How the demise of DOMA affects employee benefit plans.
While NH has allowed same-sex couples to tie the knot since Jan. 1, 2010, the demise of the federal Defense of Marriage Act (DOMA) still has significant implications for employee benefit plans here.
State and federal laws now require employers to treat employees with same-sex and opposite-sex spouses equally when it comes to benefits. Same-sex marriages in other jurisdictions are legally recognized in NH, and couples who legally enter into civil unions in other states are treated as married in NH.
Until recently, the definitions set forth in DOMA controlled the interpretation of more than 1,000 federal laws addressing marital or spousal status. On June 26, in “United States v. Windsor,” the U.S. Supreme Court struck down Section 3 of DOMA as unconstitutional. The Supreme Court held that DOMA’s unequal treatment of heterosexual and same-sex couples in state-sanctioned marriages violated the U.S. Constitution.
Health Plans
Same-sex spouses must be extended spousal benefit coverage under insured medical, dental, or vision plans. Employers with self-insured health plans, though, may not have to provide coverage to same-sex spouses because neither federal nor state law requires spousal benefit coverage for such plans. However, self-insured employers should consider the risk of legal challenges under state and federal anti-discrimination laws if coverage is not offered.
As for tax issues, amounts contributed by an employer to a health plan on behalf of an employee’s same-sex spouse will now be excluded from the employee’s income. The employee will no longer have imputed income (the taxable amount for which an employee is responsible for health benefits) on the value of the spouse’s coverage. In addition, the employer will no longer pay employment taxes on the value of the spouse’s coverage. Employees may pay for a same-sex spouse’s coverage using pre-tax contributions under a Section 125 cafeteria plan, and may take tax-free reimbursements from FSAs, HRAs, and HSAs for qualifying expenses of the same-sex spouse.
Same-sex spouses must also be allowed to continue health insurance coverage after the employee’s termination, death, divorce, or legal separation, pursuant to COBRA and applicable NH laws. Special enrollment rights described in the Health Insurance Portability and Accountability Act of 1996 (HIPAA) are now equally available to same-sex spouses and opposite-sex spouses.
Retirement Plans
Employer-sponsored defined benefit plans must now offer same-sex couples a qualified joint and survivor annuity unless the spouse consents to payment in a different form. Surviving same-sex spouses are entitled to receive preretirement survivor benefits if the employee dies before commencing benefits. A same-sex spouse is now the default beneficiary of an employee’s defined contribution account if the employee dies without designating a beneficiary. The employee cannot designate anyone other than the same-sex spouse as beneficiary without written consent from the spouse. A same-sex spouse who receives a distribution from a retirement plan upon the employee’s death may now roll over the distribution to an IRA or another qualified employer plan, and must be notified of their rollover rights.
Required minimum distributions may need to be recalculated and reduced for participants with same-sex spouses. In addition, a surviving same-sex spouse may be allowed to delay the commencement of required minimum distributions.
If the retirement plan allows a participant to take hardship withdrawals, the participant may now receive a hardship distribution for certain IRS-recognized expenses of a same-sex spouse, including medical, educational, and funeral expenses. An employee’s retirement benefits may also now be transferred to a same-sex spouse pursuant to a Qualified Domestic Relations Order.
Family and Medical Leave Act
In August 2013, the U.S. Department of Labor issued updated guidance documents clarifying that same-sex couples are now eligible to take leave under the Family and Medical Leave Act to care for a spouse who has a serious health condition.
Next Steps
Employers should review their current benefit plans and policies to identify benefits they must now offer to same-sex spouses. Plan documents should be reviewed to ensure that they give same-sex spouses the same entitlement to benefits as opposite-sex spouses. The definition of “spouse” and “marriage” in plan documents should be reviewed to ensure consistency with federal and state law.
Employers may wish to notify employees of the benefits now available to same-sex spouses and give employees the opportunity to review tax- and benefit-related decisions, including Form W-4, medical plan elections and beneficiary designations. Payroll procedures may be evaluated to ensure that the value of benefits provided to same-sex couples is properly reported for tax purposes.
Cote is an associate at Shaheen & Gordon, P.A., a law firm with offices in Manchester, Concord and Dover. She can be reached at tcote@shaheengordon.com.