On June 26, 2013, the United States Supreme Court issued a historic 5-4 decision that impacts how federal law is applied to same-sex couples. In United States v. Windsor, the Supreme Court held that Section 3 of the 1996 Defense of Marriage Act (“DOMA”) is unconstitutional. Section 3 had previously defined ”marriage” for purposes of federal law as the union of one man and one woman. Following Windsor, employers are scrambling to comply with this recent ruling and change in federal law. The most recent guidance provided by the federal government comes from the IRS. On August 29, 2013, the IRS issued Revenue Ruling 2013-17, which declares the IRS will look to the state where the same-sex marriage took place to determine whether the couple is validly married for federal tax purposes. One of my colleagues, Greta Cowart (a nationally recognized expert on ERISA issues and guidance), recently explained in more detail the impact of this IRS ruling and the most relevant excerpts of her analysis are noted below:
“if a couple enters into a same-sex marriage that is valid in the jurisdiction in which it is entered into, they shall be treated for all federal tax purposes as married and there should be no tracing of whether an individual is married based on separate state laws of the states in which they may live thereafter”
“as of september 16, 2013, all qualified retirement plans must recognize same-sex spouses recognized under revenue ruling 2013-17 as spouses under the retirement plan, with the related spousal rights.”
“Given the IRS’s position requiring recognition of all spouses equally, employers must now consider also modifying their COBRA administrative provisions to make sure they are recognizing all spouses with notice and election rights as qualified beneficiaries under COBRA.”
The Windsor decision and IRS ruling cited above directly impact employee benefit plans governed by the Employee Retirement Income Security Act of 1974 (“ERISA”). Although Texas does not currently recognize same-sex marriage and Attorney General Greg Abbott has drafted an opinion staunchly refusing to recognize them under Texas law, Texas nonsubscribers should nonetheless consider whether their employee benefit plans need or may require revisions to address injury-related benefits to same-sex couples (e.g., surviving spouse payments). While Texas does not recognize same sex marriage, nonsubscribers should still consider reviewing and updating their group medical and other ERISA plans as to the definition of “spouse” and whether limitations are desired for spouses of Texas-based employees who enter into a same-sex marriage in another jurisdiction (in which same-sex marriage is valid) and later move to Texas.
The following list of action items prepared by Greta Cowart is a good starting point for Texas employers, including nonsubscribers, who are reviewing their plans and addressing the impact of Windsor and the IRS’s recent ruling:
Employers must determine which States in which they operate have made a decision to recognize same sex marriage.
Employers need to determine which States refuse to recognize same sex marriages which occurred in other States or countries.
Employers need to reach out to their employees requesting identification of which of the employees may be married and in which jurisdiction they were married and when that marriage occurred to begin to identify the individuals for whom there may need to be changes in the tax treatment of their health coverage and potential tax refunds and changes in any gross ups for the tax treatment.
Employers will need to consider their plan terms (in all employee benefit plans) and if the plan incorporated DOMA’s definition and if the plan incorporated a State law as the governing law for any matters not preempted by ERISA, it will need to be amended.
Employers will need to determine how much FICA and income tax withholding will need to be refunded to same sex marriage employees and will need to determine how the employer can request a refund for any FICA and Medicare taxes it paid and the employee’s share of the FICA and Medicare (including the additional Medicare tax in 2013) taxes the employer remitted related to the coverage for any same sex married employees.
Employer should review their employment policies, such as for Family and Medical Leave Act, bereavement leave and others, to determine if any revisions are necessary to include same sex married domestic partners (“SSMDP”) and to determine how the employer wants to address employees in states which do not recognize same sex marriage.
Health plans subject to Medicare Secondary payer requirements and Tri-Care secondary payer requirements will need to wait for guidance on whether the Center for Medicare and Medicaid Services and the Department of Defense respectively will pursue claims against the plan for the SSMDP’s who were protected under such statutes as the result of this decision and for whom the health plan should have paid as primary instead of Medicare paying primary.