On June 26, 2013, in United States v. Windsor, 133 S. Ct. 2675 (2013), the United States Supreme Court ruled that Section 3 of the Defense of Marriage Act of 1996 (“DOMA”) violated the Fifth Amendment’s equal protection guarantee and unconstitutionally encroached on states’ rights to regulate marriage.  As a result, DOMA no longer provides a uniform definition of “marriage” and “spouse” for federal law purposes (including, ERISA, the Internal Revenue Code, COBRA, and FMLA).  This new and uncertain legal landscape requires that employers navigate a myriad of state laws to determine the rights and duties of same-sex spouses.
Thirteen states, including New York, recognize same-sex marriage.  In these states, for state law purposes, “spouse” and “marriage” include same-sex spouses and same-sex marriages.  This Alert sheds light on the effects of the Windsor decision and identifies steps New York employers and plan sponsors should take while awaiting further guidance from the Department of Labor and Internal Revenue Service.
New York Recognizes Same-Sex Marriages
New York legalized same-sex marriage on July 24, 2011, pursuant to the Marriage Equality Act.  Under the Marriage Equality Act, all marriages, whether between same-sex couples or opposite-sex couples, are treated equallyunder the laws of New York.  Additionally, although a directive from then-governor Paterson required all state agencies to recognize same-sex marriages performed in other states since 2008, the Marriage Equality Act amended New York statutory law to recognize all legally performed marriages between same-sex and opposite-sex couples, regardless of the state of ceremony or celebration.
As a result of the Marriage Equality Act, New York State laws apply a gender neutral definition of spouse and marriage.  Accordingly, if a New York State law applies, same-sex spouses must be treated the same as opposite-sex spouses.  For example, if an ERISA welfare plan is insured, state insurance law governs the underlying insurance policy and the benefits provided thereunder.  As such, the Marriage Equality Act requires insured health and welfare plans to offer coverage to same sex-spouses to the same extent as coverage offered to opposite-sex spouses.
Impact on Employee Benefit Plans
The Windsor decision effectively requires that in states where same-sex marriage is recognized, such as New York, same-sex spouses must be treated the same as opposite-sex spouses for federal law purposes.  Windsor has immediate implications for New York employers that sponsor welfare and pension benefit plans.  Some of the possible impacts include:

Health and Welfare Plans:

Coverage:

For insured plans, New York State insurance laws already require that if a plan covers opposite-sex spouses, the plan must provide the same coverage to same-sex spouses.  Self-insured plans are not subject to New York’s insurance laws; however, self-insured plans that offer coverage to opposite-sex spouses and not to  same-sex spouses now risk possible discrimination lawsuits under Title VII of the Civil Rights Act of 1964.

• Taxes:

Employer-paid coverage provided to a same-sex spouse will no longer be imputed federal income to the employee.  Additionally, employee-paid premiums for employer-sponsored coverage can now be made on  a federal pre-tax basis.  Same-sex spouses should consider filing a federal tax refund for taxes paid on imputed income.  Employers should consider whether it is cost effective to file a refund for FICA taxes paid on  employees’ imputed income.

 • Reimbursements:

Eligible medical expenses incurred by same-sex spouses are now eligible for reimbursement under an employee’s flexible spending account (“FSA”), health savings account (“HSA”), and health reimbursement account (“HRA”).

HSA Limits:

HSA contributions made by same-sex spouses are now capped at the limit for married couples.

COBRA:

Employers must now provide same-sex spouses with continuation coverage (regardless of whether  the same-sex spouse qualifies as a dependent) if elected.

HIPAA Special Enrollment:

Group health plans offering coverage to spouses must now provide special enrollment rights upon marriage to, or divorce from, a same-sex spouse.  Note: whether the repeal of Section 3 of DOMA constitutes a special enrollment event is presently unclear – official guidance is expected. 

Qualifying Change-in-Status Events:

Cafeteria plans that recognize marriage and/or divorce as a qualifying event upon which an employee may modify the employee’s cafeteria plan elections, must now also recognize  marriage to, or divorce from, a same-sex spouse as a qualifying event.

Family Medical Leave Act:

The Department of Labor recently issued guidance clarifying that for FMLA leave purposes, “spouse” means “a husband or wife as defined or recognized under state law for purposes of marriage in the state where the employee resides, including ‘common law’ marriage and same-sex marriage.”  Therefore, an employee is entitled to up to 12 weeks of unpaid leave to care for a same-sex spouse, provided  the employee and same-sex spouse reside in a state which recognizes same-sex marriage.

•  Dependent Care Assistance:

The earned income of both same-sex spouses will now be taken into account for  purposes of applying the exclusion for dependent care assistance under Internal Revenue Code Section 129.   A same-sex spouse can now be a qualifying individual for purposes of the exclusion.

  Life Insurance:

The cost of employer-paid group-term life insurance on the life of an employee’s same-sex  spouse is no longer imputed income to the employee so long as the amount of the coverage does not exceed  $2,000.

Tax-Qualified Retirement Plans:

Spousal Benefit Rights:

Same sex-spouses now have the same spousal benefit rights as opposite-sex spouses.

Defined Contribution Plans

: Surviving same-sex spouses of participants in most defined contribution plans, including 401(k) plans and ERISA 403(b) plans, must be treated as the primary beneficiary of the participant’s plan accounts.

▪ Defined Benefit Plans:

 Surviving same-sex spouses are now entitled to a qualified joint and survivor annuity.  Additionally, same-sex spouses are also entitled to receive pre-retirement survivor benefits if the employee dies prior to retirement.

• Spousal Consent:

Before an employee can waive or change the default spousal benefits (discussed above), an  employee’s same-sex spouse must give written consent agreeing to the change.

• Loans:

Participants of qualified plans that require spousal consent for plan loans must now obtain the  consent of their same-sex spouse.

• QDROs:

If the participant and same sex-spouse divorce, the same-sex spouse may now obtain a qualified domestic relations order (“QDRO”) to receive the participant’s benefits under a tax-qualified or other ERISA  plan.

Eligible Rollover Distributions:

Upon the death of the participant, a same-sex spouse who receives a plan distribution may roll over the distribution directly into the surviving spouse’s own IRA or another qualified  plan.

Required Minimum Distributions:

Same-sex spouses whose participant-spouse dies prior to commencing pension benefits may now defer taking required minimum distributions (“RMDs”) until the participant-spouse would have attained age 70 ½.

• Hardship Withdrawals:

A same-sex spouse’s educational, medical, and funeral expenses will now qualify as a  basis for a hardship distribution.

 

Topics:  Benefit Plan Sponsors, COBRA, Defined Benefit Plans, Defined Contribution Plans, Dependent Care, DOMA, Employee Benefits, Equal Protection, FICA Taxes, Fifth Amendment, FMLA, Health Insurance, HIPAA, HSA, Income Taxes, IRA Rollovers, Life Insurance, QDRO, Retirement Plan, Same-Sex Marriage, Tax Qualified Retirement Plans, Title VII, US v Windsor

Published In: Civil Rights Updates, Family Law Updates, Health Updates, Labor & Employment Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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