On June 26, 2013, the United States Supreme Court issued a decision in the case of Windsor v. United States holding the Federal Defense of Marriage Act (“DOMA”) unconstitutional. This decision will have implications for employee benefit plans and, specifically, benefit plans governed by the Employee Retirement Income Security Act of 1974 (“ERISA”). The extent to which Texas employers and employees will be impacted is yet to be seen, but this article addresses what is currently known and outlines certain areas which we should all monitor for further developments.
While the ruling in Windsor v. United States will have a significant impact upon the administration of ERISA benefit plans in states that recognize same-sex marriages (there are currently twelve such states), it is unclear at this time what impact the ruling will have on states that do not recognize same-sex marriages. Texas does not recognize same-sex marriages – the Texas Defense of Marriage Act, signed by Governor Perry in 2003, mirrors DOMA and stipulates that Texas does not recognize a marriage or civil union between persons of the same sex, regardless of the jurisdiction in which it is created. Further, the Texas Constitution defines marriage as a union between a man and a woman.
In the twelve states that do currently recognize same-sex marriages, the Windsor decision requires employers to extend federal benefits and protections to same-sex spouses that were previously offered only to opposite-sex spouses. Note, however, that we are only talking about “marriage” here – i.e., the decision does not apply to same-sex couples who have entered into civil unions or domestic partnerships.
Employers in states that recognize same-sex marriage will need to update their administrative procedures to address certain benefits issues that only previously arose in the context of opposite-sex marriages. Here are a few of the issues that will likely arise:
- Tax treatment of health coverage: the cost of a same-sex spouse’s benefits has heretofore been treated as imputed income for federal income tax purposes. Now, in states that recognize same-sex marriages, employees will no longer be required to pay federal income taxes on the cost of same-sex spouse health coverage.
- Health insurance: in states where same-sex marriages are recognized, group medical plans that offer spousal coverage will need to extend coverage availability to same-sex spouses.
- COBRA continuation practices: the separation of an employee and his/her spouse is a qualifying event that entitles the former spouse to COBRA continuation rights. Now, in states that recognize same-sex marriages, a same-sex spouse’s separation from an employee will entitle the former spouse to elect COBRA coverage.
- Section 125 Cafeteria Plans: entering into or terminating a marriage is a qualifying event that entitles an employee to make a mid-year election change under the employer’s section 125 cafeteria plan (e.g., to add or drop the spouse/former spouse from benefits). Now, in states that recognize same-sex marriages, entering into or terminating a same-sex marriage will create the same mid-year election rights for employees.
- Surviving spouse annuities and death benefits under retirement plans: in states that recognize same-sex marriages, same-sex spouses will now be eligible to receive surviving spouse annuities or death benefits under retirement plans.
- Spousal consents to 401(k) plan beneficiary designations: many 401(k) plans require spousal consent to the designation of a beneficiary other than a spouse (e.g., if an employee wants to name a charity or his/her best friend as the beneficiary of his/her 401(k) benefits, the employee must first obtain the written consent of his/her spouse). Now, in states that recognize same-sex marriages, this same spousal consent must be obtained from the same-sex spouse.
There are many unanswered questions that arise after the Windsor decision. For Texas employers, a key question is what will happen if an employee enters into a same-sex marriage in a state that recognizes same-sex marriages and then moves to Texas to work. Will that employee be afforded federal benefits and protections? At this time, the answer is simply unknown. But, Texas employers should bare the above listed issues in mind since they may become relevant in Texas, particularly with respect to workers who move to Texas from states that do recognize same-sex marriages.
Thanks to Looper Reed Associate Jason Luter for preparing this entry.