- United States v. Windsor: The Impact of the Supreme Court’s DOMA Ruling
- September 3, 2013 | Authors: Jeanne E. Floyd; Jonathan A. Kenter; Evelyn Small Traub
- Law Firms: Troutman Sanders LLP - Richmond Office ; Troutman Sanders LLP - New York Office ; Troutman Sanders LLP - Richmond Office
On June 26, the U.S. Supreme Court struck down Section Three of the federal Defense of Marriage Act of 1996 (DOMA). Section Three of DOMA provides that for purposes of federal law, the word “marriage” means only “a union of a man and a woman” and the definition of “spouse” is limited to “a person of the opposite sex who is a husband or a wife.”
DOMA’s limitations on the definitions of “marriage” and “spouse” affected a myriad of federal laws, including the Internal Revenue Code, ERISA, COBRA and HIPAA, and thus deprived same-sex couples legally married under the laws of certain states of various legal protections and preferred tax treatment that were available to opposite-sex spouses under retirement and health care benefit plans and federal law. The Supreme Court’s ruling means that this differential treatment of same-sex married couples is not permissible in the thirteen states and the District of Columbia that allow or recognize same-sex marriages. States that currently allow or recognize same-sex marriage are California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington.
Less clear is how to treat same-sex spouses who were lawfully married in a state where same-sex marriage is recognized but who reside in a state, like Virginia or Georgia, that does not recognize same-sex marriage. For now, the Supreme Court left for another day DOMA Section Two, which allows states to refuse to recognize a same-sex marriage lawfully performed in another state.
Employers offering retirement and health and welfare benefits will have to review and update their plan documents, payroll systems, and administrative procedures to comply with the Supreme Court’s ruling. Due to the complexities of the ruling, and the issues that remain (for example, state law questions and the extent to which the ruling is retroactive), benefits must be examined and possibly modified based on the facts and circumstances of each employer. Regulatory authorities are expected to issue guidance to help employers navigate these issues. Employers may wish to wait until regulatory guidance is issued before making any significant changes.
Following is a summary of some of the issues raised by the Supreme Court’s ruling related to employer-sponsored health and retirement benefits for employees and their same-sex spouses that will need to be addressed by companies with employees who have same-sex spouses.
Health Plan Benefits
- Health Care Coverage, FSAs, HRAs, HSAs - Employees may contribute to their health care on a pre-tax basis for themselves and their spouses and dependents. Additionally, employers generally may provide coverage to employees and their spouses and dependents on a tax-free basis.
- COBRA Continuation Coverage - COBRA-mandated health care continuation coverage is available in the event of a qualifying event that results in a loss of coverage for a spouse (including through divorce).
- HIPAA Special Enrollment Rights - Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), employees covered by their employer’s group health plan must be given a special enrollment right to add a spouse if they marry during the coverage period.
- FMLA - Under the Family and Medical Leave Act (FMLA), employees can take up to 12 weeks (or 26 weeks, in specific circumstances) of unpaid leave of absence without the loss of their job to take care of certain family members, including spouses.
- Dependent Care Assistance - Employer-provided dependent care assistance enjoys pre-tax treatment if used to pay for qualifying dependent care assistance expenses of dependants and spouses.
Historically, the favorable tax treatment, coverage, special enrollment rights and other protections described above were only available to opposite-sex spouses. Under the Supreme Court’s ruling, these protections will be available to same-sex spouses.
- Qualified Joint and Survivor Annuities and Qualified Preretirement Survivor Annuities - Certain types of retirement plans must provide death benefit coverage to a participant’s spouse in the form of a survivor annuity.
- Payment of Defined Contribution Account Balances at Death - Certain types of defined contribution retirement plans must provide that, absent spousal consent, the account balance of a married participant will be paid to the surviving spouse at death.
- Spousal Rollover Rights - Under current law, a participant’s surviving spouse may roll over distributions from the participant’s qualified plan to an IRA or another qualified employer plan.
- Qualified Domestic Relations Orders (QDROs) - A participant’s retirement plan benefits may be required to be paid to a former spouse incident to a court ordered QDRO.
- Age 70½ Required Minimum Distributions - Under current law, in some cases, a surviving spouse may defer required minimum distributions from a qualified retirement plan for a longer period, following the death of the participant, than a non-spouse beneficiary.
- 415(b) Limits - Under current law, the value of a subsidized qualified joint and survivor annuity is not taken into account in determining the maximum benefit that may be accrued under Internal Revenue Code Section 415(b) if the survivor benefit is paid to the participant’s spouse.
- Hardship Withdrawals - Under current law, certain 401(k) plans condition the availability of a hardship withdrawal on the consent of a spouse.
Under the Supreme Court’s ruling, the protections discussed above will apply to same-sex spouses.
This ruling represents a sea change to the administration of retirement and health and welfare plans and will change the way in which many employers administer FMLA leave. There are many other aspects of employee benefits that will likely need to be addressed based on the Supreme Court’s ruling.