It’s been over 2 years since the U.S. Supreme Court effectively legalized same-sex marriage in the case of U.S. v. Windsor and a year since the Court’s decision in Obergefell v. Hodges, required states to issue marriage licenses for same-sex marriages and to recognize a same-sex marriage performed in another state. So, everything is resolved, right?
By Susan Schoenfeld, JD, Senior Legal Editor
Not so fast, says Todd Solomon, a partner at McDermott, Will & Emery, speaking at the Society for Human Resource Management’s (SHRM’s) 2016 Employment Law & Legislative Conference recently held in Washington, D.C. Issues still exist for HR professionals administering benefit plans for same-sex couples. Namely, issues arise in the benefits areas for:
- Retirement benefits;
- Health and welfare plans;
- Taxation of benefits;
- Transgender benefits; and
- Unmarried partner benefits.
Although the concept and legality of same-sex marriage is universally understood, benefits issues have continued to confound human resources professionals, says Solomon.
In the retirement benefits arena, there are several areas implicated by the change in same-sex marriage laws, notes Solomon. With regard to retroactive survivor benefits, benefits administrators should be aware that defined benefit plans generally must offer participants payment in the form of a qualified joint and survivor annuity (QJSA) with preretirement spousal death benefit (QPSA) coverage.
In addition, plan sponsors are receiving retroactive benefit claims from participants with a same-sex spouse who was not recognized at the time payments began or from surviving same-sex spouses. In the recent case of Schuett v. Fedex Corporation, the court allowed a same-sex marriage claim for survivor benefits to proceed even though marriage and death occurred pre-Windsor.
Plan amendments are also an area in the retirement benefits arena where issues arise, says Solomon. When the law regarding same-sex marriage changed, amendments were required for plans that defined “marriage” by reference to the Defense of Marriage Act (DOMA) or “spouse” as an individual of the opposite sex.
In addition, retirement plans must be amended if same-sex spouses will be recognized for plan purposes before June 26, 2013 (the date of the Court’s decision in Windsor). Amendments were not required for plans that define “marriage” or “spouse” in a manner that is not inconsistent with Windsor.
However, an amendment may be desirable depending on how retroactive claims will be handled, says Solomon. Although all Windsor amendments generally must have been adopted by December 31, 2014, Solomon suggests that employers consider filing a voluntary correction program (VCP) application if any plan errors are found.
Health and Welfare Plans
For insured plans, Solomon points out that same-sex spouses presumably must have extended spousal benefit coverage under insured medical, dental, or vision plans in states that allow same-sex marriage. However, state law benefit mandates may require coverage to be extended to same-sex unmarried partners, too—a point that is sometimes overlooked by benefits managers.
For self-insured plans, same-sex spouses technically are not required to have extended spousal benefit coverage because federal law does not require spousal welfare benefit coverage and state insurance law mandates do not apply. However, Solomon warns that employers that continue to provide coverage only to opposite-sex spouses face significant risk of legal challenges under federal discrimination law.
Taxation of Benefits
Changes to the rules for federal taxes have also come about in the post-Windsor era, namely employees will no longer pay federal income and employment tax for income imputed on the fair market value of employer-provided benefit coverage for a same-sex spouse (regardless of whether the couple resides in a state where same-sex marriage is legal or recognized). In addition, employees can pay for same-sex spouse’s coverage using pretax contributions under a Section 125 cafeteria plan.
Other changes, Solomon notes, are that employees can take tax-free reimbursements from flexible spending accounts (FSAs), health reimbursement accounts (HRAs), and health savings accounts (HSAs) for same-sex spouses. However, Solomon warns that favorable federal tax treatment will not extend to unmarried same-sex partners unless the partner meets the Internal Revenue Codes’ definition of “dependent.”
State tax issues have also arisen after the change in the legal status of same-sex marriage. Before the U.S. Supreme Court’s decision in Obergefell, in DOMA states that did not recognize same-sex relationships, employers needed to impute income for state tax purposes (as was previously required under federal law) for the fair market value of coverage for a same-sex spouse or partner. Now, employees in these states must pay for the same-sex spouse or partner’s coverage using after-tax (for state purposes) dollars.
In non-DOMA states that recognize same-sex marriages or that have special laws favoring same-sex couples, employees do not pay state income tax on the fair market value of coverage for a same-sex spouse or partner. Employees in these states may be permitted to pay for the same-sex spouse or partner’s coverage using pretax (federal and state) dollars.
Tomorrow, we’ll hear more from Solomon concerning transgender and unmarried partner benefits.