DOMA Ruling Raises Benefits Questions For Employers Seeking To Comply With The Law

On June 26, 2013, the U.S. Supreme Court issued a ruling striking down Section 3 of the Defense of Marriage Act (DOMA), which had previously provided that the definition of marriage applied only to the legal union of one man and one woman, and that the definition of spouse referred only to a person of the opposite sex who was a husband or wife (United States v. Windsor, No. 12-307, (US Sup Ct.) June 26, 2013). Employers are now left wondering about the ramifications of the decision on the administration of their employees’ various benefit plans. Questions such as “How will availability or taxation of benefits for health savings accounts (HSAs) and flexible spending accounts (FSAs) be affected?” and “What changes do we have to make to beneficiary information on our retirement plans?” will have to be answered, especially since the High Court specified that, because Section 2 of the law had not been challenged, it was not addressing DOMA’s provision that a state may refuse to recognize same-sex marriages performed under the laws of another state.

To clarify some of the questions at issue, Wolters Kluwer talked to Scott Macey, president of the ERISA Industry Committee (ERIC), who advised that employers need to “make sure they understand the impact of the Supreme Court’s decision.” It would be a good idea for employers to talk to their legal counsel, he said, to identify what changes to their plans seem to be required in light of the decision, when those changes need to be made, whether or not there are questions employers currently have no answer to, and how they might obtain those answers. The assortment of issues is still murky, he said.

Retroactive? When asked if the effect of the decision was likely to be retroactive for tax purposes, Macey responded that it was still unclear what the tax situation would be, going forward, in a state that does not recognize same-sex marriages if an employee covers a same-sex spouse under an employer’s health plan. Additionally, if a couple has been paying taxes on the spouse’s health insurance benefits, and requests a refund for the last three years of those taxes, does the law apply retroactively, and would the employee and spouse be entitled to a refund? Macey surmised that, since the Supreme Court has essentially said that Sec. 3 of DOMA has been unconstitutional all along, from a strictly legal standpoint, a refund would be in order.

It also is unclear what would happen in the following scenario: if one member of a same-sex couple has a defined benefit retirement plan through work, would the couple be immediately eligible for joint and survivor annuity coverage, so that another form of distribution could not be made absent the same-sex spouse’s consent? What would happen if a distribution to a non-spouse had already taken place, and the surviving same-sex spouse makes a claim? The same dilemma arises in instances of death distributions under 401(k) plans, he said.

FMLA and COBRA issues. There appears to be some disagreement among experts with regard to the impact of the ruling on such federal laws as COBRA. Its effect on the FMLA seems a bit clearer, since FMLA regulations generally defer to state law with regard to what constitutes “spouse.” Before the court’s decision, even employers in states that recognized same-sex marriage could, because of DOMA’s definition of spouse, deny FMLA leave to a same-sex couple lawfully married in that state, unless the state had adopted broader leave policies. Now, the FMLA’s 12 weeks of job-protected leave presumably apply, but only for employees who reside in states that recognize same-sex marriage.

With regard to COBRA, however, Macey cited as an example, a same-sex couple who are legally married in one state, then move to a state that does not recognize same-sex marriages. Would they then lose federal recognition of that marriage for COBRA purposes, since insured health benefits are covered under state insurance law, and COBRA looks to state law to determine coverage issues? One would think, said Macey, that the federal government will come up with a rule stating that, once a same-sex couple is validly married in a state that recognizes such marriages, the federal government, for COBRA or other purposes, would continue to recognize the marriage, regardless of the state the couple resides in.

Guidance is needed. Macey said that guidance is necessary for employers to know how to proceed. This could take the form of some kind of pronouncement from the White House, which Macey thought is possible, given the current administration’s stated support for same-sex couples, or published issuances from various government agencies. Macey said that feedback he has received from ERIC members, primarily large employers, is that they are mostly interested in clarification and consistency, and want to know what their obligations are.

There is the chance that if the Obama Administration issues clarification, and states that the Supreme Court’s ruling means that a same-sex marriage validly performed in one state is valid for all federal law purposes regardless of the state of residence, this could result in assorted lawsuits from individuals or owners of small businesses who are against same-sex marriage. Some experts have theorized that certain smaller employers, especially those adverse to same-sex marriage on religious grounds, may very well file suit seeking relief from any federal requirement to provide same-sex spouses with benefits.

State exchanges. Macey thought that the Supreme Court’s decision could have some impact on coverage pricing in the state exchanges, for which open enrollment is starting this fall. Certainly, he said, exchanges being run by the federal government would be expected to recognize same-sex couples as married. States that do not recognize same-sex marriage, and that are running their own exchanges, however, might not. How state-federal partnership exchanges would handle the matter is still, apparently, up in the air.

Macey has also stated that, “…among the issues that will need to be addressed further include how quickly plans will need to act as a result of the Court’s decisions and the best methods for implementing these changes,” adding that, “ERIC is concerned about the ability of companies that operate nationwide to administer their plans in a uniform manner. The Employee Retirement Income Security Act of 1974 was structured to allow employers of all sizes to maintain and offer health and retirement benefits under a single set of rules regardless of where they do business or how many states their employees and retirees reside in. Some possible uncertainties left by the Court’s decisions could adversely impact the administration of employer-sponsored benefit plans if it results in having to comply with overlapping and inconsistent state laws.”

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