Earlier today in United States v. Windsor, the Supreme Court struck down section 3 of the federal Defense of Marriage Act (“DOMA”).  Section 3 of DOMA limits the definition of marriage for purposes of federal law to marriage between individuals of the opposite sex.   The Court held that DOMA deprives same sex couples of due process in violation of the Fifth Amendment.   The Court’s ruling applies to marriages recognized under state law;   the Court did not address whether the Constitution requires states to recognize same sex marriage.

The Court’s opinion notes that DOMA affects over “1,000 statutes and numerous federal regulations.”   Many of the affected statutes and regulations relate to employee benefits.  As a result, the decision is likely to affect the benefits provided under employee benefit plans and the tax treatment those benefits receive.  In some cases, the Court’s decision could have implications for benefits that have already been paid. We encourage employers to review their benefit plans and plan administration to identify changes that might be required or desirable as a result of the ruling.

A threshold question that remains to be answered is how to determine whether a same-sex couple is married under state law.  ERISA generally preempts state law but does not define the term “spouse”.  If an ERISA-covered plan needs to look to state law, it might not be clear which state’s law applies.  For example, a same sex couple might marry in one state but reside in another that does not recognize same sex marriage.  State laws also contain numerous choice-of-law provisions and might permit private parties to vary the state whose laws apply in particular circumstances.  Furthermore, the terms of an employee benefit plan might affect the definition of marriage.

Below is a list of some of the key areas that will need to be considered with respect to same-sex couples when they are considered to be married for purposes of a plan that is subject to ERISA and the Internal Revenue Code:

  • Spousal Rights Under Retirement Plans.  A same-sex spouse of an employee would have the spousal rights to survivor benefits and death benefits that previously (because of DOMA) applied only to opposite-sex spouses.  For example, a same-sex spouse would 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 would have a right to receive various notices of spousal rights, and a participant would need to get the spouse’s written consent to name a non-spouse beneficiary.
  • QDROs.  A same-sex former spouse would 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 would include distributions to pay for medical care, tuition, and burial costs for a same-sex spouse.
  • Minimum Required Distributions.  A same-sex spouse could postpone minimum required distributions from a retirement plan under section 401(a)(9) of the Internal Revenue Code to the same extent as an opposite-sex spouse.  DOMA no longer would 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.
  • Pension Funding.  The DOMA decision could result in additional pension liabilities for same-sex spouses, especially in plans that pay death benefits only to surviving spouses.  The increase in liabilities could result in additional funding obligations.
  • 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) could apply to same-sex spouses.
  • Tax-Free Health Benefits.  Same-sex spouses are now able to receive tax-free coverage and tax-free benefits under employer group health plans.  (Previously, a same-sex spouse generally qualified for favorable tax treatment under an employer group health plan only if the spouse was 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.  Employers and employees may wish to file refund claims for income and FICA taxes previously paid on health benefits provided to same-sex spouses of employees.
  • Health Reimbursement.   Employees are now 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 would 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 would have the same rights.

The Departments of Treasury and Labor as well as the IRS may need to address how to transition to a world without DOMA, including how to address the prior application of DOMA.  In the meantime, employers might wish to consider how to address the employer’s plans reliance on DOMA in the past and whether plan amendments or interpretations would be appropriate or helpful sometime in the near future.