On June 26, 2013, the United States Supreme Court held in United States v. Windsor, that Section 3 of the Defense of Marriage Act (“DOMA”) was “unconstitutional as a deprivation of the equal liberty of persons that is protected by the Fifth Amendment.” Accordingly, legally married same-sex spouses may now be recognized for purposes of spousal rights and benefits under employer-sponsored employee benefit plans.
For example, employers sponsoring defined benefit pension plans must apply provisions such as the qualified pre-retirement survivor annuity and the qualified joint and survivor annuity to legally married same-sex spouses. Likewise, legally married same-sex spouses may be deemed beneficiaries under defined contribution plans, subject to the spouse’s right to waive survivor benefits. In addition, several other retirement plan provisions addressing spousal rights and benefits such as qualified domestic relations orders, required minimum distributions, hardship withdrawals and plan loans must also be administered consistent with the Supreme Court’s decision. To the extent employers provide spousal benefits under their health and other welfare plans, legally married same-sex spouses may need to be recognized with respect to federally-mandated spousal benefits under the Affordable Care Act, COBRA, HIPAA and FMLA, and the taxation of welfare benefits may be significantly affected by Windsor.
The facts in the Windsor case are straightforward. The State of New York recognized the marriage of Edith Windsor and Thea Spyer, who were married in Canada in 2007. When Spyer died in 2009, she left her entire estate to Windsor. Windsor attempted to claim the federal estate tax exemption for surviving spouses but was prohibited from doing so by Section 3 of DOMA, which provides that for purposes of federal law the terms “marriage” and “spouse” excluded same-sex partners. Windsor paid the tax and sued for a refund. Both the District Court and the Second Circuit Court of Appeals held Section 3 of DOMA to be unconstitutional.
The Supreme Court’s decision to strike down the federal definition of “marriage” means employers must now make the determination of an employee’s marital status based on applicable state law. However, because the Supreme Court’s decision did not negate Section 2 of DOMA which provides that states may refuse to recognize same-sex marriages performed in other states, determining which state law is “applicable” may present a significant challenge to employers.
Thus, with approximately 14 states now recognizing same-sex marriage, employers who sponsor ERISA retirement and group health and welfare plans are faced with the task of trying to determine which state law will apply in various circumstances. For example, if a same-sex couple is married in a state that recognizes same-sex marriage, but now lives or works in a state that does not, must the employer provide the same-sex spouse with spousal benefits under its retirement and health plans? Must an employee’s marital status for purposes of an employer’s benefit plans be determined based on the laws of the state in which the employee works, or the laws of the state in which the employee lives? If an employer conducts business in several states, some of which recognize same-sex marriage and some of which do not, may an employee’s marital status for purposes of an employer’s benefit plans be determined based on the laws of the state in which the employer’s business is headquartered or incorporated rather than impose a different standard on each of the employer’s facilities? If an employee is married to a same-sex spouse in a state that recognizes same-sex marriage and works for the employer in a state that recognizes same-sex marriage, but subsequently retires or dies in a state which does not recognize the same-sex marriage, must the employer plan provide surviving spouse benefits? In addition, because the Supreme Court decision did not address the issue of retroactivity, will employers be required to provide retroactive benefits with respect to the same-sex spouse of a participant who died many years ago?
Guidance from the government is needed to answer the many questions facing employers in light of the Supreme Court’s decision. To that point, the IRS recently issued the following statement:
We are reviewing the important June 26 Supreme Court decision on the Defense of Marriage Act. We will be working with the Department of Treasury and Department of Justice, and we will move swiftly to provide revised guidance in the near future.
The Department of Labor may also issue some form of guidance in the weeks and months ahead. However, employers should not wait to begin the process of analyzing the impact of the ruling on the administration of their benefit plans. As employees begin to request recognition of their same-sex marriages for purposes of retirement and health benefits, employers, in the absence of further guidance, may wish to begin developing a consistent approach to responding to employee concerns. In addition, it may be appropriate to begin initial review of benefit plan documentation and employee communications, and to start considering whether revisions may be appropriate to conform to the recent Supreme Court decision. However, employers should move cautiously with respect to revising documents and employee disclosures prior to receiving clarification from the government.