Last week, the U.S. Supreme Court heard oral arguments in United States v. Windsor, 12-307, a case that raises the question of whether the Defense of Marriage Act (DOMA) is constitutional. Among the various groups that are closely watching this case is the employee benefits community. In this post, we will revisit how DOMA affects employee benefit plans and how a decision by the Court to strike down the law could result in significant changes in how such benefits are administered.
DOMA and ERISA
DOMA essentially defines marriage under federal law as a union between a man and a woman as husband and wife. In addition, DOMA states that a “spouse” may only include a person of the opposite sex. As such, for federal law purposes, there is no recognition of same-sex spouses, even if recognized under state law. Furthermore, DOMA provides that no state must recognize a same-sex marriage that occurs and is legally recognized in another state. The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that specifically regulates employee benefit plans. As such, ERISA is subject to DOMA. As a result, for purposes of how federal law impacts employee benefit plans, only a spouse of the opposite sex is recognized.
Faced with ERISA and DOMA, the question many employers ask is how do state law same-sex protections impact employee benefit plans? Since ERISA generally preempts any state law that regulates employee benefits, any state law that would protect or regulate how employee benefits are provided to same-sex spouses would usually be preempted by ERISA. However, the analysis does not end there. State laws that regulate insurance are “saved” from ERISA preemption. Therefore, state laws that deal with same-sex spouse protections that involve insurance are not preempted by ERISA and thus may be addressed at the state level. Understanding this distinction is important for employers to understand when they sponsor employee benefit plans. As a result of ERISA preemption and the “Savings” clause, while retirement plans and self-funded welfare benefit plans will not be subject to state laws related to same-sex marriage and relationships, fully-insured welfare plans may be subject to state laws.
Additional Employee Benefit Plan Considerations
As noted above, DOMA affects all federal law. In addition to ERISA, there are other federal laws that impact employee benefit plans. The Internal Revenue Code (the Code) contains a number of provisions that regulate the taxation of employee benefits. For example, medical benefits provided to a same-sex spouse are taxable (unlike those of an opposite-sex spouse, which may be tax free if the Code requirements are satisfied). Furthermore, medical benefits for same-sex spouses may not be paid for on a pre-tax basis through a cafeteria plan. In the pension context, certain surviving spouse benefits and rights are not recognized for same-sex spouses.
Another example of the impact of DOMA on federal benefits law is the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). COBRA allows certain individuals to continue coverage under an employer sponsored health plan due to certain events. Among the individuals who may have COBRA rights are spouses. Under DOMA, same-sex spouses generally cannot exercise rights under COBRA.
U.S. v. Windsor – What’s Next?
The terms “spouse” and “marriage” together appear thousands of times in federal statute and regulations, but are generally left undefined. DOMA established a single federal definition as to what these terms meant. If the Supreme Court upholds DOMA, the limits described above shall stay in place. A ruling against the constitutionality of DOMA could have significant impact on the benefits and taxation rules governing employees with same-sex spouses. In light of the upcoming decision (expected this summer), employee benefit plan professionals should consider the following:
- Although DOMA specifically defines what a “marriage” and “spouse” mean, employers have the flexibility to decide who is eligible for benefits under their plans. Some employers may decide to provide benefits under the DOMA concepts. Others may choose to offer benefits to same-sex spouses, domestic partners, and/or members of a civil union. A number of employers already have plans that extend benefits to these individuals.
- In the event that benefits are provided to those other than opposite-sex spouses, employers must understand the tax and other federal law compliance implications on such benefits.
- Employers must consider and understand the difference between fully-insured and self-insured plans as well as how ERISA and state law impact such plans.
Ultimately, employers must keep their eyes on the Supreme Court’s decision as it could have a significant impact on the way such benefits are provided to employees and their families.