On June 26, 2013, the United States Supreme Court held that the Defense of Marriage Act (known as DOMA) is unconstitutional. What does this mean for your company’s employee benefit plans?
Under DOMA, federal law did not recognize same-sex marriages. This meant, among other things, that the federal tax advantages and rights afforded with respect to opposite-sex spouses were not available to same-sex spouses, even if the couple was married in a state that recognizes same-sex marriages. For example, employees in a same-sex marriage were taxed on the value of health benefits provided by the employer to the same-sex spouse, but those same benefits were tax-free if provided to an opposite-sex spouse. DOMA covered all federal rights, including rights as a spouse under employee benefit plans and federal labor laws.
Now that the Supreme Court has ruled that DOMA is unconstitutional, same-sex spouses will receive equal treatment under federal law – they will be treated the same as opposite-sex spouses. Some examples of that equal treatment include the following.
Employer provided health benefits to same-sex spouses will be tax free, as they are now for opposite-sex spouses;
Same-sex spouses will have the same rights as opposite-sex spouses under qualified retirement and 401(k) plans. For example, the participant must obtain the same-sex spouse’s notarized consent to name another person as the beneficiary; the same-sex spouse is entitled to a qualified joint and survivor annuity from a defined benefit plan; a surviving same-sex spouse can roll over the decedent’s plan benefit to an IRA or another qualified plan or qualified annuity; and a same-sex spouse will be eligible to be an alternate payee under a Qualified Domestic Relations Order;
Same-sex spouses will now be included in family stock attribution rules;
Same-sex spouses will be eligible for reimbursements from Health Flexible Spending Accounts, Health Reimbursement Arrangements and Health Savings Accounts;
Same-sex spouses will be eligible for other federal protections, such as COBRA and the Family and Medical Leave Act (FMLA).
All companies should review their benefit plans and policies carefully to address the changes that result from the Supreme Court’s ruling. Remember, however, the federal tax advantages, rights and privileges only apply to same-sex spouses who are validly married under the law of a state that allows same-sex marriages. No such rights apply to any same or opposite-sex non-married domestic partners.
Despite the ruling, it is still not clear how a same-sex couple that is married in a state that allows same-sex marriage will be treated if that couple moves to a state that does not recognize same-sex marriage. Pending guidance, the answer may depend on the federal right involved and whether the law granting that right looks to the law of the state of residence to determine the validity of a marriage.
We expect that both the IRS and the Department of Labor, as well as other federal agencies, will be issuing guidance on these and other issues. It is clear that same-sex couples who are both married and reside in a state that recognizes same-sex marriages will be treated as spouses under federal law. But there are a host of other issues that remain unresolved such as whether same-sex spouses will be eligible for benefits described here retroactive to the date of marriage. We will keep you posted as we learn more.
Pending official guidance from the DOL and Treasury, it is interesting to note the announcement made by the Office of Personnel Management which, essentially, treats the decision as a trigger for a change in status and permits changes to federal government health benefits if made within 60 days of the June 26, 2013 decision.