Though the U.S. Supreme Court has settled the Constitutional issue of same-sex marriage, employee benefits managers and attorneys can look forward to a lengthy period of implementation and adaptation. Some of the implications are already clear; others will be years in taking shape. Here are a few of the key points to consider.
Marital status matters a lot when it comes to employer-provided benefits. Spouses get special status by operation of law and by benefit plan design. So it’s no surprise that those of us in the world of employee benefits have been watching SCOTUSblog posts regularly for the past few years, not only for updates on whether ACA lives or dies,1 but also to see how we define marriage. In 2013 we got United States v. Windsor,2 which struck down Section 3 of the Defense of Marriage Act, a federal statute defining marriage as exclusively “the legal union between one man and one woman as husband and wife” for purposes of interpreting federal law.3 That left room for confusion around how a couple legally married in one state would be treated in a state where the marriage was not accepted or maybe even banned.4 This summer the U.S. Supreme Court ended the confusion with a sweeping decision holding that same-sex marriage is guaranteed by the 14th amendment of the U.S. Constitution. Here is Justice Kennedy writing for the majority:
In forming a marital union, two people become something greater than once they were. As some of the petitioners in these cases demonstrate, marriage embodies a love that may endure even past death. It would misunderstand these men and women to say they disrespect the idea of marriage. Their plea is that they do respect it, respect it so deeply that they seek to find its fulfillment for themselves. Their hope is not to be condemned to live in loneliness, excluded from one of civilization’s oldest institutions. They ask for equal dignity in the eyes of the law. The Constitution grants them that right.5
Before moving forward, let’s start with a short history lesson to show the breathtaking pace of change we’ve seen here, with Minnesota having some notable contributions.
- 1972: U.S. Supreme Court refuses to reconsider Baker v. Nelson,6 a case decided by the Minnesota Supreme Court holding that a law to limit marriage to persons of the opposite sex did not violate the U.S. Constitution.7
- 1996: President Clinton signs the Defense of Marriage Act.8
- 2004: Same-sex marriage is made legal in Massachusetts.9
- 2004-2012: Thirty-two states, including California, act to ban same-sex marriage.10
- 2012: Proposed constitutional ban on same-sex marriage defeated in Minnesota.11
- 2013: Same-sex marriage recognized in Minnesota.12
- 2013: U.S. Supreme Court strikes down DOMA’s definition of marriage for federal law as limited to the union of one man and one woman.13
- 2015: U.S. Supreme Court holds that same-sex marriage is guaranteed by the 14th Amendment to the Constitution.14
Windsor was followed by a brief but confusing interregnum where someone married in a state such as Massachusetts was a spouse for state and federal purposes in Massachusetts but not so much if they moved to Mississippi, which constitutionally banned same-sex marriage.15 The federal agencies did a pretty good job of clarifying confusion at the federal level by essentially saying a marriage in Massachusetts would be recognized as a marriage in Mississippi for purposes of federal law.16 And now with Obergefell we have, in theory, the same result in all of the states. There are clearly some transition issues to pick through, at least for 2015.17 We were hoping for some nuts and bolts guidance from many of the states, but so far 2015 has been largely about the political responses to Obergefell.18 The pace of that transition is picking up a bit with recently proposed regulations from the Internal Revenue Service telling us that all references to “husband and wife” in the Tax Code should be read to include same-sex couples whose marriage is valid in any state.19 But there is much more to be done.
How Spousal Status Matters
Before moving to some predictions and hopes for the future, let’s give some context around how spousal status affects some employer-provided benefits. These examples give a sense of the depth to which marriage matters in our society, not just for the reasons Justice Kennedy recites in his opinion for the majority, but also in many other aspects of our lives, including the way we receive benefits from employers.
- Employer-provided health care is a very valuable benefit that isn’t taxed as compensation. The additional cost of spousal or family coverage is tax-free too. Prior to Windsor and Obergefell (with some painful complexities in between), the value of any employer-provided health coverage to a same-sex spouse was included in the employee’s taxable income.
- Amounts held in cafeteria plan spending accounts, Health Savings Accounts, and Health Reimbursement Accounts may all be used for employees’ spouses, but not for their domestic partners.
- Spouses get special tax treatment for death benefits paid from qualified retirement plans.
- Employer discounts (a topic near and dear to employees at companies like Best Buy, Target and Delta Airlines) yield no taxable income for employees or their spouses.
- The death benefit under a 401(k) plan is presumptively paid to a spouse. This can only be changed by spousal consent.
- Most annuity distributions from qualified retirement plans are likewise paid out as “qualified joint and survivor annuities,” with the spouse as the presumptive joint annuitant—again, unless this is changed after spouse consent.
- Retirement plans often constitute one of a family’s largest assets, so ERISA also includes procedures that allow a spouse to claim part of an employee’s retirement benefit in connection with divorce or legal separation.
- The Family and Medical Leave Act grants a worker 12 workweeks of leave to care for a spouse. Many state acts follow.
- COBRA continuation rules protect spouses as well as employees.
- Interestingly, the Affordable Care Act requires that employers offer “minimum essential coverage” to full-time employees and their dependents, but not their spouses.
Windsor laid the groundwork for lots of change in the employee benefits world. It was, however, statutory and specific. Obergefell was constitutional and broad. It changed the landscape forever. Here are some predictions for what might come next.
What Lies Ahead?
Employer-provided health care will change.
Employer-provided health insurance has been a cornerstone of the health care system in the United States since the end of World War II.20 ACA and Obergefell will both have an impact on the face of employer-provided health care in the years to come. Here are some thoughts.
- Employers will stop providing domestic partner coverage. During the early 1990s employers started to open their health plans to domestic partners. This was largely a matter of access to coverage. Interestingly, the take-up for “domestic partner coverage” was more popular among opposite sex domestic partners than same-sex domestic partners.21 Offering coverage to domestic partners has been an administrative burden on multiple levels.22 ACA and Obergefell have changed the landscape. Coverage is more readily available on the exchanges, and same-sex couples who are married now have access to employer sponsored coverage on the same terms as opposite-sex couples—and without the administrative burden of imputed income. We expect that employers will use this as an opportunity to start closing their doors to domestic partner coverage. The federal and state governments appear to be leading the way on this one.23
- Self-funded health plans will be touted by some as a response to Obergefell. It won’t work. Some have claimed that insured plans must change their rules to cover same-sex spouses, while self-funded plans may continue to exclude them because state discrimination law is preempted by ERISA. We think this is misguided. Yes, ERISA preemption is strong. But it may not be strong enough to protect against state law discrimination claims, and there are plenty of plaintiffs’ lawyers ready to take on this issue under Title VII of the Civil Rights Act.
- Some employers will consider dropping spousal coverage. ACA imposes penalties on large employers that don’t offer coverage to employees and their dependents. It doesn’t require offers of coverage to spouses. If an employer offers coverage to spouses, Obergefell means that the offer must extend to same-sex spouses. No clever arguments around state or federal discrimination laws will prevent this result. Some employers who are opposed to offering coverage to same-sex spouses may drop offers of spousal coverage altogether.
- 2015 W-2s will be confusing for some. Obergefell was decided in June. At the federal level, same-sex marriage was already accepted for tax purposes even if the couple was married in a state respecting same-sex marriage and living in a state that prohibited same-sex marriage.24 But some states have been slow to revise withholding rules and provide guidance to employers.25
Retirement plans will get some scrutiny.
Thanks to Geraldine Ferraro and others who sponsored the Retirement Equity Act of 1984,26 spouses have significant rights in a worker’s retirement plan. That includes the ability to divide a 401(k) or pension benefit during divorce27 and, in some cases, the requirement that spouses provide their consent before a worker takes a distribution from those plans.28 Wal-Mart has already been sued for retroactive health benefits dating back to 2009.29 And the U.S. Department of Veterans Affairs has issued guidance around certain retroactive claims for benefits based on a marriage that was valid at the time of the claim.30 We won’t be surprised to see more claims for retroactive benefits in the retirement plan area.31
Discrimination laws will be tested at the state and federal level.
It’s beyond the scope of this writing, but we expect that state and federal nondiscrimination laws will be tested in the years to come. Obergefell was about state action and marriage. The EEOC has issued an opinion concluding that Title VII of the Civil Rights Act prohibits employment discrimination based on sexual orientation,32 but there are circuit court opinions holding to the contrary.33 We expect to see litigation in this space, around both benefits and workplace practices.
Employers will grapple with some challenging questions on topics such as how to identify married employees and whether to allow retroactive changes in certain benefits. Employees have some work ahead as well. That might include updating estate and financial plans to reflect changed family status, as well as deciding whether to get married. We can’t provide advice on that last piece.
The authors wish to thank Dorsey & Whitney associates Lindsay Docto, Peter Mayer, and David Green for their assistance in the preparation of this article.
BOB SENG is an employee benefits lawyer and Partner with Dorsey & Whitney. Prior to his return to Dorsey in 2015, Bob was an assistant general counsel for pay & benefits with Target. He has been following developments in the domestic partner and same-sex benefits area for a number of years.
HOLLY FISTLER is an associate in the Benefits and Compensation group at Dorsey & Whitney. A 2008 graduate of the University of St. Thomas School of Law, her practice focuses on both health and welfare benefits and qualified retirement plans.
1 For a discussion of ACA after King v. Burwell we suggest you take a look at Bench & Bar Volume LXXII, Number VII (August 2015).
2 570 U.S. ___, 133 S. Ct. 2675 (2013).
3 See Defense of Marriage Act (DOMA), Pub. L. No. 104-199, §§2-3, 110 Stat. 2419 (1996).
4 See, e.g., Ark. Const. amend. 83, art. XIII, §15. Like many states, Arkansas has seen its share of
The ban on same-sex marriage was added to the Arkansas Constitution in 2004 and struck down in the state courts in 2014. See John Lyon, “Update: Judge Strikes Down Arkansas’ Same-Sex Marriage Ban,” Arkansas News, 5/9/2015, http://arkansasnews.com/news/arkansas/update-judge-strikes-down-arkansas-same-sex-marriage-ban.
5 Obergefell, 576 U.S. ___, 135 S. Ct. 1732 (2015).
6 291 Minn. 310, 191 N.W.2d 185 (1971).
7 The case was appealed to the United States Supreme Court and in 1972 the Court declined to hear the appeal for “lack of a substantial federal question.” Baker v. Nelson, 409 U.S. 810 (1972). The 6th Circuit relied on Baker in refusing to consider challenges to state marriage bans in Kentucky, Michigan, Ohio and Tennessee. See DeBoer v. Snyder, 772 F.3d 388 (6th Cir. 2014). Jack Baker and Michael McConnell were the subject of a story in the StarTribune following the Obergefell decision. See Jenna Ross, “43 Years Later, Minneapolis Couple’s Fight for Marriage Vindicated,” StarTribune, 7/5/2015, http://www.startribune.com/43-years-later-fight-for-marriage-vindicated/311653191/
8 See DOMA §3, supra note 3.
9 See Pam Belluck, “Massachusetts Arrives at Moment for Same-Sex Marriage,” N.Y. Times, 5/17/2004, http://www.nytimes.com/2004/05/17/us/massachusetts-arrives-at-moment-for-same-sex-marriage.html?pagewanted=all.
10 See generally Molly Ball, “A Coming Wave of Gay Marriage Electoral Victories?”, Atlantic Magazine, 8/7/2012. There are a number of excellent timelines giving a more comprehensive look at developments. See, e.g., History and Timeline of the Freedom to Marry in the United States, Freedom to Marry (June 26, 2015), http://www.freedomtomarry.org/pages/history-and-timeline-of-marriage for a clickable history and timeline of the right to marry in the United States; Richard Wolf, “Timeline: Same-Sex Marriage through the Years,” USA Today, (6/26/2015), http://www.usatoday.com/story/news/politics/2015/06/24/same-sex-marriage-timeline/29173703/
11 Minnesota’s vote marked the end of a trend of such ballot proposals passing in other states. See Madeleine Baran, Sasha Aslanian & Curtis Gilbert, “Minnesota Voters Reject Marriage Amendment,” MPR News (11/7/2012), http://www.mprnews.org/story/2012/11/06/politics/elex-night-marriage-amendment
12 Resources on Minnesota Issues: Same-Sex Marriage in Minnesota, Minnesota Legislative Reference Library (updated Oct. 2015), http://www.leg.state.mn.us/lrl/issues/issues?issue=gay.
13 Windsor, 570 U.S. ___, 133 S. Ct. 2675 (2013).
14 Obergefell, 576 U.S. ___, 135 S. Ct. 1732 (2015).
15 See Miss. Const. art. XIV, §263-A (“Marriage may take place and may be valid under the laws of this State only between a man and a woman. A marriage in another State or foreign jurisdiction between persons of the same gender, regardless of when the marriage took place, may not be recognized in this State and is void and unenforceable under the laws of this State.”); see also Kim Dixon, “Gay Marriage Ruling Boosts Benefits, but Confusion Expected,” Reuters (6/26/2013), http://www.reuters.com/article/2013/06/26/us-usa-court-gaymarriage-benefits-idUSBRE95P1FX20130626#3oQFeqyDh8cRmcsO.97
16 See, e.g., D.O.L. Tech. Release 2013-04, Guidance to Employee Benefit Plans on the Definition of ‘Spouse’ and ‘Marriage’ under ERISA and the Supreme Court’s Decision in United States v. Windsor (Sept. 18, 2013), http://www.dol.gov/ebsa/newsroom/tr13-04.html H.H.S., HIPAA and Same-Sex Marriage: Understanding Spouse, Family Member, and Marriage in the Privacy Rule (Sept. 2014), http://www.hhs.gov/ocr/privacy/hipaa/understanding/special/samesexmarriage/hhs-windsorhipaaguidance.pdf; Rev. Rul. 13-17, 2013-38 I.R.B. 201, 203.
17 For example, the Supreme Court’s decision was issued on 6/26/2015. Does that mean that, under an employer-sponsored health plan in a state that prohibited same-sex marriage, coverage for a same-sex spouse would result in no state income tax for the entire year or just a portion of the year? When was the employer required to change its withholding? Granted, these are relatively minor details, but someone has to make decisions on issues like this.
18 The political responses have come largely in the form of religious freedom legislation. Religious freedom legislation has appeared from both sides of the political spectrum over the years. In 1993 President Clinton signed the Religious Freedom Restoration Act, which provides the federal government may pass laws substantially burdening a person’s exercise of religion only if it demonstrates that application of the burden to the person “…is in furtherance of a compelling governmental interest and is the least restrictive means of furthering that compelling interest.” Religious Freedom Restoration Act of 1993, 42 U.S.C. §2000bb (2012). Original sponsors for the Religious Freedom Restoration Act included some familiar names on the left like Pelosi, Kennedy and Schumer as well as the right such as Gingrich and Hatch. Department of Justice, Justice Management Division, Religious Freedom Restoration Act of 1993, http://www.justice.gov/jmd/religious-freedom-restoration-act-1993-pl-103-141#bills. The religious freedom legislation coming out of Obergefell tends to be coming from the right. See, e.g., Religious Freedom Restoration Act, Arkansas SB975, http://www.arkleg.state.ar.us/assembly/2015/2015R/Bills/SB975.pdf, (to amend Arkansas law concerning the free exercise of religion; to enact the religious freedom restoration act; and to declare an emergency). For an excellent summary of state legislative responses to Obergefell, see Jackie Beran, State Legislative Responses to Obergefell v. Hodges, BallotPedia (Jul. 6, 2015) http://ballotpedia.org/State_legislative_responses_to_Obergefell_v._Hodges
19 The IRS appears to have saved itself some time by proposing that all references to “husband and wife” in the Tax Code regulations be read to refer to two individuals lawfully married to each other if the marriage would be recognized by any state, possession, or territory of the United States. We expect that references to “husband” and “wife” will linger in the statute and regulation for many years to come. See Federal Register Definition of Terms Relating to Marital Status, 80 Fed. Reg. 64378 (proposed 10/23/2015) https://www.federalregister.gov/articles/2015/10/23/2015-26890/definition-of-terms-relating-to-marital-status
20 Employer-sponsored health coverage currently covers about 149 million individuals. Employer-Sponsored Coverage, America’s Health Insurance Plans, https://www.ahip.org/Issues/Employer-Sponsored-Coverage.aspx. This is thanks, in part, to rules following World War II where the value of employer-provided health care was exempt from limits on wage freeze rules and exclusions under the Internal Revenue Code for employer-provided health care. History of Health Insurance Benefits, Employee Benefit Research Institute (Mar. 2002) http://www.ebri.org/publications/facts/index.cfm?fa=0302fact
21 One study of large employer offerings by Hewitt Associates found that in 1994, 67% of couples electing employer-sponsored domestic partner coverage were opposite-sex couples. Domestic Partner Benefits: Facts and Background, Employee Benefit Research Institute (Mar. 2004), http://www.ebri.org/pdf/publications/facts/0304fact.pdf
22 Those challenges have included questions around how to define and whether to require proof of a domestic partner relationship. There has also been the challenge of calculating and properly reporting imputed income for domestic partner relationships, not to mention issues of tax-dependent status for children and related granular but necessary questions.
23 Rebecca Beitsch, After Same Sex Marriage Ruling, States Reconsider Domestic Partner Benefits, The PEW Charitable Trusts (9/11/2015), http://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2015/09/11/after-same-sex-marriage-ruling-states-reconsider-domestic-partner-benefits; Office of Personnel Mgmt., No. 13-203, Benefits Administration Letter: Coverage of Same-Sex Spouses (2013), https://www.opm.gov/retirement-services/publications-forms/benefits-administration-letters/2013/13-203.pdf (ending same-sex domestic partner health coverage to federal employees in light of Windsor ruling).
24 See I.R.S. Rev. Rul. 2013-17, https://www.irs.gov/pub/irs-drop/rr-13-17.pdf
25 See Jackie Beran, State Legislative Responses to Obergefell v. Hodges, BallotPedia (7/6/2015) http://ballotpedia.org/State_legislative_responses_to_Obergefell_v._Hodges
26 Retirement Equity Act of 1984, Pub. L. No. 98–397, 98 Stat 1426; see also Charles Delafuente, “Spouse’s Consent is Required to Change Retirement Account Beneficiary,” N.Y. Times, 9/11/2012, http://www.nytimes.com/2012/09/12/business/retirementspecial/spouses-consent-is-required-to-change-retirement-account-beneficiary.html?_r=0.
27 Internal Revenue Service: Retirement Topics – QDRO – Qualified Domestic Relations Order, https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-QDRO-Qualified-Domestic-Relations-Order
28 Retirement Equity Act of 1984, Pub. L. No. 98–397, 98 Stat 1426.
29 Gay & Lesbian Advocates & Defenders, Cases: Cote v. Walmart, http://www.glad.org/work/cases/cote-v-walmart
30 Dep’t of Veterans Affairs, Important Information on Marriage, http://www.va.gov/opa/marriage/
31 Here’s one example. Assume a retired employee is collecting a single life annuity from his defined benefit plan. The benefit commenced in 2012, before Windsor and before Obergefell. The employee married his spouse in Massachusetts in 2005. The employee is in poor health and will likely not live long. His annuity payments will end at death. Does the employer have any obligation to offer a new election (for an annuity with a spousal death benefit) to the retiree? Is the issue any easier if there is an offset to reflect payments already made to the retiree to reflect the larger amount that would be payable under the single life annuity vs. the annuity with a death benefit? Following Windsor the IRS indicated that such retroactive offers would not violate the retirement plan’s tax status. See I.R.S. Notice 2014-19, https://www.irs.gov/irb/2014-17_IRB/ar06.html. The IRS’ opinion doesn’t control under ERISA or Civil Rights laws.
32 Complainant v. Foxx, EEOC DOC 0120133080, 2015 WL 4397641, 2015 EEOPUB LEXIS 1905, (J7/16/2015).
33 See Emma Green, “Gay Rights May Come at the Cost of Religious Freedom,” The Atlantic (7/27/2015), http://www.theatlantic.com/politics/archive/2015/07/legal-rights-lgbt-discrimination-religious-freedom-claims/399278/