On June 26th, the Supreme Court struck down Section 3 of the 1996 Defense of Marriage Act (DOMA) as unconstitutional, concluding it had no legitimate purpose. The Court held that DOMAs avowed purpose and practical effect was to impose a disadvantage, a separate status and a stigma upon all who enter into same-sex marriages made lawful by the authority of the States. DOMA applied to numerous federal laws, statutes and regulations which all defined marriage and spouse as excluding same-sex partners.
Under DOMA, welfare and pension plan sponsors that had employees in states that recognized same-sex marriages were still required to treat employees with same-sex spouses as single, for the purposes of federal tax withholding, payroll taxes and workplace benefits that turn on marital status; and married for all other purposes under state law. Such treatment required plan sponsors to operate two administrative regimes federal and state in order to comply with DOMA.
The Courts ruling prohibits a federal statute from defining marriage and places the duty to establish the meaning of marriage within the power of the individual states. States may, however, make such a definition and may also refuse to recognize same-sex marriages from other states, as Section 2 of DOMA, which permits such refusal to recognize, was not challenged in this case.
The Courts decision does not require states to recognize same sex marriages but impacts the treatment of certain benefits regardless of whether a state recognizes the marriage. In regard to retirement plans, there are four major areas that potentially would be affected:
- Survivor benefits in the form of Qualified Joint Survivor Annuities (QJSAs) and Qualified Preretirement Survivor Annuities (QPSAs)
- Timing of death benefit payments
- Qualified domestic relations orders (QDROs)
- Application of benefit limitations to survivor benefits
The Courts decision does not automatically entitle spouses in same-sex marriages to default to survivorship benefits. The decision only affects same-sex marriages in relation to federal law, so ERISA cannot exclude a valid state marriage. Based on previous Court decisions and the language used by the Court, however, it is likely the definition of marriage and spouse used in the plan document will control default and survivorship designations. Therefore, the state law specified in the plan document and the definitions of marriage and spouse in the plan document likely will govern.
If the definitions of marriage and spouse in a plan document do not refer to federal law or otherwise include same sex spouses recognized under state law, the plan may need to be amended to include such marriages or face legal challenges.
In addition to impacting pension plans, the Courts decision may have significant ramifications for health plans:
- Health coverage supplied to same-sex spouses should be nontaxable under federal tax rules
- Premiums for same-sex spouse coverage should be payable pre-tax through a cafeteria plan
- A same-sex spouses medical expenses could be reimbursed tax-free under account-based health plans, such as health flexible spending accounts, health reimbursement accounts and health savings accounts
- A same-sex spouse who loses coverage due to divorce would be entitled to up to 36 months of COBRA coverage
- An employee would qualify for the Family Medical Leave Act to care for an ill same-sex spouse
- An employee can now trigger a special enrollment right under HIPAA due to a same-sex marriage
- An employee may also trigger a qualifying event under the cafeteria plan rules on account of a same-sex marriage, without regard to the spouses dependency status
While we have highlighted many issues raised by the invalidation of Section 3 of DOMA, many questions remain. Is the effect of the ruling prospective or retroactive to the effective date of DOMA (1996)? Will employers and employees be able to pursue tax refunds for income and withholding taxes paid for health coverage of a same-sex spouse? If tax refunds are available, for what period?
Pension plans, welfare plans and employment policies related to marital status and leave should be reviewed to assess the impact of this change and determine if amendments are required to comply with the law or reflect the employers original intent.
If you have any questions concerning the employee benefits issues raised by the Supreme Court’s decision regarding DOMA, please contact Josh Richardson at McMahon Berger PC.