By now, anyone who has not been living under a rock knows that the U. S. Supreme Court struck down a key provision of the federal Defense of Marriage Act (“DOMA”). As a result, the federal government will now defer to each state’s definition of “marriage.” This decision will have significant immediate ‒ and perhaps even retroactive ‒ consequences for the administration of employee benefit plans. Some of those consequences are summarized below.
Unfortunately, the decision leaves many significant questions unanswered. The answers to those questions will require guidance from the administrative agencies.
The Windsor Decision
In U.S. v. Windsor, the Court held that Section 3 of DOMA deprives individuals who are in state-recognized, same-sex marriages of “the liberty of the person protected by the Fifth Amendment of the Constitution.” The five-justice majority based its holding, in part, on DOMA’s departure from the long “history and tradition of reliance on state law to define marriage.”
In a companion case (Hollingsworth v. Perry), the Court effectively upheld the validity of same-sex marriage in the State of California. However, the holding in that case was based on the technical ground that the party opposing same-sex marriage had no “standing” to pursue an appeal from a trial court decision invalidating a voter referendum overruling a statute granting same-sex individuals the right to marry (whew!). That decision will therefore have limited precedential value. Nonetheless, it should put California on the list of the thirteen states (plus the District of Columbia) that either already allow for same-sex marriage or will do so by August 1.
Implications for Employee Benefit Plans
As the Windsor Court noted, there are over 1,000 federal statutes granting rights (or imposing obligations) on the basis of “marriage.” Many of those statutes have nothing to do with employee benefit plans. For instance, the statute at issue in Windsor involved the spousal exemption to the federal estate tax. Nonetheless, benefit plan sponsors and administrators should consider a number of areas in which their administrative practices ‒ and perhaps their plan documents ‒ should be changed to comply with this decision.
For instance, marital status plays a key role in each of the following retirement plan contexts:
- The requirement that pension plans offer qualified joint and survivor annuities and qualified preretirement survivor annuities.
- The requirement for spousal consent to a married participant’s designation of a non-spouse beneficiary under any other type of retirement plan.
- The availability of a hardship withdrawal to pay for expenses incurred by a spouse (without a participant having to name a same-sex spouse as his or her primary beneficiary).
- Special distribution deferral provisions under the “minimum required distribution” rules applicable to employer retirement plans.
- The ability to obtain an assignment of pension benefits under a qualified domestic relations order.
- Entitlement to the same rollover IRA options that are available to opposite-sex spouses (i.e., without being limited to an “inherited IRA”).
Under health and other welfare plans, marital status is important in the following contexts:
- The ability to cover a same-sex spouse under an employer health plan without having to pay income and other employment taxes on the value of that coverage.
- The ability to pay premiums for spousal health coverage on a pre-tax basis (through a cafeteria plan).
- The ability to obtain reimbursement of medical expenses incurred by a same-sex spouse from a health savings account or flexible spending account (without regard to whether that spouse would otherwise qualify as a Tax Code “dependent”).
- A spouse’s right to elect COBRA coverage upon an employee’s death, divorce, or legal separation.
- HIPAA special enrollment rights conditioned on marriage.
- Protections afforded married couples under the Family and Medical Leave Act (including the special rules for continuation of health coverage during an FMLA leave).
The Court’s Windsor decision, while definitively answering the question whether Section 3 of DOMA is constitutional, leaves a number of questions unanswered.
For instance, will this decision have any retroactive effect? Typically, an unconstitutional statute is deemed to have been unconstitutional from its enactment. Should that be true here, could a retirement plan be required to pay spousal benefits to a surviving same-sex spouse, even though a deceased retiree had already received his or her full benefits on the basis of an unmarried status? If so, this could expose the plan to additional liabilities that were not anticipated under the terms of the plan document.
And will plan sponsors have a period of time in which to amend their plan documents to comply with this decision? For instance, many plans have been amended to define “spouse” either by explicit reference to DOMA Section 3 or by incorporating its substantive terms (i.e., defining “spouse” as a participant’s legally married spouse of the opposite sex). Typically, the IRS affords retirement plan sponsors a “remedial amendment period” in which to adopt amendments required by a statutory change. Presumably, a similar grace period will be allowed for amendments to comply with this Supreme Court decision.
One of the key questions will affect multi-state employers ‒ particularly those having operations in one or more of the states that allow for same-sex marriage and in one or more other states. A separate provision of DOMA (Section 2) allows a state to refuse to recognize same-sex marriages that are performed under the laws of other states. That provision was not at issue in either of these recent decisions. So what if an employer is based in a state that does not recognize same-sex marriage but has an employee who marries a same-sex partner in a state that does? Which state’s definition of marriage will govern?
And does it matter whether the employee has since moved to a state that does not recognize same-sex marriage – even those performed in other states? President Obama has stated that, in his personal opinion, a same-sex marriage performed in a state that recognizes such marriage should continue to be honored by the federal government even if the couple then moves to a state that does not recognize such marriage. But he cautioned that he would have to defer to the lawyers on this point.
Whatever its Constitutional defects, Section 3 of DOMA at least had the virtue of allowing a multi-state employer to rely on federal law in adopting a uniform definition of marriage. With Section 3 invalidated, that particular federal law is no longer available. But what about a different federal law? When ERISA was enacted in 1974, one of its goals was to allow multi-state employers to avoid having to comply with a patchwork of inconsistent state laws when administering their benefit plans. Does that aspect of ERISA preemption survive the Windsor decision? Only time will tell.
Another question that will need to be answered in the post-Windsor world involves the status of “civil unions,” “domestic partnerships,” and the like. Many states offer these types of relationships and, although not calling them “marriage,” provide many of the same rights and responsibilities that would apply to a married couple. Will federal laws now follow suit? Although the answer to this question will likely be no, there may be certain areas in which selected federal laws are broadened to include these “marriage-like” relationships.
Similarly, time will tell whether employers retain any discretion to recognize ‒ or not recognize ‒ same-sex marriages in contexts where spousal rights are not automatic. For instance, an employer is not required to offer health coverage to an employee’s spouse. Does that mean an employer may define a subset of “spouses” to whom it will offer coverage? If so, might same-sex spouses be excluded from that eligible class?
Similarly, a cafeteria plan may ‒ but need not ‒ allow for mid-year election changes on account of certain events. If a cafeteria plan allows mid-year election changes in connection with the marriage of an opposite-sex couple, must it also allow such a change in connection with a same-sex marriage?
Although most employers will likely want to treat same-sex married couples in the same way as other married couples, employers with strongly held moral or religious objections to same-sex marriage might choose not to do so. Certainly, there has been significant resistance among certain employers to the requirement that health plans offer all FDA-approved contraceptive methods. We may see similar resistance in this area.
Although the Windsor decision may eventually require far-reaching changes in benefit plan administration and documentation, employers and other plan sponsors would be well-advised to await guidance from the IRS and/or Department of Labor before making wholesale changes. President Obama has directed the members of his cabinet to ensure that the Windsor decision “is implemented swiftly and smoothly.” Presumably, that would include prompt administrative guidance on questions such as those highlighted above.
Pending the issuance of such guidance, plan sponsors will want to take steps to identify all plan provisions in which marital status is relevant. Moreover, any employee who has legally married in one of the states that recognize same-sex marriage – and particularly one who continues to reside in such a state – should now be afforded the same rights (and obligations) as a husband or wife in an opposite-sex marriage.