Post-DOMA, Employers Face HR Challenges
The U.S. Supreme Court's ruling in United States v. Windsor that overturned Section 3 of the Defense of Marriage Act (DOMA) means that gay and lesbian couples who are legally married can now take advantage of a host of tax breaks, pension rights, and other benefits previously available only to married heterosexual couples.
Ahead of the decision, employers had already been seeking advice as to how they'd be affected if DOMA were to be struck down. Among the benefits areas touched on by Windsor are: open enrollment periods for health plans, continuation of benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA), eligibility for leave under the Family Medical Leave Act, taxation of spousal health benefits, eligibility for spousal retirement benefits, and surviving spousal social security benefits.
And that's just the beginning.
Lisa Berkowitz Herrnson, senior counsel with Proskauer Rose, says, "There are going to be a number of plan document changes, benefit election form changes, and operational changes." Proskauer established a DOMA task force several months ago to analyze its potential impacts and help clients get ready.
Regarding pension plans, most plans currently define marriage according to the restrictions of DOMA. "So every plan is going to have to be amended to reflect a new definition of 'spouse,' " she says.
"The way the decision reads, the law is unconstitutional. So it's as if the law never existed," she notes. "Which means there's the possibility of retroactive benefit claims under pension plans." And widowed same-sex spouses who previously were not able to claim spousal benefits could now be in a position to request death benefits.
In the same vein, Herrnson says employers have to be concerned about the potential for double benefits. Participants who designate someone other than a spouse as a beneficiary need their husband or wife's consent. Until now, she says, that rule didn't apply to same-sex partners. "If an employer paid out a benefit based on a beneficiary designation, the same-sex spouse could now claim that they're owed the [spousal] benefit," too, she says.
The SCOTUS decision leaves intact Section 2 of the law, a provision that says states aren't required to recognize gay marriages performed in any other state. Some states recognize gay marriages performed in other states, but others do not.
"For its purposes, usually the IRS looks at the state of residence," Herrnson says, "but what are you going to do, for example, regarding pension benefits? Do you look at the state of residence at the time of payments? Or when the benefits accrued?"
Previously, employees who received health benefits for same-sex spouses paid taxes on the imputed income. Now employees who are legally married won't pay federal taxes on the benefit. But employees in states where same-sex marriage isn't legal (but who married in another state) may be taxed on the benefit at the state level.
Employers currently offering health coverage for same-sex domestic partners may need to reconsider those benefits. Herrnson points out that in states that recognize same-sex marriage there is now no legal state or federal impediment to marriage, which has been a justification for the benefits. She says employers offering both types of coverage to same-sex couples may be viewed as providing an additional benefit to same-sex employees.
Under the Health Insurance Portability and Accountability Act, marriage is a qualifying "change in status" event that allows an employee to immediately add a new spouse a health plan, if the plan allows for spousal coverage. Change of status triggers permit alterations to be made outside of a company's annual open enrollment period.
Employers should expect to hear from workers who want to alter their plans post-Windsor. "It's very possible that employees will want to make those changes," says Herrnson, especially since they will no longer be subject to federal taxation on the benefit.
Diane Thompson, a partner in Ballard Spahr's Los Angeles office, says a lot of her clients are voicing concern about health coverage.
"With health care reform coming into its next phase of implementation, open enrollment coming up in the fall, and state [health care] exchanges opening up in January, a lot of employers are looking at their coverage."
To the extent that they currently cover spouses or domestic partners, employers are considering whether or not they need to make changes. "Employers have already been looking at what they need to do," she says, and now human resources departments going to have to be ready to start to answer employees' questions.
"I think the most complicated result is the uncertainty for multi-state employers," says Thompson. "To the extent that you have employees in multiple states and you have different state laws currently in place that will be challenged or have already been challenged, until those laws are sorted out," she says the complexity will be something employers are going to grapple with.
"There are a lot more questions right now than there are answers," she says, "but from my perspective—as a counselor to lawyers and human resources groups—it's an area that is of great interest to many people. It's going to take a little while to unravel, but we're all working diligently to be sure that we do that."