On June 26, 2013, the United States Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA), which required same-sex spouses to be treated as unmarried for purposes of federal law, including the Internal Revenue Code of 1986, as amended (the “Code”) and the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). As a result, there are now significant consequences to employer-provided health and pension benefits with respect to the employees residing in states that recognize same-sex marriage (e.g., New York). The following is a brief discussion of action steps the affected employers should take in anticipation of further guidance from the Internal Revenue Service (“IRS”).
Group Health Plans
Gross Income Exclusion: Employers should no longer treat an employee’s health insurance coverage provided to a same sex-spouse as taxable income to the employee. Further IRS guidance is necessary as to whether any payroll adjustments for accrued income for the current year portion or any tax refunds for the prior years would be permitted.
COBRA: Employers subject to federal COBRA must provide a “qualified beneficiary” with an opportunity to participate for a specified period of time in the employer’s group health plan upon an occurrence of a “qualifying event”. The definition of a “qualified beneficiary” includes a spouse. Employers should review their COBRA documentation in connection with any eligibility restrictions with respect to a same sex-spouse. It is not yet clear whether the election opportunity should be made available to a same-sex spouse of a participant who has already made a COBRA election. Again, further guidance from the IRS is necessary.
Enrollment Elections: Employers should review their group health plan document to determine if, in case of a change in legal marital status, the plan permits an employee to revoke an election for coverage during the coverage period or make a new election for the remaining portion of the coverage period. If a plan permits such elections, the employers should communicate with the participants regarding the opportunity for an employee with a same-sex spouse to (i) enroll his/her spouse into the group health plan, or (ii) revoke the employee’s existing election during the coverage period.
Pension/Profit-Sharing/401(k) Plans
Spousal Consent: Employers should review the terms of the particular pension and/or other qualified plans relating to the definition of a “spouse”, as well as spousal consent requirements, in connection with any actions taken with respect to a participant’s account, including: (i) an appropriate form of payment to a married participant (e.g., qualified joint and survivor annuity); (ii) plan loans to a married participant; and, (iii) payments to a beneficiary upon death of a participant.
Required Minimum Distribution: Employers should take into account the marital status of a participant in calculating any required minimum distributions. In general, the required minimum distribution rules are more liberal for participants who are married than for those who are not.
Qualified Domestic Relations Order: Employers should no longer characterize a domestic relations order, which applies to a participant with a same-sex spouse, as failing to meet the requirements of a “qualified domestic relations order” (“QDRO”) under ERISA and/or the Code. Furthermore, employers should follow the terms of a QDRO in connection with any entitlement to survivor benefits by a former same-sex spouse.
