Employers focused on Obamacare may be missing one of todays most important compliance issues: benefits for same-sex married couples. Since June 2013, when the United States Supreme Court ruled in U.S. v. Windsor that a federal statute limiting the terms spouse and marriage to couples of the opposite sex was unconstitutional, a sea-change has taken place in national attitudes about same-sex marriage. That change of attitude and Windsor have resulted in an avalanche of lawsuits challenging state bans on same-sex marriage, and have prompted both the Internal Revenue Service and U.S. Department of Labor to issue advisories warning employers of actions they must take to bring their benefit plans and policies into compliance.
Unfortunately, confusion remains, because the governments advice is sketchy and inconsistent. For example, the Department of Labor says that employers complying with the federal Family and Medical Leave Act must treat validly married same-sex couples as spouses only if the couples live in a state that recognizes same-sex marriage. By contrast, the IRS says that validly married same-sex couples are married and spouses wherever they live. This conflict between the place of residency standard put forth by DOL, and the place of celebration standard required by IRS, highlights the problems facing employers trying to become compliant In the meantime, proponents of same-sex marriage have scored an unbroken string of court victories invalidating state bans on same-sex unions.
Here are some issues for employers to consider:
Profit sharing plans, 401(k)s and pension plans
The IRS has warned employers that to stay compliant with the law, qualified plans such as profit sharing, 401(k) or pension plans must be administered in accordance with Windsor no later than June 26, 2013. This means that for all plan purposes, the terms spouse and married must include those individuals who are validly married in a state that accepts same-sex unions. For example, if a plan requires spousal consent for a loan or designation of a beneficiary other than a spouse, consent must be obtained from same-sex spouses. Spousal joint and survivor benefits must be offered to same-sex spouses, and qualified domestic relations orders now apply to them. Special rollover and minimum distribution rules must also take into account same-sex spouses.
Significantly, if a plan amendment is required to comply with Windsor, the IRS requires that amendment to be effective no later than June 26, 2013, and be in place no later than the later of (i) the end of the plans regular remedial amendment period, or (ii) December 31, 2014.
Welfare benefit plans
The IRS has not yet issued guidance for employers maintaining welfare benefit plans, such as group health, dental and vision plans, life insurance plans, or cafeteria plans. In the absence of guidance, many employers are taking a conservative approach and administering their plans so that validly married same-sex partners are treated as married and spouses for all purposes.
Critically, neither ERISA nor the Affordable Care Act require that same-sex or opposite-sex spouses receive coverage under group health plans. An employer can still exclude spouses from its welfare plans if it so desires.
Nevertheless, employers must allow for same-sex spouse reimbursement under health care flexible spending accounts, health savings accounts, and health reimbursement accounts. And, same-sex spouses participating in group health plans also have COBRA rights and special enrollment rights under HIPAA.
Before Windsor, same-sex spouses could not receive group health benefits pre-tax under federal law, and if group health benefits were provided to same-sex spouses by an employer, the cost of those benefits was imputed income to the employee-spouse. After Windsor, same-sex spouses can receive group health benefits on a pre-tax basis under federal law, and there is no more imputed income. Employers will need to change plan summaries, documents and payroll practices to comply with these new rules.
By contrast, state tax issues are murkier. Most states follow federal law when it comes to tax codes, although the Windsor decision means that there may be a disconnect between federal law and state laws or constitutions banning same-sex marriage. The safest approach for an employer is to contact tax authorities in each state in which it makes payroll to verify that states position. If the state continues to disallow same-sex marriage, health benefits will continue to be post-tax for purposes of state withholding and reporting. Significantly, because many of these state laws have been overturned or are likely to be overturned in the near future, employers should regularly revisit state authorities to determine status.
The IRS has also issued detailed instructions to employers and employees about how to claim refunds or credits for federal taxes on same-sex spousal benefits which were overpaid before the Windsor decision. Interested employers should review IRS Notice 2013-61 with respect to all tax years that remain open.
Family and Medical Leave Act
The Department of Labor has advised employers that same-sex spouses are considered spouses and married for purposes of FMLA only if they are validly married and live in a state that recognizes same-sex marriage. While this sets a minimum level of compliance, employers who wish to take a conservative approach and avoid potential litigation should treat validly married same-sex spouses as married for FMLA purposes regardless of where they live. For employers operating in multiple states, this interpretation avoids different treatment of same-sex spouses in different states, and eliminates the need for employers to keep track of where employees live.
Many employers currently provide benefits for same-sex domestic partners who have never been validly married in a state that recognizes same-sex benefits. Because these individuals are not validly married, the Windsor decision does not apply to them. Accordingly, for employers who wish to continue this practice, federal (and normally, state) tax law has not changed. These benefits are still post-tax and result in imputed income to the employee partner. And domestic partners are not considered spouses or married for FMLA, COBRA, HIPAA or qualified plan purposes.
Bob Christenson is a partner in the Atlanta office of the law firm Fisher & Phillips LLP, and is chair of the firm's employee benefits practice group. He can be reached at firstname.lastname@example.org or 404.240.4256.
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