High Court Marriage Decision Will Affect Health Benefits

An expert from PwC says the ruling will have little impact on retirement plans.

The U.S. Supreme Court has ruled that under the Fourteenth Amendment, states cannot deny same-gender couples the right to marry, and it is illegal for states to not recognize same-gender marriages performed in another state.

In its opinion, the high court said the state laws challenged by the petitioners in the cases are held invalid to the extent they exclude same-gender couples from civil marriage on the same terms and conditions as opposite-gender couples. It also said “individuals who are harmed need not await legislative action before asserting a fundamental right.”

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In a statement after the ruling, Annette Guarisco Fildes, president and CEO of The ERISA Industry Committee (ERIC), said: “Today’s decision means that same-sex marriages must be recognized throughout the U.S. Because of this, more employees will be able to marry and provide benefits for their spouses on a tax-free basis.

“The nation’s top employers, many of whom are members of ERIC, will be relieved to be able to treat their employees uniformly, regardless of where they live or work.

“ERIC supports the uniformity of common employee benefit rules and policies across the country, as its members operate and provide benefits to their employees in all 50 states.  Today’s decision helps our industry with that federally needed consistency.”

Coming up: What’s next for employers?

Kerry Eason, a director in consulting firm PwC’s Chicago office, notes that since the Employee Retirement Income Security Act (ERISA) is a federal law, within a few months after the 2013 Supreme Court decision in United States v. Windsor, the Internal Revenue Service (IRS) and the Department of Labor (DOL) came out with guidance that retirement plans had to recognize same-gender marriages. “I think today’s decision will have little impact on retirement plan administration,” he tells PLANSPONSOR. However, he notes that it may have an effect on governmental plans in states that haven’t recognized same-gender marriages, since governmental plans are not governed by ERISA.                      

According to Eason, retirement plan sponsors may review plan terms or administrative procedures to make sure they are treating same-gender spouses the same as opposite-gender spouses. Any provisions that provide for disparate treatment should have been amended by the end of 2014. Eason says retirement plan sponsors should have already amended their plans, but they may not have previously paid attention to administrative procedures or certain employee communications.

For employer-sponsored health plans, it is a little different because ERISA does not require spousal benefits. Eason contends that for those plans that offer spousal enrollment, most employers, in states in which same-gender marriages were recognized, went ahead and extended their benefits after Windsor. In states that didn’t recognize same-gender marriages, they may have taken the position that they did not have to extend benefits, he adds.

With the new Supreme Court decision, employers now know they have to recognize same-gender marriages in plan documents without a doubt, Eason says. Employers will need to adjust their enrollment procedures and participant communications.

Coming up: Reconsidering domestic partner benefits.

Eason notes that some groups are saying employers previously offering domestic partners benefits in an effort to provide equal benefits to all employees may reconsider offering it. In a statement after the Supreme Court ruling, Aon Hewitt said: “In light of the decision, Aon Hewitt anticipates the number of companies offering domestic partner health care coverage may decline as employers look to streamline benefits.”

However, Eason says, before eliminating domestic partner benefits, employers must also consider whether they are needed to satisfy other requirements, such as state or city regulations imposing requirements on the businesses with whom they do business—sometimes referred to as government contractor requirements. “While state and local governments can't impose requirements on all employers within their jurisdictions to provide domestic partner benefits (because such requirements would be preempted by ERISA), they can have rules that apply to their contractors (or businesses providing goods or services to the state or local government) that require them to provide certain benefits to their employees in domestic partnerships, civil unions, or other legal statuses that are not the equivalent of a marriage.”

In its statement, Aon Hewitt also noted the state income tax treatment of employer-provided benefits could change for individuals with same-gender spouses. While further guidance will be needed, for those employers who used imputed income to make up for this tax treatment, it will eventually be unnecessary, the firm said.

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