Agencies Issue Guidance on Same-Sex Marriage Impacting Employee Benefits

by Snell & Wilmer
Contact

On June 26, 2013, the United States Supreme Court, in United States v. Windsor, held that Section 3 of the Defense of Marriage Act (“DOMA”) is unconstitutional as a deprivation of the equal liberty of persons that is protected by the due process clause of the Fifth Amendment of the United States Constitution. Before it was struck down, Section 3 of DOMA had provided that for purposes of federal law, “marriage” means only a legal union between one man and one woman as husband and wife. 

The Windsor ruling affects nearly every employee benefit plan.  As a result of Windsor, the DOMA definition no longer applies. When Section 3 of DOMA was the law, employers could not provide many employee benefits and protections to same-sex spouses. The opposite is now true.  Now that Section 3 of DOMA has been overturned, employers must extend most employee benefits and protections to legally married same-sex spouses.

In response to the Supreme Court’s ruling in Windsor, the Internal Revenue Service (the “IRS”), the Department of Treasury (“Treasury”) and the Department of Labor (the “DOL”) have released new guidance on the treatment of same-sex spouses. This guidance provides direction on some of the issues employers are facing in the wake of the Supreme Court’s ruling.

IRS and Treasury Ruling for Purposes of Federal Tax Law and Employee Benefits

On August 30, 2013, in Revenue Ruling 2013-17, the IRS and Treasury ruled that same-sex married couples will be treated as married for all federal tax purposes as long as they were married in a jurisdiction that recognizes same-sex marriages, which is known as a “state of celebration” standard.[1]  The IRS supplemented this ruling by releasing Answers to Frequently Asked Questions for Individuals of the Same Sex Who Are Married Under State Law, which provides that the terms “spouse,” “husband and wife,” “husband” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law,[2] and the term “marriage” includes such a marriage between individuals of the same sex. This means lawfully married same-sex spouses will be treated the same as opposite-sex spouses with respect to federal mandates that apply to employee benefit plans.

The guidance also provides that these terms do “not include individuals who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as marriage under the laws of that state.” 

The guidance is effective starting September 16, 2013, and will apply prospectively. The IRS has indicated that it will publish further guidance on any retroactive application of the Supreme Court’s opinion in Windsor to employee benefit plans. The IRS anticipates that “future guidance will provide sufficient time for plan amendments and any necessary corrections so that plans and benefits will retain favorable tax treatment for which they otherwise qualify.”

Required Changes to Qualified Retirement Plans

In order to maintain their qualified tax status, retirement plans are required to offer several spousal benefits and protections.  Based on Windsor and the IRS guidance discussed above, employers are now required to offer certain benefits and protections to same-sex spouses, such as:

  • defined benefit pension plans must offer qualified joint and survivor annuities (“QJSAs”) and qualified pre-retirement survivor annuities (“QPSAs”) to same-sex spouses;
  • qualified plans must require same-sex spouses to consent to beneficiary designations in favor of anyone other than the same-sex spouse;
  • qualified plans must honor qualified domestic relations orders (“QDROs”) in favor of same-sex spouses; and
  • qualified plans must treat same-sex spouses as spouses for purposes of the required minimum distribution provisions.

The application of these protections to same-sex spouses can have some interesting results. For example, any beneficiary designation in favor of someone other than a participant’s same-sex spouse is now invalid and, by default, the beneficiary will be the same-sex spouse. Same-sex married employees who intend a different result must complete a new beneficiary designation form and obtain spousal consent, the same way that opposite-sex couples must. Another interesting result is that QDROs in favor of same-sex spouses that previously could not be honored are likely valid and should be reconsidered.

Health and Welfare Plans

While many spousal protections are federally mandated, there is no federal law that requires employers to offer health or welfare benefits to spouses. This leaves open the possibility that some employers may continue to distinguish between same-sex and opposite-sex couples. For example, an employer could design its health plan to only offer coverage to opposite-sex spouses and not same-sex spouses. 

Most employers will probably conclude, for administrative reasons, that it is easier to treat all employees and spouses the same rather than operate a plan with two separate benefit schemes. One reason to do so is that many states and cities have laws that prohibit employers from discriminating based on sexual orientation, gender identity or marital status. There are arguments that such anti-discrimination laws are preempted by the Employee Retirement Income Security Act of 1974, as amended, but preemption can be hard to predict. Providing uniform benefits to all employees obviates the need to make such arguments.

Based on Windsor and the IRS guidance discussed above, employers who offer health coverage to same-sex spouses would additionally have to provide certain benefits and protections to same-sex spouses, such as:  

  • COBRA coverage upon the occurrence of a qualifying event (such as divorce or the employee’s termination of employment);
  • special enrollment rights when a participant marries a same-sex spouse; and
  • favorable tax treatment of benefits, at least on federal basis.[3]

DOL Guidance on the Family Medical Leave Act

The DOL has updated guidance on the Family and Medical Leave Act (“FMLA”) to include same-sex spouses in the definition of spouse as well as remove references to DOMA. FMLA requires covered employers to allow, among other things, eligible employees to take unpaid, job-protected leave from their employment to care for a sick spouse. Prior to Windsor, employers were not required under FMLA to grant an employee leave to care for his or her same-sex spouse. Now, as a result of Windsor, lawfully married same-sex couples will be treated the same as opposite-sex spouses for purposes of FMLA. 

However, in order to be eligible for FMLA leave to care for a sick spouse, the current guidance requires employees to reside in a state that legally recognizes their marriage, whether same-sex or opposite-sex. This means that married same-sex couples who live in a state that recognizes same-sex marriage will be eligible for FMLA leave, but married same-sex couples who reside in a state that does not recognize same-sex marriage will not be legally entitled to FMLA leave. This is known as a “state of residency” standard. Under the state of residency standard, it is the state in which the employee resides that controls whether the employee’s significant other is a “spouse” for purposes of the FMLA.

Although the DOL has clarified that the state of residency standard applies for purposes of FMLA, a comment by Labor Secretary Thomas E. Perez that this revision of the DOL guidance is only “one of many steps the Department will be taking over the coming months to implement the Supreme Court’s decision” as well as the IRS’s recent decision to use a state of celebration standard for federal tax purposes, as discussed above, lead many to believe that status as a “spouse” for purposes of FMLA will ultimately be based on a state of celebration standard as well. However, for the time being, employers are only required to offer FMLA leave to employees to care for their same-sex spouses if those employees reside in a state that recognizes same-sex marriage.

Many employers may decide to grant 12 weeks of unpaid, job-protected leave, similar to FMLA leave, to all same-sex spouses, regardless of their state of residency. Employers that take this approach, however, must understand that if leave is granted to same-sex spouses residing in states that do not recognize same-sex marriage, that leave cannot be counted against the 12-week leave the employee may be entitled to under FMLA. For example, if an employer grants leave to an employee who lives in a state that does not recognize same-sex marriage to take care of a same-sex spouse, the employee would still be entitled to take the full 12 weeks of FMLA leave to care for his or her child in the same year. This approach may have the effect of giving better benefits to same-sex spouses than are provided to opposite-sex spouses.

It currently appears that employees residing in California, Connecticut, Delaware, Iowa, Massachusetts, Maryland, Maine, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington and the District of Columbia must be granted FMLA leave to care for a same-sex spouse. The same is also probably true for employees residing in New Mexico.[4] At this time, employees residing in other states (i.e., states that do not recognize same-sex marriage) are not legally entitled to FMLA leave to care for a same-sex spouse. Employers that have employees in states that do not recognize same-sex marriage should monitor developments in the law as many challenges are being brought against state bans on same-sex marriage in light of Windsor.

Action Items

Although we expect the regulators to issue additional guidance on these issues, employers should start moving forward with their compliance efforts. For example, with Revenue Ruling 2013-17 taking effect September 16, 2013, employers should, not later than such date, start allowing legally married same-sex spouses, regardless of where they reside, to pay for health care premiums on a pre-tax basis and stop imputing federal income tax to same-sex spouses for the employer-paid portion of the health care premium.

Employers might also start amending plans, summary plan descriptions and employee handbooks to reflect the recent guidance.

Circular 230 Disclaimer: To ensure compliance with Treasury Regulations governing written tax advice, please be advised that any tax advice included in this communication, including any attachments, is not intended, and cannot be used, for the purpose of (i) avoiding any federal tax penalty or (ii) promoting, marketing, or recommending any transaction or matter to another person.

[1] Currently, same-sex couples may legally marry in California, Connecticut, Delaware, Iowa, Massachusetts, Maryland, Maine, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington, the District of Columbia and numerous foreign countries, including Canada. [back]

[2] For purposes of the rulings, “state” means any domestic or foreign jurisdiction having the legal authority to sanction marriages. [back]

[3] The taxation of benefits in states that do not recognize same-sex marriage is not yet clear. [back]

[4] New Mexico’s marriage laws are gender neutral so the treatment of same-sex spouses is not entirely clear at this time.

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.

© Snell & Wilmer | Attorney Advertising

Written by:

Snell & Wilmer
Contact
more
less

Snell & Wilmer on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.