As a result of the U.S. Supreme Court’s decision in United States v. Windsor, 133 S. Ct. 2675 (2013), in which the Court held that Section 3 of the federal Defense of Marriage Act (“DOMA”) was unconstitutional, same-sex marriages will be recognized for purposes of federal laws, protections, and obligations. Because the Court did not go so far as to require states to permit same-sex marriage or recognize same-sex marriages entered into in other jurisdictions, there are many open issues that require resolution (either through government guidance or the courts) to provide employers with certainty concerning the administration of their ERISA-governed employee benefit plans.
A federal district court in Pennsylvania issued the first reported post-Windsor decision relating to ERISA plan benefits. As discussed below, the district court concluded that a deceased employee’s same-sex spouse was entitled to a surviving spouse benefit under a profit-sharing plan, even though the couple was married in a foreign jurisdiction (Canada) and resided in a state that does not allow same-sex marriage (Illinois) but recognizes out-of-state same-sex marriages under its civil union law. Cozen O’Connor, P.C. v. Tobits, No. 2:11-cv-0045-CDJ (E.D. Penn. July 29, 2013).
DOMA and The Court’s Decision in Windsor
Under Section 3 of DOMA, the terms “marriage” and “spouse” were defined to exclude same-sex married couples for purposes of interpreting federal statutes, rules, and regulations. As a result, same-sex married couples were denied more than 1,000 federally-protected rights and obligations, including Social Security benefits, automatic pension death benefits, pre-tax employer-provided health benefits, and exemption from the federal estate tax for surviving spouses.
Windsor involved a couple — Edith Windsor and Thea Spyer — who registered as domestic partners in 1993 (when New York City extended that right to same-sex couples) and later lawfully married in Ontario, Canada in 2007. After their wedding, Windsor and Spyer returned to their home in New York City. Thea Spyer passed away in 2009. At that time, New York recognized same-sex marriages entered into under the laws of other jurisdictions; it did not permit same-sex marriage until 2011.
DOMA barred Windsor from qualifying for the marital exemption from the federal estate tax due upon Spyer’s death. After paying $363,053 in estate taxes, Windsor sought a refund from the Internal Revenue Service (“IRS”). Because she could not be deemed a “surviving spouse” in the eyes of the federal government (per DOMA), the IRS denied Windsor’s claim for a refund. Windsor commenced a refund suit in the Southern District of New York and argued that Section 3 of DOMA violated her constitutional guarantee of equal protection under the law, as applied to the federal government through the Fifth Amendment.
The District Court ruled in Windsor’s favor. It held that Section 3 of DOMA was unconstitutional and ordered the IRS to refund the estate taxes paid by Windsor, with interest. The Second Circuit affirmed the District Court’s judgment, and the Supreme Court granted certiorari.
The Supreme Court agreed (in a 5-4 decision) that Section 3 of DOMA was unconstitutional. The Court explained that marriage traditionally has been defined by and regulated under the laws of the States and that the federal government has deferred to state law when it comes to determining the contours and incidents of marriage. As such, although the rights and obligations stemming from marriage historically have been uniform within each State’s boundaries, those rights and obligations may differ from State to State, subject to certain constitutional baselines. Section 3 of DOMA, however, rejected this “long-established precept” and, as a consequence, same-sex married couples were denied the rights accompanying federal recognition of their marriage.
Cozen O’Connor, P.C. v. Tobits
The Cozen case involved a couple — Jean Tobits and Sarah Ellyn Farley — who married in Toronto, Canada in 2006. Farley was subsequently diagnosed with cancer and passed away in September 2010. Farley, who had been working at Cozen O’Connor since 2004, was a participant in Cozen’s profit sharing plan. The plan provided that, upon the death of a participant, a death benefit would be paid in the form of a qualified pre-retirement survivor annuity to the participant’s spouse or, if the spouse waives the right to receive the benefit, the death benefit would be paid to the participant’s designated beneficiary. The plan further provided that if there is no spouse or designated beneficiary, the benefit would be paid to the participant’s parents.
Following Farley’s death, both Tobits and Farley’s parents requested payment of the death benefit. In response to the competing requests, Cozen commenced a suit in federal court and asked the court to decide who the proper beneficiary was under the plan. The court explained that the case ultimately was dependent on whether, under the language of the plan, Tobits was Farley’s spouse.
Because the plan did not define “spouse,” the court looked to ERISA and the Internal Revenue Code (i.e., federal law) for guidance, since the issue before the court was whether Tobits was a surviving spouse for purposes of a spousal benefit mandated by ERISA and the Code. Under this analysis, the court concluded that, following Windsor, these federal laws must acknowledge same-sex marriages recognized under any of the States’ laws — “Windsor makes clear that where a state has recognized a marriage as valid, the United States Constitution requires that the federal laws and regulations . . . acknowledge that marriage.” Since the marriage between Tobits and Farley was recognized by Illinois as a marriage under its civil union law (even though the marriage occurred in Canada), the court ruled that, pursuant to the terms of the plan (as interpreted under federal law), Tobits was Farley’s surviving spouse and entitled to the preretirement survivor annuity.
It is unknown whether other courts might be willing to find in favor of same-sex spouses if a plan’s choice-of-law provision designates a state that does not permit (or recognize) same-sex marriage or if the couple resides in a state that does not itself allow same-sex marriage. It also will be interesting to see whether other courts apply Windsor retroactively (to a death that occurred prior to the date of the Windsor decision) like the court did in Cozen.