July 12, 2013 – Supreme Court Rules Defense of Marriage Act Unconstitutional
Previously, we reported that effective August 1, 2013, Minnesota will begin authorizing and recognizing marriages between spouses of the same sex. See our Client Alert (here), which identified a number of ways in which the new Minnesota law will impact Minnesota employers that sponsor group health plans.
A second significant development in the area of same sex marriage occurred recently that will likely have a far ranging impact on employers throughout the country. On June 26th, the U.S. Supreme Court issued an opinion holding that a portion of the federal Defense of Marriage Act (“DOMA”) was unconstitutional. Specifically, the Court struck down the portion of DOMA that prohibited the recognition of marriages between couples of the same sex for purposes of federal law. As a result, same sex spouses will now, in general, be recognized as spouses under federal law. The decision will have an impact with respect to over 1,000 federal laws ranging from trust and estate laws to immigration laws. This alert focuses on the impact under federal laws governing employee benefit plans.
Note: The Supreme Court’s decision regarding DOMA does not impact relationships that are not marriages, such as domestic partnerships (opposite sex or same sex), civil unions, etc. Employers should continue to treat those relationships in the same manner as they have been treated in the past with respect to taxation of benefits, etc.
Types of Impact. The Supreme Court’s ruling will impact employee benefit plans in a number of ways, including:
- Taxation of group health benefits – Coverage provided to same sex spouses may be excluded from an employee’s income. As a result, employers may allow employees to pay for such coverage on a pre-tax basis through a Section 125 cafeteria plan. And, no imputation of income is required for employer-funded coverage.
- Reimbursement plans – Health flexible spending accounts and health reimbursement arrangements may reimburse expenses incurred by a same sex spouse.
- Health savings account distributions – Distributions taken from a health savings account for expenses incurred by a same sex spouse will not be taxable to the accountholder.
- COBRA – Same sex spouses may be qualified beneficiaries under COBRA.
- HIPAA special enrollment – Employees will have HIPAA special enrollment rights with respect to same sex spouses.
- FMLA – Employees will be entitled to take a leave of absence to care for a same sex spouse with a serious health condition under the FMLA.
- Retirement plans – Same sex spouses will be treated as spouses for purposes of the spousal consent, distribution, and qualified domestic relations order provisions contained in the Internal Revenue Code and ERISA.
Scope of Impact. There are two significant issues related to the scope of the impact of the Supreme Court’s decision that need further development by the regulatory agencies.
- Does the decision impact employers in all states? Although the decision impacts the definition of spouse under federal law, federal law generally looks to state law to determine marital status. The unresolved issue is whether the law of the state in which the same sex couple resides or the law of the state in which the couple was married will control. Although the IRS has previously ruled in the context of common law marriages that it will recognize a marriage if it was valid in the state in which it occurred, it is unclear whether the IRS and other regulatory agencies will take such approach with respect to same sex marriages. Accordingly, the changes described above could potentially be immediately effective only in the thirteen states and District of Columbia that currently permit and recognize same sex marriages.
Note: The federal government, through the Office of Personnel Management (OPM), has notified federal employees that legally married same-sex spouses are now eligible for coverage under the government’s health plans without regard to the state in which the employee and same sex spouse reside. The OPM’s decision may suggest that the regulatory agencies will take a similar approach with respect to the application of laws impacting employee benefit plans.
- When are the changes effective? Going forward from the date of the decision, employers should be able to treat same sex spouses as spouses for purposes of the federal laws that apply to their employee benefit plans. Employers (at least those in states that recognize same sex marriages) should work to implement necessary changes to plan administration and documentation as soon as administratively possible. However, it is possible the Supreme Court’s ruling could have a retroactive effect. Under general concepts, if a law is ruled unconstitutional, the law is invalid from the date it was enacted. This rule creates the possibility that employers may need to make adjustments with respect to prior periods in which an employee’s same sex spouse was not treated as a spouse for purposes of employee benefits.
Action Items. In light of the Supreme Court’s decision, plan sponsors should take the following actions with respect to their benefit plans:
- Watch for future guidance from the regulatory agencies with respect to the scope of the impact of the Supreme Court’s decision. We will continue to monitor the situation and will provide updates as additional guidance is provided.
- Review plan documentation to determine whether and how DOMA was incorporated into the documentation.
- Determine what amendments to plans are needed or desired (e.g., amendments to definition of spouse, open enrollment and special enrollment rules, continuation coverage rules, etc.).
- Determine whether the plan documentation can be amended (e.g., does amendment require consent of an insurance carrier).
- Adjust administrative procedures to recognize that same sex spouses are, in general, treated the same as opposite sex spouses for purposes of federal laws (e.g., Internal Revenue Code, ERISA, HIPAA, COBRA, FMLA, etc.) that apply to the plans.
If you have any questions or would like assistance with any of the foregoing items, please contact us.
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The information contained in this ALERT is intended for general information purposes only and does not constitute legal advice relative to a specific situation.