On June 26, 2013, the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA), which denied federal recognition to same-sex marriages. The Court’s decision in U.S. v. Windsor has an immediate impact on employers who sponsor and administer benefit plans. Some implications are clear. Health plans will no longer need to impute the value of coverage of same-sex spouses into an employee’s income. Same-sex spouses have rights to benefits under qualified retirement plans unless they waive those rights.
Many questions, however, were not answered by the Court in Windsor and employers await future guidance in the form of regulatory reaction, executive orders or advice from agencies as to their interpretations of the decision and its impact. In particular, there is a need for guidance on whether plans must recognize same-sex marriages retroactively, which could give same-sex spouses claims for benefits for past periods. Clarity is also needed on how to administer benefits for same-sex couples who have been legally married in a state that recognizes same-sex marriage but reside in a state that does not.
This alert provides an overview of the Windsor ruling and what we know today about its implications for plan sponsors.
Although Windsor will have far-reaching impact, the ruling itself was narrow: the Court ruled that federal law must recognize the same-sex marriages of individuals who were legally married under state laws. Specifically, the Court ruled that Section 3 of DOMA – which provided that, for purposes of all federal laws and regulations, “marriage” means only a legal union between one man and one woman as husband and wife, and the word “spouse” refers only to a person of the opposite sex who is a husband or a wife – was unconstitutional. The Court ruled that Section 3 violated the Fifth Amendment’s guarantee of liberty as applied to persons of the same sex who are legally married under state law. After Windsor, whether a “marriage” exists or whether a person is a “spouse” within the meaning of a federal statute or regulation will be determined by state law.
Because the Court’s ruling addressed only the narrow issue above, a number of very important issues remain to be addressed.
The Court Did Not Provide Federal Recognition to All Same-Sex Relationships
The Windsor decision recognized that marriage was traditionally and historically defined by state law. The decision does not require all states to recognize same-sex relationships. Currently, the majority of states do not. States remain free to permit or deny recognition to same-sex marriages under their own state laws and constitutions. This means the status quo will remain in place for many same-sex couples under employee benefit plans.
Many companies have amended their employee benefit programs to provide same-sex couples with benefits that are similar to the benefits provided to opposite-sex couples. For example, some benefit programs provide health plan coverage to same-sex individuals who enter into a domestic partnership agreement, even if that domestic partnership is not recognized or registered under any state law. Since the Windsor decision did not grant federal recognition to relationships that are not recognized as “marriage” under state law, most non-marriage relationships (such as civil unions, registered domestic partnerships and domestic partnership agreements) will likely not be affected by the decision.
Further complicating the matter are the fine distinctions drawn by some state laws. Some state civil union laws provide that same-sex civil unions are granted the same status as “marriage” for state law purposes, even though they are not designated as “marriage.” It remains to be seen whether such relationships will be recognized as “marriage” at the federal level. We expect further guidance under the Employee Retirement and Income Security Act of 1974, as amended (“ERISA”) and the Internal Revenue Code will address this issue.
The Court did not strike down Section 2 of DOMA, which provides that no state shall be required to recognize a same-sex marriage that is recognized by another state. This raises a number of issues for couples who move from state to state or who live in a state that does not recognize same-sex marriage but travel to a state that does and marry there. Let’s assume that a same-sex couple lives and marries in State A, which recognizes same-sex marriage. The couple them moves to State B, which explicitly does not recognize same-sex marriages performed in any other state. The Windsor decision did not address whether the couple is still considered married for purposes of federal law. President Obama has expressed his desire that 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 the marriage. It remains to be seen whether and to what extent that desire can or will be translated into official policy.
Windsor did not specifically address whether same-sex couples have any retroactive rights to the benefits described below. For example, suppose a 401(k) plan participant entered into a same-sex marriage, designated someone other than the same-sex spouse as beneficiary (without obtaining the spouse’s consent), and died before the decision. Does the surviving spouse have a claim against the plan for survivor benefits? Do same-sex couples have a right to claim refunds for health plan benefits that were previously treated as taxable? We anticipate that the IRS will provide guidance on retroactivity in the near future.
Licenses for same-sex marriages are currently issued in California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington and the District of Columbia. In Rhode Island and Minnesota, same-sex marriage legislation was passed this year and takes effect on August 1, 2013. Although New Mexico does not grant licenses for same-sex marriage, it recognizes same-sex marriages entered into in a state that does.
Colorado, Hawaii, Illinois, Nevada, New Jersey, New Mexico, Oregon and Wisconsin have civil union laws.
Health and Welfare Plans
Spouses have a number of rights under qualified retirement plans (such as defined benefit and 401(k) plans) subject to ERISA. Some examples of these rights, which must now be provided to same-sex spouses, are listed below:
Employers will want to await future guidance before making many of the decisions they will need to make on how to implement the Supreme Court’s decision in Windsor. There are certain steps that employers can and should take in the interim, however. Employers should: