Love Is Love, But in Light of DOMA Employers Should Adjust Health, Retirement, and Tax Planning

by JD Supra Perspectives

"There are over 1000 federal benefits of marriage that same-sex couples will now be entitled to…" - William D. Rohrer, Carlton Fields

"In those states where same-sex marriage is not recognized, [employers] may want to review what benefits they are offering to same-sex partners…" - Joseph Adams, McDermott Will & Emery

"The Supreme Court decision has a significant impact on the way … benefits are to be provided, both as to eligibility for benefits and the tax implications on those benefits, so employers must address plan document and plan administration changes as a result of the decision." - Jason Rothman, Ogletree Deakins

Now that they Supreme Court has ruled, in a common refrain heard on Twitter today, that love is love is love, what does this actually mean going forward? And, specifically, we asked attorneys writing on JD Supra to tell us what today's DOMA and Proposition 8 decisions mean for employers in terms of taxes, employee health and retirement plans, and other such workplace matters. The legal perspective:

Q: What are the tax implications of today's DOMA decision for employers and employees?

William Rohrer William D. Rohrer, Carlton Fields: "From a federal perspective, the tax benefits are now identical for both opposite sex and same sex couples.

The Supreme Court’s opinions will result in refunds of previously withheld taxes in certain instances. Employers can effectively file for a refund (or an adjustment) on their portion of payroll taxes withheld with respect to for same-sex couples, provided such couples were married as of 2010 or later (i.e., the “open” tax years).

For those same-sex couples who were married prior to 2010, the three-year statute of limitations prohibits the filing for a refund unless the employers filed a protective claim for a refund before the statute expired. Like employers, employees may also file for a refund of previously withheld taxes provided they file within the statute of limitations or they filed a protective claim for a refund before the statute expired."

Q: And what implications for employers and employees regarding health care benefits?

"…employees married to same-sex spouses now may make contributions to health insurance plans on a pre-tax basis like their opposite sex counterparts. Additionally, same-sex spouses with children will now be covered under the plans of the non-biological, adoptive parent of such children."

William RohrerWilliam D. Rohrer: "Under prior law, employees who received health insurance from their employers and who wanted to cover their same-sex spouse under such insurance plan could only make contributions to the plan on a post-tax basis unless they could establish that their spouse was their dependent. Employees married to an opposite-sex spouse could make such contributions on a pre-tax basis. Under United States v. Windsor, employees married to same-sex spouses now may make contributions to health insurance plans on a pre-tax basis like their opposite sex counterparts. Additionally, same-sex spouses with children will now be covered under the plans of the non-biological, adoptive parent of such children."

Jason A. Rothman Jason Rothman, Ogletree Deakins: "In addition, same-sex spouses are not qualifying beneficiaries for COBRA purposes (noting that employers may offer “COBRA-like” continuation and some states have protections under state law which would apply to fully insured plans). The Court’s decision changes the way such benefits are taxed and what COBRA rights a same sex spouse may have"


Joseph S. Adams Joseph Adams, McDermott Will & Emery: "Numerous other issues also will need to be addressed, such as:

(1)   whether employees (and employers) can claim refunds of income taxes and employment (Social Security/Medicare) taxes previously paid;
(2)   whether employers will eliminate their programs providing employees with "gross-ups" for taxes on same-sex coverage;
(3)   whether employers should offer employees a mid-year opportunity to change their coverage election under the employer's health plan (in case some employees had consciously rejected such coverage in the past due to the imputed income tax obligation).  Along those same lines, we may need IRS guidance as to whether employees with same-sex spouses may change their cafeteria (Code Section 125) plan elections (which allow medical coverage to be paid on a pre-tax basis) during the middle of the year based on the decision.

Q: What implications for employers and employees regarding retirement benefit plans?

Jason A. RothmanJason Rothman: "There are a number of retirement plan issues that are impacted by the decision including survivor annuities, hardship distributions, plan rollovers, required minimum distributions, beneficiary designations and qualified domestic relations orders (all of which previously were subject to the DOMA definition of spouse). The expanded definition of “spouse” under the tax code would provide additional benefits under these retirement plan provisions for same sex spouses."

Joseph S. AdamsJoseph Adams: "Numerous retirement benefit provisions are tied to spousal status (e.g., plan loans require spousal consent, certain lump sum distributions require spousal waivers of survivor benefits, death benefit protection must be offered to spouses, and retirement benefits may be divided upon divorce pursuant to QDROs - qualified domestic relations orders). Many employers did not modify these retirement benefits for domestic partners, and instead relied on the prior federal definition of spouse as one man and one woman. Now that DOMA has been repealed, employers will need to review all of these features in their plans to make sure that same-sex spouses are provided all of the spousal protections required under federal law."
William RohrerWilliam D. Rohrer: "Employers who are currently providing benefits to former employees under 401(k) or other tax-deferred plans now must adjust such policies to allow same-sex spouses to receive such benefits upon the death of the former employee unless the same sex spouse waives such benefits. Also, the survivor of a same sex couple is entitled to social security benefits."


Q: At first glance, are there implications for employers/employees with regard to other federal laws?

Joseph S. AdamsJoseph Adams: "Because Section 3 of DOMA previously provided that same-sex spouses were not entitled to benefits under any federal law, the Court's holding of that section unconstitutional would mean that legally married same-sex spouses would be eligible for federal law mandates like FMLA. Many employers have offered FMLA-equivalent benefits to same-sex spouses and domestic partners and may want to revise those policies accordingly."

William RohrerWilliam D. Rohrer: "Yes, employees who are married to a same-sex spouse will now be able to sponsor such spouse on visas and be able to obtain a leave of absence under the FMLA for same reasons as opposite sex couples."


Q: Other considerations for employers/employees in light of today's DOMA decision?

Jason A. RothmanJason Rothman: "Employers should take the opportunity to review their plan documents to see how they define 'spouse'. Employers must understand the tax compliance issues in providing such benefits. Additionally, employers must consider and understand state law regarding marriage as DOMA no longer applies. The Supreme Court decision has a significant impact on the way such benefits are to be provided, both as to eligibility for benefits and the tax implications on those benefits, so employers must address plan document and plan administration changes as a result of the decision."

Joseph S. AdamsJoseph Adams: "Employers that operate in more than one state will need to consider whether same-sex marriages are recognized (even if not performed) in each of the states where they operate. In those states where same-sex marriage is not recognized, the employer may want to review what benefits they are offering to same-sex partners."

William RohrerWilliam D. Rohrer: "It is important to note that United States v. Windsor, only overturned Section 3 of DOMA which defines marriage as between a man and a woman.  Section 2 of DOMA, which allows states that do not recognize same-sex marriages to refuse to recognize same-sex marriages performed outside of said state, is still valid law. Therefore, employers may have to make different determinations for federal laws/benefits vs. state laws/benefits in states, such as Florida, which do not recognize same-sex marriages performed outside of the state."

Stay tuned for additional updates and analysis in the coming days.

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