The Supreme Court ruled on two cases involving same sex marriage. In the first case, Hollingsworth v. Perry, the Court declined to rule on the merits of California’s “Proposition 8” banning same sex marriage. By doing so, the Court let stand a lower court decision striking down California’s ban on same sex marriage.
In the second case, U.S. v. Windsor, the Court struck down Section 3 of the Defense of Marriage Act (DOMA), which limited the definition of marriage under the Internal Revenue Code, ERISA, and other federal laws to a marriage between spouses of the opposite sex. The Supreme Court’s decision does not require that states approve same sex marriage. Rather, it provides that the federal law will recognize same sex marriages entered into in states that have approved same sex marriage, such as Connecticut.
This case will affect the administration of employee benefit and retirement plans, and will require amendments to such plans in many instances.
Before the U.S. v. Windsor case, same sex spouses did not receive all the protections and benefits of ERISA and the Internal Revenue Code. These federal laws apply to various employee benefit plans such as qualified retirement plans, including 401(k) Plans. The Supreme Court’s ruling now extends these protections to valid same sex marriages. Here are some examples:
Example: A 401(k) plan generally provides that any death benefit must be paid to a spouse, unless the spouse consents to another named beneficiary. Spouse for this purpose will now include same sex spouses in states, like Connecticut, that recognize same sex marriages.
Example: Federal law has provided a mechanism whereby former spouses can share in 401(k) and/or pension benefits upon divorce. This is accomplished through a process involving Qualified Domestic Relations Orders (QDROs). Same sex spouses who divorce will now be able to use this process.
Example: Health plans that have covered same sex spouses have been required to impute the value of the spouse coverage to the employee because the Internal Revenue Code did not recognize a same sex spouse. In states like Connecticut, this taxation of the value of coverage to the employee will no longer be required.
The IRS has announced that it will issue guidance on how the Supreme Court case will be interpreted and is expected to provide guidance on the effective date of these changes.
A key unanswered question is what happens when a same sex couple married in a state that recognizes such marriages moves to a state that does not recognize such marriages. The section of DOMA which allows states to not recognize same sex marriages from other states was not overturned.
Employers should review how their various plans and policies treat spouses. We will continue to provide updates on whether and when amendments to those plans or policies might be required.
Click here to register for the Labor & Employment Law Seminar concerning ACA and DOMA.