As you have no doubt heard, the Supreme Court has ruled that Section 3 of the Defense of Marriage Act (“DOMA”) is unconstitutional. DOMA is a federal law which since 1996 has defined “marriage” as a union between one man and one woman for purposes of interpreting any other federal law, such as ERISA or the Internal Revenue Code provisions governing employee benefit plans.
As a result of this ruling, the marital status of an individual is to be determined under state law, and same-sex partners will have the rights of a spouse in those states where same-sex marriage is recognized. At present, same-sex marriages are recognized in DC and the following states: CT, DE, IA, ME, MD, MA, MN, NH, NY, RI, VT and WA.
The administration of employee benefit plans will be significantly affected by the requirement to recognize a same-sex spouse in these states. Pending additional transition guidance, here are a few potential consequences of this ruling:
- A same-sex spouse is entitled to spousal health coverage where spousal coverage is offered by the employer. The employer contribution for such coverage would be tax-free to the employee and the employee contribution can be paid with pre-tax dollars.
- A same-sex spouse is entitled to COBRA coverage upon a qualifying event, and to special enrollment rights under HIPAA following a marriage or new baby.
- Medical expenses of a same-sex spouse can be reimbursed under an FSA, HSA or HRA.
- A change-in-status applicable to a same-sex spouse can be recognized under a Section 125 cafeteria plan.
- A same-sex spouse is the default beneficiary of the participant’s retirement account, and must consent to the designation of a non-spouse beneficiary.
- A hardship withdrawal is permitted for the medical and educational expenses of a same-sex spouse.
- A same-sex spouse may be entitled to a portion of the participant’s retirement account under a QDRO in the event of a divorce.
- In a pension plan, a survivor annuity must be provided to the same-sex spouse unless waived.
- Required minimum distributions from a qualified retirement plan may be deferred over a longer period to a same-sex spouse.
If an employer has employees in states where same-sex marriage is recognized, the first step should be to identify any employee having a same-sex spouse so that the required legal rights can be extended prospectively to the spouse. While it is generally thought that the Supreme Court ruling applies retroactively so that employees and same-sex spouses may have retroactive claims for benefits or tax refunds, the burden is on those individuals to pursue such claims.
This is an evolving legal issue, and additional court decisions, legislative action and regulatory guidance can be expected. Employers should consider the cost and administrative implications of the Supreme Court decision on the design of their benefit plans, and plan documents should be appropriately amended to reflect the rights of same-sex spouses where applicable.