In the wake of the well-publicized oral arguments before the United States Supreme Court at the end of March on the issue of same-sex marriage, employers await a potential sea change in the operation of plans subject to the Employee Retirement Income Security Act (“ERISA”). The ruling could come at any time, but is expected near the end of the Court’s session in June.
The Court is reviewing the holdings in two cases. The first case is Hollingsworth v. Perry, a ruling by the United States Court of Appeals for the Ninth Circuit. The issue before the Court in Hollingsworth is the constitutionality of California’s Proposition 8, which prohibited same-sex marriage in California. The Ninth Circuit found Proposition 8 unconstitutional. The Court could find some or all prohibitions on same-sex marriage unconstitutional, including both state level bans and the federal Defense of Marriage Act (“DOMA”). However, it is possible that the Court will decline to rule on the substance of Hollingsworth due to procedural issues, which would leave the Ninth Circuit’s decision standing.
The second case is United States v. Windsor, a ruling by the United States Court of Appeals for the Second Circuit. At issue in Windsor is the constitutionality of Section 3 of DOMA, which limits the definition of marriage for all federal purposes to a marriage between spouses of the opposite sex. The Second Circuit found Section 3 of DOMA unconstitutional.
If Section 3 of DOMA is struck down in either case, several federal laws regulating employee benefits, including ERISA and the Internal Revenue Code (the “Code”), will be impacted. For example, since its passage in 1996, DOMA has limited the definition of a “spouse” under ERISA and the Code to an opposite-sex spouse. Thus, same-sex spouses are currently not included within protections for spouses under qualified retirement plans, including 401(k) plans. Further, welfare benefits extended by employers to same-sex spouses are taxable to the employee unless the same-sex spouse is also a tax dependent. Additionally, several benefits requirements such as FMLA coverage, continuation coverage under COBRA, and special enrollment rights under HIPAA do not apply to same-sex spouses.
In the absence of Section 3 of DOMA, the definition of marriage for federal law would, as before DOMA, depend on state law. Thus, a same-sex spouse in New York (which allows same-sex marriage) should be a spouse for purposes of all federal laws, including ERISA, the Code, and FMLA. Assuming the Court does not find all state laws prohibiting same-sex marriage unconstitutional, we would be left with the current patchwork of state laws that either permit or prohibit same-sex marriage and civil unions. Merely removing Section 3 of DOMA would most likely not herald in a new era of simplicity. What happens if the married same-sex couple from New York moves to a state that does not recognize same-sex marriage, like Texas? Section 4 of DOMA provides that states are not required to recognize same-sex marriages from other states. Thus, Texas law would not recognize the New York marriage and it is unclear whether federal law would require its recognition.
Once the decisions are released, employers will need to evaluate on a state by state basis whether the rulings by the Court will require any changes to their benefits plans and policies.