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Same-Sex Marriage Ruling Impacts Benefit Plans (Again)

On Friday, June 26, 2015, the Supreme Court published its ruling in Obergefell v. Hodges, holding (by a 5 to 4 margin) that the Fourteenth Amendment requires a state to license marriages between two people of the same sex, and to recognize any such marriage that is lawfully licensed and performed out-of-state. As a result, all (remaining) state laws or constitutional amendments banning same-sex marriage are now invalid. The decision comes exactly two years (to the day) after the Supreme Court’s 2013 decision in United States v. Windsor, in which the Court struck down a portion of the federal Defense of Marriage Act that previously prohibited the federal government from recognizing marriages between individuals of the same sex.

In the Windsor decision, the Supreme Court determined that legally married same-sex couples (but not domestic partners) must be treated the same as opposite-sex couples for purposes of federal laws, including the Tax Code and the Employee Retirement Income Security Act (“ERISA”). Subsequent guidance from the Treasury Department and the Department of Labor clarified that any couple legally married in a state that recognizes same-sex marriage must be treated as “spouses” under the Code and ERISA, regardless of where they reside (the “state of celebration” rule). However, certain federal laws and programs (including the Family and Medical Leave Act and Social Security) continued to be limited by statutory or regulatory language that limited “spouses” to those who were legally married under the laws of the state where they currently reside (the “state of domicile” rule). In addition, because the Windsor decision did not specifically require states to allow same-sex marriage or to recognize same-sex marriages performed in other states, many non-recognition states continued to tax benefits (such as the value of employer-provided health benefits) provided to same-sex spouses, even though those benefits were no longer taxable, for federal income tax purposes, after Windsor.

Now, as a result of the Obergefell decision, all 50 states and the District of Columbia must issue marriage licenses to same-sex spouses, and must recognize any same-sex marriage that was lawfully performed in another state (or country). But what does this mean for employers sponsoring benefit plans? Unlike the Windsor decision, which required sponsors to extend spousal benefits under retirement plans to same-sex spouses and to change the tax reporting of certain employer provided welfare benefits, the effect of the Obergefell decision will be more indirect, and less immediate, as it may take time for currently unmarried same-sex couples living in states that previously banned same-sex marriage to obtain marriage licenses and marry. And, the effects will differ for retirement plans, fully-insured welfare plans, and self-funded welfare plans.

Employer-sponsored retirement plans should see little change. Most retirement plan sponsors have already adopted amendments (if necessary) to comply with the Windsor decision, and have already updated their administrative practices to give legally married same-sex spouses the same rights and benefits as opposite-sex spouses, regardless of where the couple lives. So, other than clarifying a same-sex couple’s right to Social Security benefits (regardless of where they live), the decision should have little impact on retirement benefits.

Welfare plans may see a greater impact, particularly for employers in states that have not previously recognized same-sex marriage. First off, all employees should now be entitled to take leave under FMLA to care for a legally-married same-sex spouse, regardless of where the employee lives (or where the couple were married). Insured plans that are subject to state insurance law will now almost certainly have to include same-sex spouses (if spouses are covered). In addition, non-recognition states that previously taxed the value of employer-provided health coverage for legally married same-sex spouses (even though such coverage was not subject to federal income tax after the Windsor decision) will no longer be able to do so, meaning employers will no longer have to withhold and report on such amounts. However, the Obergefell decision does not directly impact employers with self-insured plans. Those employers may still choose to limit self-insured benefits to opposite-sex spouses (without violating the Tax Code or ERISA), although they may now face an even greater risk of litigation (most likely based on a claim of sex discrimination under federal and/or state law).

Employers who have continued to provide (taxable) benefits to domestic partners and those in civil unions (even after Windsor) may now choose to rethink that policy, since same-sex marriage (and the opportunity to receive non-taxable spousal benefits) is now technically “available” to all employees (without the necessity of traveling to another state). However, some same-sex couples may still hesitate to marry without legal protection from discrimination on the basis of sexual orientation, which is not (yet) specifically covered by Title VII, and is not yet a protected class under the employment laws of every state.

If you have any questions about whether or how this latest Supreme Court ruling on same-sex marriage affects your company’s employee benefit plans, please contact any member of Spencer Fane’s Employee Benefits team.