New York Same-Sex Marriages: Reviewing the Potential Effects of State
Same-Sex Marriage Laws on Employee Benefit Plans
Published on:
07/08/2011 - Morgan, Lewis & Bockius
By Employee Benefits Practice
On July 24, New York's Marriage Equality Act will become effective,
making New York the sixth and largest state to recognize same-sex
marriage. Specifically, New
York's Marriage Equality Act "formally recognizes otherwise-valid marriages
without regard to whether the parties are the same or different sex." In
addition, the act provides that all marriages, including same-sex marriages, "be
treated equally in all respects under the law."
This development raises a number of important employee benefits issues for
plan sponsors based in, or with operations in, New York and provides an
opportunity to review these issues for other states that recognize—or soon may
recognize—same-sex marriage.
Potential Implications for Employee Benefit Plans
The federal Defense of Marriage Act (DOMA) provides that same-sex marriages
are not recognized as valid under any federal statute, including the Employee
Retirement Income Security Act (ERISA) and the Internal Revenue Code (Code). So
the impact of the New York Marriage Equality Act on the employee benefits
offered by plan sponsors, as with other state laws that recognize same-sex
marriages, will depend on the type of plan and the plan's specific
provisions.
Health and Welfare Benefit Plans
Self-funded health and welfare plans are covered by ERISA, which generally
preempts state laws. Accordingly, self-funded health and welfare plans are not
required to provide benefits to same-sex spouses married under the New York
Marriage Equality Act. However, plan sponsors may design plans to
intentionally—or unintentionally—provide benefits to same-sex spouses. For
example, a health and welfare plan that provides benefits for an employee's
spouse without defining that term or that defines spouse as "legal spouse" or
"the person to whom the employee is lawfully married" may be interpreted to
provide benefits to same-sex spouses. Accordingly, plan sponsors should review
each plan's definition of spouse to determine whether the plan provides benefits
to same-sex spouses or may be interpreted to do so. To the extent that a plan's
provisions do not reflect the plan sponsor's intention regarding benefits for
same-sex spouses, the plan's definition should be clarified.
Moreover, ERISA preemption does not apply to insured health and welfare
plans. Accordingly, insured health and welfare plans that are provided pursuant
to insurance policies subject to New York insurance laws will have to treat
same-sex spouses the same as opposite-sex spouses. For example, although a plan
may not be required to cover spouses, if the plan does cover opposite-sex
spouses, it must now cover same-sex spouses. Plan sponsors with plans funded
through insurance policies issued in states other than New York may not be
subject to New York law. Even if the policy is written in a state other than New
York, plan sponsors should nonetheless read the underlying insurance policies to
determine whether New York law may apply as a matter of contract law.
There may be tax implications for plans that provide health and welfare
benefits to same-sex spouses. For federal income tax purposes, as required by
DOMA, health and welfare benefits provided to a same-sex spouse are taxable to
the employee unless the same-sex spouse qualifies as a federal tax dependent.
Although tax treatment under state law often turns on whether the state
recognizes a marriage as lawful, the result under the New York Marriage Equality
Act is currently unclear because, prior to its enactment, the New York State
Department of Taxation and Finance issued an advisory opinion suggesting that an
individual's New York tax filing status is determined by his or her federal tax
filing status. The New York State Department of Revenue is expected to clarify
its position in light of the passage of the Marriage Equality Act.
Qualified Retirement Plans
Qualified retirement plans (e.g., defined benefit pension plans and 401(k)
plans) are also governed by ERISA and the Code and therefore are not required to
follow state laws that recognize same-sex marriage or provide benefits to
same-sex spouses. Again, a plan sponsor may design a plan to intentionally—or
unintentionally—provide benefits to same-sex spouses. Because a number of
provisions of ERISA and the Code treat married and unmarried participants
differently (e.g., provisions regarding qualified joint and survivor annuities,
qualified preretirement survivor annuities, spousal consents, minimum required
distributions, rollover distributions, hardship distributions, qualified
domestic relations orders), a plan sponsor's intention regarding providing
qualified retirement benefits to same-sex spouses should be made clear, rather
than left open to interpretation. For example, even though same-sex spouses
would be considered to be single under DOMA, if a defined benefit pension plan
is interpreted to provide a same-sex spouse with the right to a qualified joint
and survivor annuity rather than a single life annuity as required by ERISA and
the Code, the plan's qualified status may be in jeopardy. Accordingly, plan
sponsors should review each plan's definition of spouse to determine whether the
plan provides benefits to same-sex spouses or may be interpreted to do so. To
the extent that a plan's provisions do not reflect the plan sponsor's intention
regarding benefits for same-sex spouses, the plan's definition of spouse should
be clarified.
Non-ERISA Benefit Plans
New York employers providing benefits that are not covered by ERISA, such as
leave or bereavement pay, will be required to provide such benefits to same-sex
spouses in order to comply with state law prohibiting discrimination on the
basis of sexual orientation.
Similarly, New York employers who have made health and welfare benefits
available to same-sex-but not opposite-sex-domestic partners may wish to review
those policies. To continue such programs now that marriage is available to
same-sex couples may run afoul of New York's antidiscrimination laws.
What Should Plan Sponsors Do?
Plan sponsors that provide employee benefits should consider the potential
impact the New York Marriage Equality Act or other applicable state law may have
on their benefit plans by doing the following:
- Reviewing all benefit plans and other relevant documents (summary plan
descriptions, insurance contracts, handbooks/policy manuals, and benefits
forms) to determine what state law applies, how those documents define
"spouse," and whether the documents should be clarified or modified.
- If spousal benefits are extended to same-sex spouses, consider (1)
relevant tax-reporting and withholding issues, (2) potential effects on the
plan's qualified plan status, and (3) where employees are covered by a
collective bargaining agreement, whether there is a duty to bargain with the
union regarding such extension of benefits.
If you have questions, please contact the Morgan Lewis attorney with whom
you regularly consult or any of the following:
Chicago
Brian D. Hector
Louis L. Joseph
New York
Craig A.
Bitman
Gary S. Rothstein
Palo Alto
S. James
DiBernardo
Zaitun Poonja
Philadelphia
Robert L.
Abramowitz
Brian J. Dougherty
I. Lee Falk
Amy Pocino
Kelly
Robert J. Lichtenstein
Vivian S. McCardell
Joseph
E. Ronan, Jr.
Steven D. Spencer
Mims Maynard Zabriskie
David B. Zelikoff
Pittsburgh
Lisa H.
Barton
John G. Ferreira
R. Randall Tracht
Washington, D.C.
Althea R.
Day
Benjamin I. Delancy
David R. Fuller
Mary B.
(Handy) Hevener
Daniel L. Hogans
Gregory L. Needles