Wednesday’s landmark Supreme Court Defense of Marriage Act (DOMA) ruling in United States v. Windsor provides additional benefits to same-sex spouses, and requires action by employee benefit plan sponsors and plan administrators.
The Supreme Court ruled that section 3 of DOMA is unconstitutional. Section 3 defined marriage for purposes of federal law as a union between a man and a woman. Since this section has been invalidated, the federal government must now treat same-sex spouses legally wed under state law as “spouses” for purposes of federal law, including ERISA and the Internal Revenue Code (the Code).
The change takes effect immediately and may have some retroactive implications. Employers should be aware of the following implications for their benefit plans for a legally married same-sex couple.
- Survivor Benefits under Tax Qualified Plans. Qualified retirement plan spousal benefits now must be provided to same-sex spouses. ERISA and the Code require certain tax qualified retirement plans to provide survivor benefits to a participant’s surviving spouse. After Windsor, defined benefit plans must offer a spousal annuity to a participant’s surviving spouse. Plans must also provide the spousal survivor annuity, or qualified joint and survivor annuity or qualified pre-retirement spousal annuity, to the employee’s same-sex spouse. 401(k) plans must provide same-sex spouses the mandatory death benefit. Same-sex spouses also have the right to approve beneficiary designations.
- Tax Breaks for Health Benefits. An employee may now pay for his same-sex spouse’s health coverage on a pre-tax basis under a cafeteria plan. Further, same-sex couples will no longer need to pay income taxes on the value of health insurance provided by an employer to the spouse. Same-sex spouses may also be eligible to take advantage of the tax breaks of a flexible spending account. Plan sponsors may want to revise plan documents to allow same-sex spouses to take advantage of these tax benefits.
- Consolidated Omnibus Budget Reconciliation Act (COBRA). Same-sex spouses will now be eligible for continuation of benefits under COBRA.
It is clear that these benefits now apply to same-sex spouses who live and work in a state that recognizes same-sex marriage. It is less clear how employers must treat same-sex spouses who were married in a state that allows same-sex marriage, but live and work in a state that does not recognize same-sex marriage. Even after Windsor, states still have the right not to recognize a same-sex marriage that is valid in another state. Typically, the IRS follows the law of the state where the couple live and file taxes. This uncertainty creates complexities for multi-state employers.