In a historic decision, the United States Supreme Court in Obergefell v. Hodges recently held that the Fourteenth Amendment of the United States Constitution requires all jurisdictions in all fifty states to: (1) license a marriage between two people of the same sex; and (2) recognize marriage between two people of the same sex when their marriage was lawfully licensed and performed out of state. The Supreme Court’s decision in Obergefell requires employers to address benefits, tax and other employment issues for employees in same-sex marriages who work or reside in a state that did not previously recognize the employee’s same-sex spouse. Action may be necessary, including amending plan terms and procedures and payroll and income tax processes. Notably, Obergefell does not apply to domestic partnerships or civil unions.
Next Steps Post-Obergefell
Some key considerations relating to employee benefits are summarized below.
401(k) And Other Qualified Retirement Plans
In 2013, the Supreme Court, in United States v. Windsor, ruled that federal law would recognize same-sex marriages. The Windsor holding, and subsequent guidance issued by the IRS (particularly that which required same-sex marriage recognition for all federal tax purposes, including income taxes, estate and gift taxes, and qualified plan purposes, regardless of whether the same-sex couple lived in a state that recognized same-sex marriages), means that 401(k) and other qualified retirement plans are generally not impacted by Obergefell. Nonetheless, employers may need to ensure that their plans comply with Obergefell and applicable rules, including those regarding plan funding, minimum required distributions, eligible rollover distributions, qualified domestic relations orders (QDROs), beneficiary designations, qualified joint and survivor annuities (QJSAs), qualified pre-retirement survivor annuities (QPSAs), hardship withdrawals, and plan loans.
Health And Welfare Plan
After Obergefell, employers with fully insured health and welfare plans will now be required to offer coverage to same-sex spouses that is equivalent to the coverages offered to opposite-sex spouses. Although employers with self-insured plans are not required to provide coverage to same-sex spouses, employers may face a risk of discrimination and other lawsuits if they fail to provide coverage to same-sex spouses. Though the most common requests for benefits for same-sex spouses may likely be in relation to medical, dental and vision plans, employers may also have to adjust their plans and processes in relation to other matters, including COBRA, HIPAA, cafeteria plans, flexible spending arrangements (FSAs), health reimbursement arrangements (HRAs), and health savings accounts (HSAs). Additionally, special enrollment, coverage and qualifying events rules may need to be adjusted to account for same-sex spouses as well.
Public Sector Plans
Government and public sector employers are required to provide certain spousal benefits. Obergefell appears to require that these employers provide same-sex spouses with the same spousal rights as those given to opposite-sex spouses.
Domestic Partnerships And Civil Unions
Since domestic partnerships, civil unions and other relationships are not treated as “marriage,” they are not generally required to be recognized. As such, employers may need to re-evaluate the continuation of these benefits. Employers should consider the cost of administration, tax gross-ups, transition issues (freeze, phase out or termination), and compliance with state and municipal laws. For example, laws or ordinances in California, San Francisco, Los Angeles, Seattle, Miami Beach, and Broward County (Florida) provide that the municipality or state will not do business with an employer unless it offers same-sex and opposite-sex domestic partners with the same benefits as opposite-sex spouses.
State Income Taxes
State income tax laws will now be required to recognize the marital status of same-sex spouses, particularly for plan benefits and distributions. Employers should review their payroll procedures with respect to taxation to ensure proper federal and state taxation in relation to same-sex spouses for all benefits offered.
Other spousal benefits may need to extend to employees’ same-sex spouses, including group rates for insurance plans, such as supplemental life insurance, long-term care insurance, home insurance and automobile insurance, as well as other fringe benefits, such as bereavement and other types of leave, moving or relocation expenses, tuition reimbursement, employee discounts, employee assistance programs, retirement planning services, and on-site facilities.
In sum, employers should review their benefit plans to confirm their compliance with Obergefell’sruling that same-sex marriages must be recognized in every state. Employers may need to update their plan documents and procedures to verify equal treatment of opposite- and same-sex marital status. Employers should work with third-parties, including insurers or vendors, to determine whether any changes are required for compliance, and must communicate any changes, and the timing thereof, to plan participants. Employers should also be aware of state or local law, including equal benefits ordinances and discrimination laws, when making benefits decisions.