On June 26th, the United States Supreme Court ruled in Obergefell v. Hodges that the Fourteenth Amendment of the United States Constitution requires every state to issue marriage licenses to same-sex couples. In a 5-4 decision, the Court also ruled that states must recognize same-sex marriages validly performed elsewhere. 

Prior to the Obergefell decision, same-sex marriage was legal in a majority of states, including Illinois, though it was still outlawed in many other states, including Michigan, Ohio, Kentucky, and Tennessee. The plaintiffs in Obergefell brought the suit challenging the bans on same-sex marriage in these four states.  

Impact on Employee Benefit Plans

From an employee benefit plan perspective, today’s decision primarily affects employer-sponsored health and welfare plans. The decision does not otherwise impact qualified retirement plans, because a qualified retirement plan is already required under federal law to recognize same-sex spouses for all relevant purposes.

Although many employer-sponsored health and welfare plans already cover same-sex spouses, the Obergefell decision will have a significant impact on employers with operations or employees in states that did not previously permit same-sex marriage. First, employers should now strongly reconsider health and welfare plan eligibility provisions that limit participation to opposite-sex spouses, as these types of eligibility rules may be a more viable target for litigation under Title VII of the Civil Rights Act of 1964. Employers and plan sponsors should also confirm that the definition of “spouse” in their plan documents is consistent with the administration of the plan. If the plan defines “spouse” by reference to state law, for example, that definition may need to be updated. Third, and perhaps most importantly, employers with employees in states that did not previously permit same-sex marriage will need to consider the state payroll tax implications of the Obergefell decision. 

Employers with employees in states that did not previously permit same-sex marriage were previously required to withhold applicable state income and payroll taxes on the value of a same-sex spouse’s health and welfare plan coverage. In light of the Obergefell decision, employers should stop withholding all state income and payroll taxes on the value of a same-sex spouse’s health and welfare plan coverage, assuming the employee and the spouse have entered into a validly performed marriage. 

Reconsider Domestic Partner Coverage

Finally, the Obergefell decision could also impact the desire of some employers to continue offering health and welfare plan coverage to domestic partners. In an effort to provide coverage to their employees’ same-sex partners, particularly in states where same-sex marriage was previously not permitted, many employers offer health and welfare plan coverage to unmarried same-sex (and opposite-sex) domestic partners. Because same-sex marriage licenses will now be issued nationwide, many employers may wish to reconsider whether domestic partner coverage is still necessary and appropriate.