The Supreme Court Strikes Down DOMA—Benefit Plan Sponsors Have Much to Consider

by Epstein Becker & Green
Contact

Yesterday, in its decision in United States v. Windsor, No. 12-307 (U.S. June 26, 2013), the Supreme Court of the United States ruled that the Defense of Marriage Act ("DOMA") is unconstitutional. DOMA provided that, for federal purposes, same-sex marriages would not be recognized, even if such marriages were recognized for state law purposes. The Supreme Court's ruling means that, for federal purposes, a same-sex marriage must be viewed on the same terms as an opposite-sex marriage, generally leaving the definition of "spouse" to the states. Therefore, in states that already recognize same-sex marriage, there is no longer a barrier to that recognition under federal law. As an initial matter, any plan that includes DOMA's definition of "spouse" will require an amendment. While the decision addresses the constitutionality of same-sex marriage, it does not address numerous implications that follow from the ruling.

Currently, 12 states—Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington State—and the District of Columbia have enacted laws that recognize same-sex marriage. The Supreme Court noted that DOMA affects over 1,000 federal laws, and related regulations. Among the significant effects the ruling will have, there are a number of benefit-related issues that require consideration.

Eleven Benefit-Related Issues to Review

Below is a list of certain significant issues that plan sponsors and benefits professionals should review in connection with the Supreme Court decision. This is intended to be a high-level review and not exhaustive. Many questions remain unanswered, and we expect that new issues will become apparent as we review further. However, for participants in those states where same-sex marriage is recognized, changes in administration may be required now.

Retirement Plans

  1. Hardship distributions. The Pension Protection Act of 2006 expanded the circumstances under which hardship distributions may be triggered to include hardship of a domestic partner who is not a dependent; plans were permitted (but not required) to adopt the broadened definition. Regardless of whether a plan was amended to adopt the broadened definition, in the absence of DOMA, a hardship relating to a same-sex spouse will become covered to the same extent as an opposite-sex spouse.
  2. Qualified Domestic Relations Orders ("QDROs"). Currently, the rules on QDROs do not permit same-sex spouses to be alternate payees, and employers are not required to comply with orders in which a same-sex spouse is named as the alternate payee. Without DOMA, this will no longer be the case and QDROs relating to same-sex spouses will be valid.
  3. Qualified Joint and Survivor Annuity ("QJSA") and Qualified Pre-Retirement Survivor Annuity ("QPSA"). Currently, defined benefit plans (and defined contribution plans that have elected to offer survivor annuity options) must provide automatic survivor benefits to a spouse in the form of a QJSA (for benefits paid after retirement) and a QPSA (if the participant dies before retirement) unless the participant elects otherwise with his or her spouse's consent. At present, spousal rights under a QJSA or QPSA are not required for a same-sex spouse and are available only if the plan sponsor elected to grant such rights. Without DOMA, these survivor benefits should be available to same-sex spouses regardless of whether the plan provides any broader rights.
  4. Required Minimum Distributions ("RMDs"). Currently, same-sex spouses cannot defer RMDs until April 1 of the year following the year in which the spouse would have reached age 70½ but, rather, must receive the entire interest of the deceased employee within five years. In the absence of DOMA, a surviving same-sex spouse that inherits benefits before RMDs have begun should have the same rights as currently available for opposite-sex spouses to delay distributions until the time when the deceased employee would have reached age 70½.
  5. Spousal consent. Currently, plans that provide for a QJSA require spousal consent for loans and for naming a non-spouse beneficiary. Without DOMA, same-sex spouses should have such consent rights.

Health and Welfare Plans

  1. Health insurance generally. Benefits provided to non-spouses (who are not "dependents" for federal income tax purposes) are generally taxable to an employee. Such benefits for federally recognized spouses are not taxable. In the absence of DOMA, same-sex spousal benefits will no longer be taxable.
  2. Tax-equalization agreements. Currently, employers sometimes provide tax-equalization or "gross-ups" to reimburse the covered employee for taxes on health benefits provided to same-sex spouses. Such agreements should not be necessary without DOMA.
  3. Qualifying event. Currently, under a cafeteria plan, marriage and certain events relating to spouses are qualifying events that permit an employee to modify the employee's elections under the plan. In the absence of DOMA, marriage of same-sex spouses and other spousal-related events should be recognized as qualifying events under the cafeteria plan rules.
  4. Consolidated Omnibus Budget Reconciliation Act ("COBRA"). Currently, COBRA requires that plans provide continuation coverage to "qualified beneficiaries," which includes spouses. Without DOMA, continuation coverage should be required to be offered to same-sex spouses.
  5. Health Flexible Spending Account ("FSA"). Currently, tax-favored treatment under an FSA is not available to an employee's same-sex spouse. Tax-favored treatment should be available in the absence of DOMA.
  6. Health Insurance Portability and Accountability Act ("HIPAA"). Currently, group health plans offering coverage to spouses must provide special enrollment rights under certain circumstances. Pursuant to DOMA, special enrollment rights are not extended to same-sex spouses. Such rights should otherwise be available in the absence of DOMA.

Unanswered Questions

Presently, as previously noted, 12 states and the District of Columbia recognize same-sex marriage, and the effective repeal of DOMA by the Supreme Court does not necessarily answer any number of questions, including the following:

  • Must a same-sex marriage in a state or district permitting such marriage be recognized in a state that does not otherwise permit same-sex marriage?
  • What is the effect on a company's plans if it has employees in several jurisdictions, only some of which recognize same-sex marriages? Will or should employers use a single standard recognizing same-sex spouses (e.g., state of residence, state of employment, state of marriage certificate, or state of employer's headquarters)?
  • Will it be discriminatory to administer a plan recognizing same-sex spouses residing in one state but not in another state that does not recognize such unions?
  • Should plans be administered prospectively from the date of the decision, or must there be retroactive application?
  • Will there be specific grace periods for making corrections pursuant to this change in law?
  • Will a prior beneficiary or other election that normally requires spousal consent (because a same-sex partner was not deemed to be a spouse at the time of election), or failure to offer a benefit at all to a same-sex spouse (such as a QJSA), continue to be valid if the same-sex spouse were to be recognized as a spouse (whose consent would then be required)?

These and other issues will need to be considered in light of the requirements of applicable law to benefit programs and also after reviewing carefully the effect of each plan's provisions, as currently drafted. We expect (and hope) that guidance from the government that answers the existing questions will be forthcoming. We will keep you advised as we learn more.

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.

© Epstein Becker & Green | Attorney Advertising

Written by:

Epstein Becker & Green
Contact
more
less

Epstein Becker & Green 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.