On June 26, 2013, the Defense of Marriage Act (DOMA) – the law barring the federal government from recognizing same-sex marriages legalized by the states – was ruled unconstitutional by the Supreme Court.
It is now time for employers to review their retirement and welfare plan documents to determine whether plan amendments are needed to clarify benefit eligibility for same-sex spouses.
As of August 2013, same-sex marriage will be legal in 13 states and the District of Columbia, including New York State and all of New England. In these states, benefits provided to same-sex spouses, just like benefits provided to opposite-sex spouses, will receive favorable tax treatment on both the state and federal level. This means that employers may permit employees to pay for their same sex spouse’s health insurance pre-tax. Also, eligible expenses for an employee’s same-sex spouse (and the same-sex spouse’s children) will now be eligible for reimbursement under cafeteria plans.
Employers should review how “spouse” and “dependent” are defined under their retirement and welfare plans.
- Employers that do not clearly define these terms are vulnerable to challenges by same-sex spouses and partners if the employer denies benefits to such spouses and partners.
- In particular, employers with employees who work (or live) in jurisdictions that have legalized same-sex marriage should expect to see an increase in requests for spousal benefit coverage from employees who have legally married their same-sex partners.
- In addition, providing a clear definition of spouse can help to minimize the risk of competing claims for death benefits under the employer’s retirement plans brought by a deceased employee’s same-sex spouse and the blood relatives who otherwise may be entitled to death benefits under the plan’s default beneficiary rules.
The DOMA definition of spouse does not automatically apply to an ERISA-covered benefit plan.
- For employers with ERISA-covered self-funded group health plans which are not subject to state insurance law, the issue of whether to exclude same-sex spouses if the employer offers coverage to opposite-sex spouses is complex. These employers should consult with benefits counsel.
Ten important points for consideration.
- Employers should review their health and retirement plans’ definitions of spouse. Those whose plans explicitly cite DOMA will need to change their documents.
- Employers with self-insured plans or individually designed retirement plans can adopt their own explicit definitions, but should consider state law, as well as discrimination issues, in framing these definitions.
- Employers with insured plans should contact their insurance providers to discuss the interpretation of the definition of spouse under the insured plan.
- Employers should review Flexible Benefit Plan and Life Insurance definitions.
- Consider the eligibility of children of same-sex spouses who now are the step-children of employees for federal tax purposes.
- Review the enrollment process so that same-sex spouses are properly identified and accorded the proper tax treatment.
- Review and change the tax treatment of health benefits for same-sex spouses.
- Consider how to handle employees’ requests for help in seeking a refund from the IRS for taxes paid on the value of a same-sex spouse’s health benefits.
- Consider how to treat domestic partners.
- Consider whether to submit a refund request to the IRS for payroll taxes paid on amounts imputed to employees for same-sex domestic partners.