How to Handle Employee Benefits with Same-Sex Marriages: BB&K's John Wahlin Looks at What Changes Should be Made in Light of the Prop. 8/DOMA Court Rulings

by Best Best & Krieger LLP

With this summer’s Supreme Court rulings on DOMA, the Defense of Marriage Act, and Prop. 8 allowing same-sex marriages to be recognized in states that allow them, private sector and public agency employers in California should make sure they treat those married couples as they do all employees on their roster who are married to the opposite sex.

But they should take one step further: Employers should communicate to their employees about possible changes in everything from retirement and health insurance plans to family medical leave and COBRA coverage. Otherwise, employers could run the risk of breaching their fiduciary duty to communicate legal changes affecting an employee’s benefits, especially when the employee fails to take necessary action to protect his or her interest.

The court rulings, in a nutshell, allowed same-sex spouses who entered into a legal marriage under California law to be recognized as spouses under federal tax and employee benefit laws. This does not apply to registered domestic partners unless they marry.

The DOMA ruling didn’t require all states to recognize a same-sex marriage, thus it’s unclear whether an employee working for a California-based company in a state that doesn’t recognize his or her marriage can be treated as married under the company’s benefit plan.

The U.S. Department of Labor and the Internal Revenue Services are expected to chime in on these issues, and it’s expected agency officials will say that the plan should recognize the marriage under federal law. But regardless of where a company is headquartered, all employees working in California who are in a same-sex marriage should be treated as married under all circumstances.


Health Insurance: Group health plans in California currently cover an employee’s registered domestic partner; in fact many cover non-registered partners who certify the relationship. Prior to the Supreme Court ruling, the premium paid by either the employer or employee for the partner’s coverage was not a pre-tax benefit unless the partner qualified as a dependent under federal tax law. If the partner was not a dependent, the premium was reportable as W-2 income to the employee. That will continue to be the case for non-dependent domestic partners, but same-sex married couples will now be able to enjoy tax-free treatment for both the employee and his or her spouse. Employers should immediately change the employee’s withholding upon notification of the marriage.

FMLA: Benefits of the Family Medical Leave Act must be provided to the employee when the circumstances for the leave relate to the same-sex spouse. In this regard the labor department has announced that eligibility is to be based on the law in the state in which the employee resides. California employers will need to offer FMLA leave to any married employee if he or she was married in any state that recognizes same-sex marriage.

COBRA: Federal COBRA coverage is now required to be available to same-sex spouses. Cal-COBRA also extends coverage to registered domestic partners. In addition, nothing precludes a health plan from offering COBRA to non-registered domestic partners if they are covered under the health plan.


Beneficiary Designation: A new beneficiary designation should be completed if the current designation gives the death benefit under 401(k) and other qualified retirement plans to anyone other than the new spouse. The designation will no longer be valid unless the new spouse consents in writing.

Default Beneficiary: Where an employee does not have a valid beneficiary designation on file, the retirement plan typically provides for the spouse to be the beneficiary. Some plans also identify a registered domestic partner as the default. Employers should confirm the default beneficiary terms of their plan and confirm whether any change is necessary to reflect both married and registered same-sex partners.

Other Spousal Consent: If spousal consent is required in order to receive a distribution of retirement benefits before retirement age or to borrow against the employee’s account, the same-sex spouse must consent.

* This article was originally published in The Press-Enterprise on Sept. 7, 2013. Republished here with permission.

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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