In case you missed it, last weekend, New York passed a law recognizing same-sex marriages. For plan administrators, this change to "marriage" might cause some problems that have to be addressed. Not the least of which is preemption of federal law. New York employers will eventually have to comply, but generally, all employers and plan sponsors should be aware of some of the confusing aspects of states recognizing same-sex couples.
First, let's review retirement plan concerns. Qualified retirement plans are generally governed by ERISA and various corresponding tax regulations. All of these regulations are subject to the impact of the federal Defense of Marriage Act, which while currently not being "enforced," is still the law of the federal government. The net effect is that when considering the term "spouse" in your qualified plans, it does count include a same-sex partner, married or otherwise. So any provision in a plan that provide for benefit to a "spouse" would not apply to a same-sex spouse even when married under state law. For example, consider a defined contribution benefit plan distribution (like a 401(k) plan) that requires spousal consent for distribution. A partner in a same-sex marriage is not required to obtain spousal consent because in the eyes of the plan, he or she has no spouse. Similarly, any spousal rights that may accrue as a result of the death of the participant under the terms of the plan would not accrue to the same-sex partner.
Second, when we look at welfare plans, all of the dependent coverage definitions in the plan referring to "spouse" would not automatically include the same-sex spouse. Certainly a plan can add coverage for same-sex partners, but doing so does not grant them the federal protections of things like COBRA (which would not apply since the dependent would not be recognized as a spouse under federal law). Cafeteria plans cannot provide benefits to same-sex partners, which means that employees cannot pay that portion of their health coverage attributable to same-sex partners with pre-tax dollars. So plan administrators have to be prepared to exclude same-sex partners from cafeteria plan participation and make sure that same-sex partners' medical bills are not paid out of an FSA.
Also, because of the impact of the Defense of Marriage Act on federal tax laws, the employer paid cost of providing coverage for same sex partners who are not “dependents” under the Internal Revenue Code would be considered regular compensation and would be taxable as income. Moreover, that portion of the premium that an employee pays that is attributable to the same-sex partners coverage would not be eligible for pre-tax treatment under a cafeteria plan. This means that employers who have employees who take advantage of the new civil union will have to make sure the value of the partner’s benefit is properly treated for federal tax purposes.
Finally, because the amount of the benefits for the same-sex partner are disallowed for federal tax purposes, the employers' withholding responsibilities are calculated based on the total gross compensation that includes the value of the benefits to the same-sex partner and has to take into account that the premiums paid are not using pre-tax dollars. Plus the level of withholdings for state purposes will be different from the withholdings for tax purposes. An employee in a same-sex marriage union could be "married" with two dependents for state tax withholding purposes, but "single" with no dependents for federal tax purposes. So employers can no longer assume all withholdings based on a single W-4 for same sex-couples
The New York laws goes into effect in 30 days and that gives administrators some time to catch up on some of the benefits requirements that will come into effect. But don't assume that simply because you are "married" under state law, you are "married" for purposes of your benefit plans. Get them out, read them through and consult with your professionals on how to proceed properly. And of course, ask your attorney at Fox Rothschild for assistance.