6/26/2013 - Epstein Becker & Green, P.C.
Today, in its decision in United
States v. Windsor, No. 12-307 (U.S. June 26, 2013), the Supreme
Court of the United States ruled that the Defense of Marriage Act ("DOMA") is
unconstitutional. DOMA provided that, for federal purposes, same-sex marriages
would not be recognized, even if such marriages were recognized for state law
purposes. The Supreme Court's ruling means that, for federal purposes, a
same-sex marriage must be viewed on the same terms as an opposite-sex marriage,
generally leaving the definition of "spouse" to the states. Therefore, in states
that already recognize same-sex marriage, there is no longer a barrier to that
recognition under federal law. As an initial matter, any plan that includes
DOMA's definition of "spouse" will require an amendment. While the decision
addresses the constitutionality of same-sex marriage, it does not address
numerous implications that follow from the ruling.
Currently, 12 states—Connecticut, Delaware, Iowa, Maine, Maryland,
Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and
Washington State—and the District of Columbia have enacted laws that recognize
same-sex marriage. The Supreme Court noted that DOMA affects over 1,000 federal
laws, and related regulations. Among the significant effects the ruling will
have, there are a number of benefit-related issues that require consideration.
Eleven Benefit-Related Issues to Review
Below is a list of certain significant issues that plan sponsors and benefits
professionals should review in connection with the Supreme Court decision. This
is intended to be a high-level review and not exhaustive. Many questions remain
unanswered, and we expect that new issues will become apparent as we review
further. However, for participants in those states where same-sex marriage is
recognized, changes in administration may be required now.
Retirement Plans
- Hardship distributions. The Pension Protection Act of 2006 expanded
the circumstances under which hardship distributions may be triggered to
include hardship of a domestic partner who is not a dependent;
plans were permitted (but not required) to adopt the broadened definition.
Regardless of whether a plan was amended to adopt the broadened definition,
in the absence of DOMA, a hardship relating to a same-sex spouse will become
covered to the same extent as an opposite-sex spouse.
- Qualified Domestic Relations Orders ("QDROs"). Currently, the rules
on QDROs do not permit same-sex spouses to be alternate payees, and employers
are not required to comply with orders in which a same-sex spouse is named as
the alternate payee. Without DOMA, this will no longer be the case and
QDROs relating to same-sex spouses will be valid.
- Qualified Joint and Survivor Annuity ("QJSA") and Qualified
Pre-Retirement Survivor Annuity ("QPSA"). Currently, defined benefit plans
(and defined contribution plans that have elected to offer survivor annuity
options) must provide automatic survivor benefits to a spouse in the form of a
QJSA (for benefits paid after retirement) and a QPSA (if the participant dies
before retirement) unless the participant elects otherwise with his or her
spouse's consent. At present, spousal rights under a QJSA or QPSA are not
required for a same-sex spouse and are available only if the plan sponsor
elected to grant such rights. Without DOMA, these survivor benefits should
be available to same-sex spouses regardless of whether the plan provides any
broader rights.
- Required Minimum Distributions ("RMDs"). Currently, same-sex
spouses cannot defer RMDs until April 1 of the year following the year in
which the spouse would have reached age 70½ but, rather, must receive the
entire interest of the deceased employee within five years. In the absence
of DOMA, a surviving same-sex spouse that inherits benefits before RMDs
have begun should have the same rights as currently available for opposite-sex
spouses to delay distributions until the time when the deceased employee would
have reached age 70½.
- Spousal consent. Currently, plans that provide for a QJSA require
spousal consent for loans and for naming a non-spouse beneficiary. Without
DOMA, same-sex spouses should have such consent rights.
Health and Welfare Plans
- Health insurance generally. Benefits provided to non-spouses (who
are not "dependents" for federal income tax purposes) are generally taxable to
an employee. Such benefits for federally recognized spouses are not taxable.
In the absence of DOMA, same-sex spousal benefits will no longer be
taxable.
- Tax-equalization agreements. Currently, employers sometimes provide
tax-equalization or "gross-ups" to reimburse the covered employee for taxes on
health benefits provided to same-sex spouses. Such agreements should not be
necessary without DOMA.
- Qualifying event. Currently, under a cafeteria plan, marriage and
certain events relating to spouses are qualifying events that permit an
employee to modify the employee's elections under the plan. In the absence
of DOMA, marriage of same-sex spouses and other spousal-related events should
be recognized as qualifying events under the cafeteria plan rules.
- Consolidated Omnibus Budget Reconciliation Act ("COBRA").
Currently, COBRA requires that plans provide continuation coverage to
"qualified beneficiaries," which includes spouses. Without DOMA,
continuation coverage should be required to be offered to same-sex
spouses.
- Health Flexible Spending Account ("FSA"). Currently,
tax-favored treatment under an FSA is not available to an employee's same-sex
spouse. Tax-favored treatment should be available in the absence of
DOMA.
- Health Insurance Portability and Accountability Act ("HIPAA").
Currently, group health plans offering coverage to spouses must provide
special enrollment rights under certain circumstances. Pursuant to DOMA,
special enrollment rights are not extended to same-sex spouses. Such rights
should otherwise be available in the absence of DOMA.
Unanswered Questions
Presently, as previously noted, 12 states and the District of Columbia
recognize same-sex marriage, and the effective repeal of DOMA by the Supreme
Court does not necessarily answer any number of questions, including the
following:
- Must a same-sex marriage in a state or district permitting such marriage
be recognized in a state that does not otherwise permit same-sex
marriage?
- What is the effect on a company's plans if it has employees in several
jurisdictions, only some of which recognize same-sex marriages? Will or should
employers use a single standard recognizing same-sex spouses (e.g., state of
residence, state of employment, state of marriage certificate, or state of
employer's headquarters)?
- Will it be discriminatory to administer a plan recognizing same-sex
spouses residing in one state but not in another state that does not recognize
such unions?
- Should plans be administered prospectively from the date of the decision,
or must there be retroactive application?
- Will there be specific grace periods for making corrections pursuant to
this change in law?
- Will a prior beneficiary or other election that normally requires spousal
consent (because a same-sex partner was not deemed to be a spouse at the time
of election), or failure to offer a benefit at all to a same-sex spouse (such
as a QJSA), continue to be valid if the same-sex spouse were to be recognized
as a spouse (whose consent would then be required)?
These and other issues will need to be considered in light of the
requirements of applicable law to benefit programs and also after reviewing
carefully the effect of each plan's provisions, as currently drafted. We expect
(and hope) that guidance from the government that answers the existing questions
will be forthcoming. We will keep you advised as we learn more.