Monday, February 3, 2014
DOMA'S IMPACT ON EMPLOYEE BENEFITS
On June 26, 2013, in United States v. Windsor, the Supreme Court ruled Section 3 of the Defense of Marriage Act (“DOMA”) unconstitutional. Section 3 of DOMA defined the term “marriage” for purposes of federal law as the legal union between one man and one woman and the word “spouse” for purposes of federal law as referring only to a person of the opposite sex. Consequently, those in same-sex marriages were not eligible for certain federal tax benefits and other protections that were available to those in opposite-sex marriages. Continuing from late August until most recently in December, the IRS and the Department of Labor (“DOL”) have issued ongoing guidance regarding how the agencies would interpret the Internal Revenue Code (“IRC”) and the Employee Retirement Income Security Act of 1974 (“ERISA”) following the Windsor decision. Both agencies adopted a “state of celebration” rule, which means a same-sex couple will be considered married for federal purposes if the couple was married in any jurisdiction (including a foreign country) that recognizes same-sex marriage.
The definitions stipulated in Section 3 of DOMA previously impacted the application of over 1,300 federal laws, including the IRC and ERISA. In order to comply with those federal laws and regulations, employers will now have to review their retirement plan documents, health plan documents, COBRA and Family and Medical Leave Act (“FMLA”) policies, payroll systems, and income tax withholding practices. In addition, states are not required to recognize (and many do not currently recognize) same-sex marriages for state law purposes (e.g., state income taxes). Of course, this discrepancy will complicate the income tax withholding process on a state-by-state basis, and many states that do not recognize same-sex marriages have yet to announce how they will handle this issue.
As the Windsor decision is continuing to be implemented, we are recommending that employers take the following steps:
- From an administrative standpoint, immediately begin treating legally-married same-sex spouses in the same manner as opposite-sex spouses in all qualified retirement plans. Consider doing the same in health and welfare plans for consistency and to avoid the risk of litigation. (Note: If you already cover legally-married same-sex spouses in a group health plan, the spouse is entitled to COBRA, HIPAA special enrollment rights, and pre-tax premium payments if you have a cafeteria plan.)
- To the extent possible, obtain information from participants regarding any same-sex spouses.
- Ascertain which plans may be affected and review plan terms in order to determine what provisions are impacted.
- Make any needed changes to plan documents. Confirm third party administrators and service providers are updating plan documents, policies, and notices as needed.
- Ensure payroll systems are updated to reflect proper tax treatment on both a federal and state level.
We would be happy to help you comply with the Windsor decision and the subsequent guidance; please let us know if we can be of any assistance.
If you have any questions in the meantime about the decision or the interpretative guidance, please contact:
Beth Beaube, Shareholder: 205.254.1082 or firstname.lastname@example.org
James King, Shareholder: 205.254.1181 or email@example.com
Frances Quick, Shareholder: 205.254.1235 or firstname.lastname@example.org
Sarah Dorner, Associate: 205.254.1179 or email@example.com
Jessica Shaver, Associate: 205.254.1237 or firstname.lastname@example.org