The Post-DOMA Benefits World
Carrie Byrnes
Sarah Sise
Carrie Bechtold
Discussion Roadmap
•
•
•
•
2
Brief DOMA Background
Initial Regulatory Response
Plan Specific Guidance
Employer Action Items
Brief DOMA Background
•
Section 3 - For purposes of all Federal laws, “’marriage’ means only a legal union
between one man and one woman as husband and wife, and the word ‘spouse’
refers only to a person of the opposite sex”
•
Supreme Court
– U.S. v. Windsor – Section 3 unconstitutional
• 5-4 Opinion authored by Justice Kennedy
• "The federal statute is invalid, for no legitimate purpose overcomes the purpose and
effect to disparage and to injure those whom the State, by its marriage laws, sought
to protect in personhood and dignity. By seeking to displace this protection and
treating those persons as living in marriages less respected than others, the federal
statute is in violation of the Fifth Amendment."
– Hollingsworth v. Perry – Jointly Considered with Windsor
• Questions presented include whether the Equal Protection Clause of the Fourteenth
Amendment prohibits California from defining marriage as the union of a man and
woman
• Case dismissed on procedural grounds; the constitutionality of CA’s Proposition 8
not decided
3
Brief DOMA Background
(continued)
• Open Issues
– Is Section 2 of DOMA (full faith and credit) unconstitutional?
• I.e., Are states permitted to decline to recognize same-sex marriages which were
validly performed in other states?
– Do discriminatory laws, such as mini-DOMAs or provisions in state
constitutions, violate the equal protection clause of the 14th Amendment to the
U.S. Constitution?
4
Same-Sex Marriage
U.S. Jurisdictions
1.
2.
3.
4.
5.
California
Connecticut
Delaware
Hawaii
Illinois (Effective 6/1/14; 2/21/14 in
Cook County)
6. Iowa
7. Maine
8. Maryland
9. Massachusetts
10. Minnesota
5
11.
12.
13.
14.
15.
16.
17.
18.
19.
New Hampshire
New Jersey
New Mexico
New York
Rhode Island
Vermont
Washington
Washington D.C.
Utah (marriages performed 12/20/131/6/14)
Same-Sex Marriage
Foreign Jurisdictions
1.
2.
3.
4.
5.
6.
7.
8.
9.
6
Argentina
Belguim
Brazil
Canada
Denmark
England/Wales
France
Iceland
Mexico City and Mexico’s
southern state of Quintana
Roo (governed by state law)
10.
11.
12.
13.
14.
15.
16.
17.
Netherlands
Norway
Portugal
Spain
South Africa
Sweden
Uruguay
New Zealand
Initial Regulatory Response
• “State of Celebration” Rule
– Effective September 16, 2013 - A marriage which is valid where celebrated
will be considered valid for all purposes under the Internal Revenue Code for
purposes of determining whether someone is a spouse and is married
– The Department of Labor followed suit to say that the same rule applies for all
purposes of ERISA
• Federal Income and Employment Taxes
– Guidance issued in October 2013; refunds are available for open tax years to
both employees and employers
– Improper taxation of employer-provided health coverage or fringe benefits to a
same-sex spouse resulted in excess income tax withholding and payment of
FICA (employee and employer portion) on value of the benefits
– Employers may refund the employee’s share of withheld taxes and file refund
for both the employee and employer portions for open tax years
7
Initial Regulatory Response
(continued)
• “State of Residence” Rule
– FMLA is the outlier
– After the IRS and ERISA guidance was released, the DOL updated Fact Sheet
#28F: Qualifying Reasons for Leave under the FMLA posted on its website to
confirm that a spouse includes a same-sex spouse if the marriage is
recognized under the laws of the state in which the employee resides
– FMLA leave need not be made available to a same-sex spouse who resides in
a state that has its own DOMA law or does not recognize same-sex marriage
• State Income Tax
– Treatment varies by state
8
Initial Regulatory Response
(continued)
Uniformity in Treatment for
Most Benefits
9
Disparity in FMLA
and state tax laws
Guidance for Cafeteria Plans, FSAs &
HSAs
December 2013 Guidance from the IRS – too little and really too
late – but confirmed key issues:
•
A participant may pay for same-sex spouse’s health coverage on a pre-tax basis under a
cafeteria plan
Flexible Spending Accounts - Expenses of a same-sex spouse reimbursable under a health
FSA; a same-sex spouse must be taken into account for purposes of the $5,000 limit under a
dependent care FSA
Health Savings Accounts – Married contribution limit applies to same-sex spouses; coverage
of a same-sex spouse affects eligibility to make contributions
Amendments – Seem to be required by 12/31/14 for calendar year plans
•
•
•
10
Guidance for Retirement Plans
Effective no later than June 26, 2013, any required plan provision which
grants a right to a spouse must apply to a same-sex spouse
Example 1: A participant in a defined benefit pension plan may not waive a
spousal survivor benefit unless his or her same-sex spouse consents.
Example 2: A participant in a 401(k) plan may not designate a child as his
beneficiary without the consent of his same-sex spouse.
Plan Amendments:
If spouse defined by reference to DOMA or is inconsistent with Windsor, must
be amended no later than 12/31/14
11
Guidance for Retirement Plans (continued)
Administrative Issues
• How was the plan administered between 6/26/13 and 9/16/13?
– If a participant in a same-sex marriage commenced benefits during that time,
required spousal consent may not have been obtained by the plan
– Consider sending notices to “single” participants who commenced during this
window
• If plan will be amended to implement these rules prior to 6/26/13,
how will compliance with the effective date be ensured?
• Participants should be notified of the state of the law and the
impact on the plans
– Consider a summary of material modifications or other type of notice even if
the plan does not have to be amended
12
Employer Action Items
Adopt policy regarding spousal benefits to same-sex spouses –
minimum required by law or consistent treatment across all
benefits?
– ERISA does not require that spousal health coverage be provided; if
opposite-sex spousal coverage provided, consider legal and PR risks
associated with not offering same-sex spousal coverage
– Other plans, such as retirement plans, must recognize same-sex
spouses for death benefit and consent requirements
13
Employer Action Items
(continued)
Health Plans
– No Federal imputed income for employer-provided spousal health coverage
– If same-sex spouses covered, treat as spouses for purposes of COBRA, HIPAA and
other Federal laws that apply to the benefits
– Consider whether applicable state laws follow Federal law for income tax purposes or
otherwise mandating imputation of income
Retirement Plans
–
–
–
–
–
14
Review plans and determine if plan amendments are needed
As discussed above, determine if any corrective action is needed for 2013
Distribute SMM or notice to participants to explain spousal rights of same-sex spouses
Update enrollment, beneficiary designations, and distribution forms
Consider a beneficiary designation update campaign
Employer Action Items
(continued)
Cafeteria Plans
– Premiums for same-sex spouses should be paid on a pre-tax basis
– Claims for reimbursements of medical care expenses may be permitted under
the health FSA
– Recognize same-sex spouses when applying dependent care FSA
reimbursements
– Review plan to determine if an amendment is needed by the end of 2014
Health Savings Account
– Recognize same-sex spouse to determine eligibility and maximum contribution
permitted
15
Questions or Comments?
Follow Us on Twitter:
@ERISABryanCave
Check out our Blog:
www.benefitsbryancave.com
16
IRS Circular 230 Disclosure:
To ensure compliance with requirements imposed by the IRS,
we inform you that any U.S. federal tax advice contained in this
communication (including any attachments) is not intended or
written to be used, and cannot be used, for the purpose of (i)
avoiding penalties under the Internal Revenue Code or (ii)
promoting, marketing, or recommending to another party any
transaction or matter addressed herein
17