On June 26, 2013, the U.S. Supreme Court delivered two much-anticipated decisions that will have sweeping and significant implications for same-sex married couples. The Supreme Court in United States v. Windsor declared Section 3 of the Defense of Marriage Act (DOMA)—which excluded a same-sex partner from the definition of "spouse"—unconstitutional as a deprivation of equal liberty of persons that is protected by the Fifth Amendment to the U.S. Constitution. The decision gives legally married same-sex couples the full range of marital rights and benefits in all areas of federal law, including in the provision of employee benefits. In Hollingsworth v. Perry, the Supreme Court vacated and remanded the case for lack of standing, effectively affirming the legality of same-sex marriages solely in California.
United States v. Windsor
United States v. Windsor involved two New York state residents, Edith Windsor and Thea Spyer, who were legally married in Canada. When Ms. Spyer died, she left her entire estate to her wife, Ms. Windsor, who sought to claim the federal estate tax exemption for surviving spouses, but was barred from doing so by Section 3 of DOMA. Ms. Windsor paid the estate taxes and sought a refund, which was denied by the Internal Revenue Service on the grounds that the exemption is available only to married couples. Ms. Windsor brought a refund suit, contending that DOMA violates the principles of equal protection incorporated by the Fifth Amendment. The district court found that Section 3 of DOMA was unconstitutional, and the Second Circuit affirmed.
The U.S. Supreme Court opinion in Windsor first established that the court had jurisdiction to consider the merits of the case. The decision rests on the principles that (i) marriage is the authority and realm of the states; and (ii) by injuring same-sex couples who have been legally married under state law, DOMA violates basic due process and equal protection principles applicable to the federal government. Echoing Loving v. Virginia (a landmark civil rights decision of the Supreme Court that invalidated laws prohibiting interracial marriage), the Supreme Court stated that, subject to certain constitutional guarantees, regulation of domestic relations is an area that has long been regarded as a virtually exclusive province of the states—and found that DOMA rejected this long-established precept. The Supreme Court's analysis emphasized that discriminations of an unusual character require careful consideration when determining whether a law is motivated by an improper animus or purpose. Central to the Supreme Court's decision is the concept that the state's decision to grant same-sex couples the right to marry conferred upon them a dignity and status of immense import. The Supreme Court stressed that DOMA's unusual deviation from the tradition of recognizing and accepting state definitions of marriage operates to deprive same-sex couples of the benefits and responsibilities that come with federal recognition of their marriages. The Supreme Court reiterated that the Constitution's guarantee of equality must, at the very least, mean that a bare congressional desire to harm a politically unpopular group cannot justify disparate treatment of that group.
Hollingsworth v. Perry
Hollingsworth v. Perry involved same-sex married couples who wished to marry after state voters in California passed a ballot initiative known as Proposition 8, which amended the State Constitution to define marriage as a union between a man and a woman. Proposition 8 had been declared unconstitutional by the district court, and the court enjoined the public officials named as defendants from enforcing the law. Those public officials elected not to appeal, but Proposition's 8 official proponents who intervened at the lower court to defend the law appealed. The Ninth Circuit concluded that Proposition 8's proponent had standing and affirmed the district court's order. The Supreme Court vacated the Ninth Circuit's decision and remanded the case.
DOMA amended the Dictionary Act to define "marriage" and "spouse" as excluding same-sex partners for more than 1,000 federal laws and the whole realm of federal regulations. With DOMA declared unconstitutional, "marriage" and "spouse" for federal law purposes will have the definitions ascribed by the state in which a same-sex couple lives under all federal laws. Thus, if the state allows same-sex marriage, the same-sex married couple will be entitled to all of the benefits and rights accorded to opposite-sex couples. Currently, 12 states (including California as a result of Hollingsworth v. Perry) and the District of Columbia permit same-sex marriage. However, it is unknown at this time when California will be allowed to issue same-sex marriage licenses. In addition, it is unknown whether other same-sex unions (e.g., domestic partnerships, civil unions and reciprocal benefits) will be accorded the same rights and benefits as same-sex married couples.
It is important to note that Section 2 of DOMA, which provides that states and territories of the United States have the right to deny recognition of same-sex marriages that originated in other states or territories, was not at issue in Windsor and remains constitutional. Questions will arise in situations where the same-sex married couple is legally married in one state and moves to another state that does not recognize same-sex marriage. Some states have ratified amendments to state constitutions banning recognition of same-sex marriage, civil unions and domestic partnerships. These provisions continue to remain intact and constitutional.
In the area of employee benefits, the decision in Windsor will mean that same-sex spouses will become entitled to certain benefits under pension plans, health insurance plans and other benefit plans governed under federal laws, including (i) Employee Retirement Income Security Act (ERISA), a federal statute governing employee benefits; and/or (ii) the Internal Revenue Code, which also applies to employee benefit plans. In addition, same-sex spouses will be entitled to certain rights under other federal statutes that govern employment, such as the Family and Medical Leave Act (FMLA).
The various features and protections provided to opposite-sex spouses under such plans and laws were either not available to same-sex spouses or not available on an equal basis because same-sex marriages were not recognized. As such, in order to provide the rights and benefits to same-sex married couples, it may require additional rulemaking and statutory changes in certain areas. Employers should review their employee benefit plans and employee policies to determine what benefits they currently provide and what benefits they are required to provide to same-sex spouses. The impact on employer benefit plans and policies is sure to be far reaching. For example, in order to accommodate the new rights and benefits available to same-sex married couples, employers are going to be faced with extensive revisions to their retirement plan documents, health and welfare plan documents, section 125 or cafeteria plan documents, Consolidated Omnibus Budget Reconciliation Act (COBRA) and FMLA policies, income tax withholding procedures and payroll processes.
As a fundamental part of these changes, employers may wish to consult with legal counsel regarding the appropriate federal tax treatment of benefits provided to same-sex spouses under tax-qualified plans, including retirement plans, health and welfare plans and section 125 or cafeteria plans. Prior to this decision, many benefits provided to same-sex spouses under these plans were not subject to the same preferential tax treatment as those provided to opposite-sex spouses. Now, however, to the extent that a state recognizes same-sex marriage, the distinctions in federal tax treatment of benefits provided to a same-sex spouse versus an opposite-sex spouse may now be a thing of the past.
Until further guidance is issued, employers may proceed in implementing these modified benefits through amendments and other actions to their existing employee benefit plans and policies. Multistate employers should review and refine their employee benefit structure to accommodate both states that recognize same-sex marriages and states that do not recognize same-sex marriages. In addition, employers should consider whether it is necessary to provide retroactive benefits to same-sex spouses, as it remains unknown at this time whether the provision of retroactive employee benefits will be necessary. Duane Morris will be closely following developments in this area.
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