit-sharing plan is the exclusive death beneficiary of the participant unless the spouse has agreed in writing to another beneficiary.
- The requirement to secure the consent of a legally recognized same-sex spouse of a participant to any loan or in-service distribution (e.g. hardship distribution) made to the participant from a retirement plan subject to the joint and survivor annuity spousal protection rules.
- The requirement to recognize the marital status of a legally recognized same-sex spouse of a participant in computing both the amount, and the latest permissible starting date, of minimum required distributions from a retirement plan, in computing the limits of the amount of permissible benefits payable from a defined benefit plan, and in enforcing domestic relations orders upon a termination of marital status.
- The elimination of imputed income (and therefore tax reporting and withholding obligations) on health care extended to the legally recognized same-sex spouse of an employee and the requirement to allow the legally recognized same-sex spouse of a participant in a group health plan to pay for group health care premiums on a pre-tax basis, if premiums for spousal coverage are permitted to be paid on a pre-tax basis under the group health plan.
- The requirements to issue COBRA initial notices upon obtaining coverage under a group health plan and to issue COBRA election notices upon certain qualifying events (e.g., the employee’s termination of employment) to the legally recognized same-sex spouse of an employee covered under a group health plan.
- The requirement to permit the reimbursement of qualified medical expenses incurred by a legally recognized same-sex spouse of an employee under the employee’s flexible spending account, health savings account, and/or health reimbursement account if such accounts provide for reimbursement of spousal expenses.
- The requirement to provide HIPAA special enrollment rights to a legally recognized same-sex spouse of an employee when a potential loss of coverage arises due to divorce or legal separation, termination of the employee’s employment, or other covered situations.
- The requirement to extend the retirement plan spousal rollover rights to a legally recognized same-sex spouse of an employee so that a distribution from a retirement plan to a legally recognized same-sex spouse may be rolled over into such individual’s own IRA or into another retirement plan.
While it is clear that these changes are required, employers currently have no guidance as to whether or not the consequences of the Windsor decision (i) will be applied retroactively to 1996, the year in which DOMA was enacted, (ii) will be applied prospectively from the date of the Windsor decision, or (iii) will be applied in some other manner. Full retroactive application could involve potential liability for failure to pay now-protected death benefits. In addition, employers have no current guidance as to how to deal with situations where a same-sex couple was married in a jurisdiction that recognizes same-sex marriages but now resides in a jurisdiction that does not recognize same-sex marriages.
While waiting for guidance, employers should take the following steps:
- Identify the individuals to whom these new protections apply. In the past many employers coded all domestic partners into a single classification. Now it will be necessary to differentiate between (i) same-sex domestic partners who have a legally recognized marital relationship with an employee and (ii) opposite-sex domestic partners, together with same-sex domestic partners, whose relationships are not legally recognized marital relationships.
- Review employee benefit plans, associated summary plan descriptions, employee handbooks, election forms, plan administrative policies, administrative service agreements, and vendor contracts to determine if amendments are required. The review should include consideration of employee communications regarding such amendments.
- Evaluate and modify payroll systems to provide tax-free health benefits for legally recognized same-sex domestic partners covered under employer group health plans.
- While it is clear that both the employee share and the employer share of the FICA taxes will no longer apply to the provision of health benefits for legally recognized same-sex domestic partners, it is not yet clear whether the law will be applied retroactively such that employers will be able to file a claim for refund for FICA taxes paid prior to the date of the Windsor decision. If guidance is not provided prior to the close of the statute of limitations for the earliest currently open tax year, consider whether to file for a protective refund claim for FICA taxes paid in the earliest currently open tax year prior to the close of the statute of limitations for such year.
Now that DOMA has been found unconstitutional, same-sex couples who have been legally married in jurisdictions recognizing same-sex marriage should be able to receive the same immigration benefits available to legally married heterosexual couples. These benefits include:
- The ability of a US citizen or US legal permanent resident spouse to petition for his/her same-sex foreign national spouse to be granted US legal permanent residency.
- The ability of a same-sex spouse to receive derivative benefits of his/her spouse’s nonimmigrant status (such as the same-sex spouse of a person in H-1B status being able to receive derivative H-4 status).
- The inclusion of the same-sex spouse as a derivative beneficiary of his/her spouse’s process for legal permanent residency.
- Derivative asylee or refugee benefits, among other benefits.
It is expected that the US Department of Homeland Security will issue specific guidance on the treatment of legally married, same-sex couples in immigration cases.