On June 26, the U.S. Supreme Court ruled in the case of United States v. Windsor and found Section 3 of DOMA, which legally defined the term “spouse” as marriage between a man and woman, was unconstitutional (“Benefit Changes Ahead After DOMA Ruling”). This legally recognizes same-sex spouses, at least in some states.
Speaking for a webcast sponsored by law firm Proskauer Rose, Roberta Chevlowe, senior counsel for Proskauer, pointed out Section 2 of DOMA allows states the right to recognize or not recognize same-sex marriage. However, it is not clear yet which state’s definition of spouse will apply for purposes of providing benefits under federal law—the state in which persons were married, in which they live or in which they work. She brought up the example of a person being a resident of New York, a state which recognizes same-sex marriage, but working in Texas, which does not.
Chevlowe noted the federal Office of Personnel Management (OPM) has said in a series of memos that it recognizes same-sex spouses regardless of what state in which a person resides. However, it is not clear whether the OPM vetted this policy with the Department of Labor (DOL) or the Internal Revenue Service (IRS).
With group health plans, Lynda Noggle, associate for Proskauer, said it is safe to say that if your state recognizes same-sex spouses, your company should stop imputing income (grossing it up) for federal tax purposes. Same-sex spouses can now pay for health care coverage on a pre-tax basis just like opposite-sex spouses. However, she said some companies may understandably want to wait for the IRS to issue further guidance on this topic. There is also a question of whether employees and employers will be able to get refunds of relevant taxes, such as FICA, that have already been paid, as well as whether W-2 forms need to be corrected. Again, she said, the IRS needs to issue further guidance on these topics, but these are questions companies need to start asking themselves so they can be ready for when such guidance is released.
With regards to enrollment rights, Noggle pointed to the example of the OPM giving their employees 60 days to change their health care elections in light of the Windsor decision. She suggested plan sponsors may want to consider having a similar special enrollment period, between 30 to 60 days in duration, to let those with same-sex spouses update their elections.
On the question of whether group health benefits must be provided for same-sex spouses, Chevlowe said this may depend on what the state law is and whether that state has any laws that penalize for discrimination based on sexual orientation. She recommended checking with legal consultants on such questions.
Todd Castleton, senior counsel with Proskauer, said the Windsor decision has affected pension plan benefits in several ways ("Ask the Experts - The Impact of the DOMA Ruling"). Spousal survivor benefits must now include same-sex spouses. Spousal consent for forms of payment, beneficiary designations and loans should be required for same-sex spouses as with opposite-sex spouses. For example, with a Qualified Joint and Survivor Annuity (QJSA), if the payment is to be anything other than an annuity, the same-sex spouse needs to authorize that.
If the default beneficiary for a retirement plan is the spouse, same-sex spouses must be treated the same as their opposite-sex counterparts. For example, if a beneficiary is not chosen by the plan participant, the same-sex spouse must now be included in the decision hierarchy.
Castleton added that same-sex spouses now need to be factored into matters such as:
- Safe harbor hardship withdrawals for a spouse's expenses;
- Unrestricted rollovers;
- Required minimum distributions; and
- Qualified domestic relations orders (QDROs).
Tzvia Feiertag, associate at Proskauer, pointed out that as a technical matter, the effective date of the Windsor decision is 25 days after the June 26 ruling. In anticipation of that, she cautioned plan sponsors to wait and see what further guidance the federal government issues, but to prepare in the meantime for potential changes to plan documents. One step in this preparation is to review plan documents for any mentions of spouses or marriage with regards to benefits. Another step is coordinate with plan-related vendors and third-party administrators to ensure their documentation and processes are similarly updated.
Feiertag added that it is important that plan sponsors communicate to participants that they are aware of the Windsor decision and how it does or does not apply to the plan. They should communicate any changes made to the plan because of the decision or at least make participants aware that changes could be coming pending further federal guidance.