Many employee benefit plans have defined spousal benefit eligibility and applied tax rules on the basis of the federal law definition of a spouse under Section 3 of the federal Defense of Marriage Act (DOMA), which excluded same-sex spouses. Employers will now have to rethink those issues. The United States Supreme Court held in United States v. Windsor (June 26, 2013) that the broad definition used in DOMA "violates basic due process and equal protection principles applicable to the Federal Government" under the Fifth Amendment of the U.S. Constitution. On June 26, 2013, our appellate advocacy team analyzed the decision of that case and the related Proposition 8 case from California (Hollingsworth v. Perry, June 26, 2013).

Most employee benefit plans are governed by federal law, specifically the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code (Code). The Code, including the estate tax provision at issue in Windsor, relied on the DOMA definition of spouse, which excluded same-sex spouses. After Windsor, it appears that for federal tax purposes, "spouse" is determined under applicable state law, which includes a same-sex spouse (at least for residents of states that recognize same-sex marriages), although official guidance from the Internal Revenue Service (IRS) would be appreciated. 

For employers, this means that if you offer health coverage for legally married same-sex spouses of employees, that coverage may now be provided free of federal income and employment tax, just like health coverage for opposite-sex spouses. This also presumably means that same-sex spouses are to be treated the same as opposite-sex spouses for purposes of various spousal rights mandated under federal law, such as COBRA health coverage continuation. For retirement plans, this also presumably extends to spousal consent to beneficiary designations, survivor annuity rights under pension plans, division of benefits pursuant to qualified domestic relations orders, calculation of required minimum distributions, spousal rollover rights, etc.

For now, determining same-sex spouse status for federal law purposes will likely depend on applicable state law. The District of Columbia and the following states recognize same-sex marriage: California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington. Note that the decision in Perry results in California likely recognizing same-sex marriage again. The constitutionality of § 2 of DOMA, which provides that states do not have to recognize another state's same-sex marriage, was not before the court to decide. What is the marital status under federal law of a person who entered into a same-sex marriage and then is domiciled in a state that does not recognize same-sex marriage? The Supreme Court decisions this week do not give a Constitutional right to same-sex marriage. However, the validity of state laws that prohibit same-sex marriage is an open question under the analysis of the majority opinion in Windsor

There are still many other unanswered questions regarding the implications of the Windsor decision. For example, what is the impact of these decisions on same-sex civil unions and domestic partnerships? Same-sex civil unions are recognized by Colorado, Hawaii, Illinois and New Jersey. Same-sex domestic partnerships or limited relationship rights are recognized by California, District of Columbia, Nevada, Oregon, Washington and Wisconsin. Are these relationships to be treated the same as marriage for purposes of federal law? 

The most critical question remaining after Windsor is how to determine which state law applies to determine the validity of a same-sex marriage. While the Court's reasoning in Windsor strongly suggests that it's the laws of the state where the couple resides, the decision stopped short of clearly articulating that rule. 

The Windsor decision also raises questions with respect to employee benefit plans regarding transition and retroactive application. DOMA was presumably invalid from the date it was enacted. Massachusetts first recognized same-sex marriages in 2004, and other states and the District of Columbia have followed since then. What happens in cases where the employee benefit plan did not treat the same-sex spouse as a spouse prior to the Windsor decision? Can employees and employers who paid taxes based on imputed income for same-sex spouse health coverage file a claim for refund? What should a retirement plan administrator do if the plan has already made distributions to a participant who had a same-sex spouse that the plan did not recognize as a spouse? Many are hopeful that the Department of Labor and the IRS may offer guidance on these and other issues, although the federalism analysis of the Windsor decision may raise the issue whether those federal agencies have the authority to make determinations affecting such spousal rights.

Stay tuned. There will be more legal developments before all these issues are sorted out.