U.S. Supreme Court Holds DOMA Unconstitutional: Broad Impact on Retirement Plans, Health and Welfare Plans, and Payroll Administration

by Wilson Sonsini Goodrich & Rosati

On June 26, 2013, the Supreme Court issued a ruling in U.S. v. Windsor concerning same-sex marriage. This WSGR Alert covers the impact of the ruling on employee benefit plans and provides action items for employers.


Issues of marriage and spousal rights historically have been defined by relevant state laws. In 1996, the U.S. Congress passed the Defense of Marriage Act (DOMA). Under Section 3 of DOMA, "marriage" was defined as the marriage of one man and one woman, and "spouse" was defined as someone married to a person of the opposite gender. After its passage, federal tax laws had to be interpreted in a manner consistent with DOMA, and employers were required to follow the federal definitions of "marriage" and "spouse" to the extent an employee benefit plan was governed by federal laws. DOMA imposed many administrative burdens on employers due to the need to treat groups of employees differently based on their marriage status in states that permitted same-sex marriage.

The Cases

The Supreme Court, however, ruled in U.S. v. Windsor that Section 3 of DOMA is unconstitutional. As a result of the ruling, in states that recognize same-sex marriage, individuals in same-sex marriages must be afforded the same federal rights, recognition, and protections as individuals in opposite-sex marriages.1

The Windsor decision has far-reaching effects for employers that sponsor retirement and health and welfare plans. However, this landmark ruling should have little, if any, effect on equity plans and employee stock purchase plans.

Federal agencies are expected to issue guidance to resolve some of the many unanswered questions presented by the Supreme Court's ruling. Employers should nonetheless prepare to make revisions to their employee benefit plans and procedures.

It is important to note that the Windsor decision does not require individual states to recognize same-sex marriage. Currently, 37 states do not recognize same-sex marriage, so employers with multiple state locations should review the relevant laws of the states in which they operate to determine whether additional revisions are required to their employee benefit plans and procedures.

While we await the federal government's guidance on the ramifications of the Supreme Court's decision, it is advisable in the near term for plan sponsors to perform an inventory of the impact on their employee benefit plans and procedures. Employers should also begin the process of eliminating the distinction between same-sex and opposite-sex married couples in states where same-sex marriage is legal and recognized. Below is a non-exhaustive list of action items to help identify some areas where changes likely will be required in terms of documentation and/or administration:

Retirement Plans

  1. Spousal definitions in plan documents may have to be amended if they reference the invalidated DOMA rule. The summary plan description and other employee communications may also require revisions.
  2. From an administrative point of view, the change in the law will likely impact required minimum distributions, hardship withdrawals, rollover distributions, beneficiary designations, and survivor annuity provisions.
  3. Spousal consent forms should be reviewed to ensure that same-sex marriages are incorporated, as applicable.
  4. Plan policies and procedures, such as qualified domestic relations order (QDRO) procedures, distribution procedures, and loan procedures, should be revised as necessary.
  5. Plan sponsors that have employees with same-sex spouses may want to encourage these employees to revisit their retirement plan beneficiary designations.

Health and Welfare Plans

  1. Employers that have employees in states that recognize same-sex marriage may no longer impute income and withhold taxes at the federal level for employer-provided healthcare benefits for employees with a same-sex spouse. Also, employers with employees in states that do not recognize same-sex marriage will need to continue to impute income and withhold taxes at the state level for employer-provided healthcare benefits for employees with a same-sex spouse. Additionally, until further guidance is issued, employers likely will need to continue to impute income for federal purposes for employees in a state domestic partnership or civil union.
  2. Employers likely will need to reprogram payroll systems and alter communications to employees, including summary plan descriptions.
  3. As the federal agencies charged with administering the rules and regulations of COBRA and HIPAA develop guidance, employers should expect changes to these health plan laws.
  4. Employers should revisit their cafeteria/Section 125 plan documents to determine whether the change in the law will entitle employees with a same-sex spouse in states that recognize same-sex marriage to modify their health and welfare plan elections, as the recognition of their marriage under federal law may be considered a "change in status." In addition, employers may want to review their FSA, HSA, and/or HRA programs to determine whether same-sex spouse expenses will qualify for reimbursement and/or coverage.
  5. For FMLA purposes, a family or medical leave event in relation to a same-sex spouse may qualify for an unpaid leave.

Payroll Tax Matters

  1. Employers should follow up with tax counsel and consider what might be involved if they are ultimately able to file refund claims for employer and employee Federal Insurance Contributions Act (FICA) and other taxes previously paid on imputed income from employer-provided health benefits for employees married to a same-sex spouse.
  2. In connection with seeking tax refunds, employers should consider whether they will be required, or have a desire, to re-issue Form W-2s for prior tax years to employees married to a same-sex spouse.
  3. An employer that provided a tax "gross up" to an employee with a same-sex spouse (for the imputed income resulting from employer-provided health benefits) may want to consider how to recoup such payments and/or appeal to the IRS for a refund of such income taxes on behalf of such employees.

Given that additional guidance from the federal government is pending, it is important for employers to carefully contemplate the numerous issues resulting from the Windsor case before communicating the status of the new law to employees in order to alleviate a myriad of potentially conflicting employer communications. Additionally, we expect further litigation and political posturing on this issue in the foreseeable future, which may delay federal and state government guidance. Therefore, employers should consider the decision's implications, but keep actions to a minimum until there is a clear path to implementation.

1 As of June 28, 2013, Massachusetts, Connecticut, Iowa, Vermont, New Hampshire, New York, Maine, Maryland, Washington, Rhode Island, Delaware, Minnesota, California, and the District of Columbia recognize same-sex marriages. California issued marriage licenses to same-sex couples for approximately five months in 2008, but a state constitutional amendment prohibited same-sex marriage in California beginning in November 2008. Due to another Supreme Court ruling issued on June 26, 2013, Hollingsworth v. Perry, California resumed issuing marriage licenses to same-sex couples on June 28, 2013.

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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