This is a rally call for employers to evaluate employee benefit plan documents for compliance.
On October 6, 2014, in an unexpected move, the United States Supreme Court declined to review petitions challenging the legalization of same-sex marriage in five states, including Indiana, Oklahoma, Utah, Virginia, and Wisconsin. The effect of this refusal to hear these petitions, or this non-decision on the legality of, or the right to, same-sex marriage for all 50 states, is that stays are now lifted on the three federal appeals courts’ decisions upholding such same-sex marriages. With these stays lifted, same-sex marriages are now legal in 24 states, up from 19.
Other states in those federal circuits are also affected by the Court’s actions on Monday, including Colorado, Kansas, North Carolina, South Carolina, West Virginia, and Wyoming. It is thought that the three federal appeals court will uphold same-sex marriages in these states as well, where such marriages are currently banned. If those bans are struck down, then the number of states legalizing same-sex marriage climbs from 24 to 30 in short time.
Under the state of celebration approach, employers in all states must be prepared to offer certain federal employee benefits to same-sex couples since same-sex marriage does not have to be recognized in the state where the employer is located.
So how does the Court’s action, or inaction, affect same-sex federal employee benefits and an employer’s duty or obligation to provide such benefits to same-sex couples? The decision not to review the lower court petitions has no direct bearing on the previously issued guidance from the Internal Revenue Service (IRS), the U.S. Department of the Treasury, the Employee Benefits Security Administration (EBSA)(a division of the U.S. Department of Labor (DOL)), and the Department of Health and Human Services (HHS) that emerged post-Windsor. Each of the above-referenced agencies has issued similar guidance stating generally that same-sex couples who were legally married in a states that recognized same-sex marriage will be treated as married for federal tax and employee benefits purposes, even if the couple resides in a state that does not recognize such marriages. This “state of celebration” approach rather than a “state of residence” approach is now the common approach with respect to same-sex federal employee benefits.
Under the state of celebration approach, employers in all states must be prepared to offer certain federal employee benefits to same-sex couples since same-sex marriage does not have to be recognized in the state where the employer is located. In the wake of this “non-decision,” the number of states legalizing same-sex marriage will more than likely climb from 19 to 30, as discussed above. This will greatly impact the number of legal same-sex marriages across the country, thus implicating in great measure the state of celebration approach to providing federal employee benefits to these couples.
This is a rally call for employers to evaluate employee benefit plan documents for compliance. Plan sponsors must confirm that their plan documents are in compliance with recently issued IRS guidance for qualified plans, including document requirements, required and optional amendments, and operational guidance.
Further, plan sponsors need to evaluate plan operations. Plan compliance issues frequently arise through plan operations, not just plan documents. Thus, plan sponsors must implement the plan document language through administrative practices that provide same-sex spouses with the appropriate rights under federal law under Windsor.
Such administrative practices include, but are not limited to, payroll practices and procedures; deferrals, contributions, and other contributory elections; beneficiary designations; and plan disclosures (such as COBRA and HIPAA notices). Plan sponsors should also review associated employee records that support such plan documents and processes. Appropriate due diligence is required to achieve compliance in the areas of federal employee benefits with respect to same- sex couples.
Employers need to give proper credence to the Court’s most recent actions with respect to same- sex marriages. Employers must take proactive steps to achieve compliance, even as guidance in this area of the law continues to evolve.
[Jennifer Kiesewetter is a member of Butler Snow’s Business Services Group and focuses primarily on employee benefits, employee welfare benefits, ERISA, executive compensation, health care compliance, healthcare regulatory, and corporate law.]