If the Supreme Court holds that the Defense of Marriage Act (“DOMA”) is unconstitutional, those involved with the administration of employee benefits plans will be very busy. Under DOMA, a benefit plan is not required to recognize same-sex marriage and, in many cases, must treat same-sex spouses differently than opposite-sex spouses. If DOMA is struck down, employers might need to amend their benefit plans, and plan administration will necessarily change. Many changes will need to be implemented quickly.
The Court’s decision is expected by the end of June. While they wait for the decision, in-house benefits attorneys and HR personnel might wish to−
- identify each benefit plan that would be affected by DOMA;
- determine how the plan’s operations will change if DOMA is struck down;
- evaluate whether any plan amendment would be necessary to reflect DOMA’s demise or to avoid changes that would otherwise result;
- consider whether, with the ability to recognize same sex marriage in ERISA-covered plans, state or local laws would require such recognition, especially under equal benefits ordinances with respect to employers who serve as contractors to state and local governments;
- consider any cost or funding implications of extending spousal benefits to same-sex spouses;
- determine whether the employer has data regarding same-sex marriages or whether it will need to gather this data (there are various types of legal relationships for same-sex couples in different states—marriage, civil union, registered domestic partnership, etc.—and an employer might need to identify which same-sex couples are married under state law);
- review forms and electronic systems to determine whether changes will be required to treat same-sex spouses the same as opposite-sex spouses: for example, employers that currently provide taxable health benefits to same-sex spouses will need to reprogram systems so that they no longer withhold income tax and FICA tax for these benefits; and
- consider whether to file a protective claim immediately for a FICA refund for health benefits provided in 2009 to same-sex spouses, since this claim might otherwise expire on April 15, 2013.
If DOMA is unconstitutional, several areas of employee benefits will be affected, including the following:
- Spousal Rights Under Retirement Plans. A same-sex spouse of an employee will have the spousal rights to survivor benefits and death benefits that currently (because of DOMA) apply only to opposite-sex spouses. For example, a same-sex spouse will have a right to a qualified pre-retirement survivor annuity (“QPSA”) and qualified joint and survivor annuity (“QJSA”) under a retirement plan, and an automatic death benefit under a defined contribution plan. In addition, a same-sex spouse will have a right to receive various notices of spousal rights, and a participant will have to get the spouse’s written consent to name a non-spouse beneficiary.
- QDROs. A same-sex former spouse will have the right to receive a share of a participant’s retirement benefits pursuant to a qualified domestic relations order (“QDRO”).
- Hardship Distributions. The IRS safe harbor for hardship distributions from a 401(k) plan will include distributions to pay for medical care, tuition, and burial costs for a same-sex spouse.
- Minimum Required Distributions. A same-sex spouse will be able to postpone minimum required distributions from a retirement plan under section 401(a)(9) of the Internal Revenue Code to the same extent that an opposite-sex spouse can. DOMA will no longer prevent a surviving same-sex spouse from deferring a pre-retirement survivor annuity for more than one year, or a lump sum for more than five years, after a participant dies.
- Expansion of Spousal Benefits Provided Voluntarily. If an employer has voluntarily offered benefits under a plan to a spouse (for example, under a group health plan or life insurance plan), the plan might need to extend the same benefits to same-sex spouses. Any default rule that applies to spouses (for example, a rule that an employee’s spouse is the beneficiary of the employee’s employer-provided life insurance unless the employee designates an alternate beneficiary) probably will apply to same-sex spouses.
- Tax-Free Health Benefits. Same-sex spouses will be able to receive tax-free coverage and tax-free benefits under employer group health plans. (At present, a same-sex spouse generally qualifies for favorable tax treatment under an employer group health plan only if the spouse is the employee’s dependent for tax purposes, a test that often is not met.) Employers will have to re-program (or re-code) payroll systems that currently withhold income tax, and withhold and pay FICA tax, with respect to the health coverage provided to same-sex spouses.
- Health Reimbursement. Employees will be able to get reimbursement from health flexible spending accounts (“FSAs”) and health reimbursement accounts (“HRAs”) for medical expenses of same-sex spouses.
- COBRA. Same-sex spouses will be eligible for COBRA coverage if they have a qualifying event.
- Medicare Secondary Payer Rules. Under the Medicare secondary payer rules, an employer that offers health care to employees’ spouses will have to provide primary health coverage (rather than coverage secondary to Medicare) to the same-sex spouse of an active employee who is over age 65.
- Spousal Share of Incentive Pay and Nonqualified Retirement Benefits. In community property states, spouses have rights to a share of various benefits (for example, stock options and nonqualified retirement benefits) earned during the marriage. Same-sex spouses will have the same rights.
If the Supreme Court rules in June that DOMA is unconstitutional, many of these changes could take effect immediately. The Departments of Treasury and Labor as well as the IRS and other governing agencies will need to address how to transition to a world without DOMA, including how to address the prior application of DOMA. For example, employees and employers might be entitled to refunds for FICA previously paid on health coverage for same sex spouses. Guidance, however, is not always issued expeditiously, and employers might wish to begin planning now for a post-DOMA employee benefits regime.