The U.S. Supreme Court’s decision in U.S. vs. Windsor to strike down DOMA (the Defense of Marriage Act) frees employers from a number of financial and administrative burdens, but it raises other issues for employers on how to navigate the patchwork of state laws regarding same-sex couples.
The high court struck down Section 3 of DOMA, which had barred federal recognition of same-sex marriages. The majority ruled that DOMA violated the U.S. Constitution’s equal protection clause by singling out a class of persons entitled to marry under state law. Same-sex couples legally wed under state law now must be treated as spouses under the U.S. tax code, ERISA (Employment Retirement Income Security Act) and more than 1,000 other federal laws.
In the aftermath of the high court’s decision, employers will need to amend their benefit plan documents and practices to provide equal treatment of same-sex and opposite-sex spouses, at least with respect to those employees who live in states that allow for or recognize same-sex marriage. (Employers had sometimes provided tax-equalization or “gross-ups” to reimburse the covered employee for taxes on health benefits provided to same-sex couples. Such agreements shouldn’t be necessary going forward.)
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Here’s a rundown of some of the changes that are expected (at least in the states that allow gay marriage):
- Employers will no longer be required to impute as additional income to an employee the value of employer-paid health care provided to an employee’s same-sex spouse, and employers will no longer be subject to the corresponding payroll tax costs associated with that income.
- Employers will have to reprogram payroll systems that currently withhold income tax and withhold and pay FICA tax, with respect to the health coverage provided to same-sex spouses. Other steps may involve filing refund claims for taxes paid on the value of same-sex spouses’ health care coverage.
- An employee will be entitled to take FMLA (Family and Medical Leave Act) leave in order to care for a same-sex spouse, assuming all other requirements to take FMLA leave are satisfied.
- Retirement, pension plan and survivor benefits will be required to be provided to same-sex spouses. In addition, a same-sex spouse will have a right to receive various notices of spouses’ rights, and an employee will have to get the spouse’s written consent to name a nonspouse beneficiary.
- Employees will be able to get reimbursement from health flexible spending accounts and health reimbursement accounts for medical expenses of same-sex spouses.
- Same-sex spouses will be eligible for tax-free employer health benefits.
- Same-sex spouses will generally be eligible for federal COBRA coverage.
Gay couples can marry in Conn., Del. (starting July 1), D.C., Iowa, Maine, Md., Mass., Minn. (Aug. 1), N.H., N.Y., Vt., Wash., and R.I. (Aug. 1). As a result of another Supreme Court decision (Hollingsworth vs. Perry), gay couples in California will be able to marry there soon.
The big unknown? How the law will be applied across state borders. For example, if an employee is married in Maryland, where same-sex marriage is allowed, but works in Virginia, where it is not recognized, which state’s marriage laws will come into play when applying federal law? What happens when an employee who is married and works in a state that allows same-sex marriage gets transferred to a state that doesn’t recognize that marriage? A provision of DOMA that was not overturned does not require the states that don’t allow same-sex marriage to recognize marriages from other states that do. “Some possible uncertainties left by the Court’s decisions could adversely impact the administration of employer-sponsored benefits plans, if it results in having to comply with overlapping and inconsistent state laws,” says Scott Macey, president of the ERISA Industry Committee that represents large employers.
Another uncertainty is whether the decision is retroactive, and what it applies to -- tax refunds? Benefits under a pension plan? Guidance on these issues will likely come from the Obama Administration, but it’s unclear how long that will take, says Catherine Stamm, of Mercer, a consulting firm. Employers are hoping that guidance will come in the next few weeks. It’s also not clear how quickly employer plans will need to be amended as a result of the Court’s decisions.
More legal challenges are a sure bet, especially among some small to medium-size employers in the states that have legalized gay marriage. “The big employers tend to stay away from social issues, but some smaller employers may balk,” says Macey. “I would expect the same ones who are challenging the contraceptive mandate [in the Affordable Care Act] to be opposed to offering same-sex benefits.”
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