New York State's Marriage Equality Act took effect on July 24, 2011. It amends New York's Domestic Relations Law to provide that same-sex couples may obtain a marriage license in New York and to require that a same-sex marriage be treated the same as an opposite-sex marriage "in all respects under [New York] law."
New York is the sixth state to adopt such a law in addition to the District of Columbia. The act's impact on employer-sponsored health and welfare benefit plans has generated many questions from employers with employees who live in New York state. Below are answers to 10 of the most common questions.
1. Is an employer who sponsors a group health plan that is self-funded and subject to ERISA now required to offer group health coverage to an employee's same-sex spouse in New York state?
No. The Employee Retirement Income Security Act (ERISA) does not contain a definition of "spouse," and the employer therefore has flexibility concerning how to define "spouse" in the written plan document. ERISA pre-empts all state laws "insofar as they … relate to any employee benefit plan." Thus, self-funded group health plans that are subject to ERISA are not required to comply with state law to the extent that pre-emption applies. Although an exception to this rule, referred to as the "savings clause," applies to any law of any state that regulates insurance, banking or securities, ERISA prohibits a state from "deeming" a self-funded health plan to be an insurance company, bank, trust company or investment company for purposes of state law. Therefore, with respect to a self-funded group health plan that is subject to ERISA, the employer continues to have the ability to define "spouse" in the written plan document.
Although an employer is not required to define "spouse" to include an individual of the same-sex because the Equality Act is pre-empted under ERISA's general pre-emption provision, self-funded group health plans are not precluded from extending benefits voluntarily under their plans to an employee's same-sex spouse.
2. Is it necessary for an employer to make any changes with respect to the definition of "spouse" in its written self-funded ERISA group health plan because of the Equality Act?
Possibly. If an employer has not defined spouse explicitly in its group health plan or has defined spouse by reference to state law, it should consider amending the definition of spouse to specify clearly how spouse is defined, particularly if the employer intends to exclude a same-sex individual from the definition of spouse. If a plan grants the plan administrator discretion to interpret the terms of the plan, a court considering this issue might apply a deferential standard of review rather than a de novo standard of review and uphold a plan's determination of who constitutes a spouse (see Firestone Tire & Rubber Co. v. Bruch).
However, if the employer does not clarify the term "spouse" explicitly in the plan, a court could consider the definition of spouse under the Equality Act to be controlling and might conclude that “spouse” includes a same-sex spouse. If this is not intended, the better approach would be for the employer to resolve the ambiguity in advance of a claim for eligibility of benefits by supplying a clear definition of the term “spouse” through a formal amendment to the plan document. This is also an issue that employers should consider with respect to retirement plans.
3. Is an employer who sponsors a group health plan that is insured by a policy issued in New York state and subject to ERISA now required to offer group health coverage to an employee's same-sex spouse in New York state?
Yes. As noted in question 1, the Equality Act should not be pre-empted as to insured arrangements because of ERISA's "savings clause." Therefore, a fully insured group health plan insured by a policy issued in New York should be required to comply with the Equality Act and treat any individual who is married under New York state law as a spouse for all purposes under the policy. In addition, the insurer should be required to offer state-mandated continuation coverage to a same-sex spouse just as it would for an opposite-sex spouse. Employers that sponsor a fully insured group health plan should review their underlying insurance policy to determine whether their policy states that it will comply with New York law.
4. If an employee requests to add his or her same-sex spouse to group health plan coverage following marriage in New York, can the employer allow the employee to change his or her cafeteria plan election to add the spouse?
Probably. Generally, the cafeteria plan midyear change-in-election regulations restrict the circumstances under which an employer is permitted to allow an individual to make a change in his or her salary reduction election under a cafeteria plan. However, changes are permitted in certain specified circumstances identified in the regulations. These circumstances include a "change in status" event, as well as a "change in cost or coverage" under the plan. The change-in-status events do consider a "marriage" to be a change-in-status event, but the issue is complicated by the fact that federal tax law needs to be interpreted in a manner that is consistent with the federal Defense of Marriage Act (DOMA), which provides that "the word '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 who is a husband or a wife."
Therefore, the marriage of a same-sex couple may not be considered a change-in-status event under the federal cafeteria plan regulations. Nevertheless, if coverage under a group health plan first becomes available to a same-sex spouse after the start of the plan year, the employer may be able to take the position that the change is allowable because it is a new coverage option for the same-sex spouse (assuming that the written cafeteria plan incorporates this rule as a permissible midyear change in election event).
Alternatively, an employer may be able to take the position that because the coverage is paid for on an after-tax basis for federal tax purposes, the midyear change in election regulations, which generally restrict changes to an employee's pretax salary reduction election, do not apply.
5. For federal tax purposes, is an employer required to add to an employee's wages the value of employer-provided health coverage for the same-sex spouse?
Yes. Because of the federal DOMA, the fair market value of the coverage provided to an employee's same-sex spouse must be imputed into the employee's income as wages for federal tax purposes. Fair market value is determined based on facts and circumstances, but the IRS has stated informally that the single rate charged to an individual under the plan for COBRA continuation coverage could be used.
6. For New York state tax purposes, is an employer required to add to an employee's wages the value of employer‐provided health coverage for the same‐sex spouse?
No. On July 21, 2011, the New York State Department of Taxation and Finance posted guidance for employers on its website indicating that employers should not withhold New York tax on certain benefits provided to a same‐sex married employee. Specifically, the guidance states that employers do not need to withhold tax for New York state, New York City or Yonkers income tax purposes on the value of certain benefits (e.g., domestic partner health benefit), even though that benefit is subject to federal withholding.
The guidance states that this applies if the employee's federal taxable wages subject to withholding include the value of the benefits and the value of these benefits wouldn't be included in taxable wages if provided to a different‐sex married spouse.
This guidance is very helpful because the definition of "adjusted gross income" under the New York tax law is defined as "federal adjusted gross income as defined in the laws of the United States for the taxable year, with modifications specified in this section." Absent guidance to the contrary, it would be difficult to reconcile the straightforward definition of adjusted gross income in the New York state tax law with the requirements of the Equality Act.
7. Does the Equality Act affect an individual's state tax filing status and estate tax in New York state?
Yes. On July 29, 2011, the New York State Department of Taxation and Finance, Taxpayer Guidance Division, issued a technical memorandum explaining that, as of July 24, 2011, same‐sex married couples must file New York personal income tax returns as married even though their marital status is not recognized for federal tax purposes. This applies first to 2011 tax returns and is based on a couple's marital status on Dec. 31, 2011. This guidance is helpful because Section 607(b) of the New York state tax law provides that an individual's marital status for state tax law is the same as the individual's marital status for federal rate‐setting purposes, and under the federal DOMA, the IRS does not recognize same‐sex marriage for federal income tax purposes, including for purposes of filing a joint return. In addition, the technical memorandum provides that, with respect to an individual who dies after July 23, 2011, the New York taxable estate of an individual in a marriage with a same‐sex spouse must be computed for federal estate tax purposes in the same manner as if the deceased individual were married.
While the difference in federal‐state filing status adds complexity, it likely will result in lower New York taxes for same‐sex couples.
8. Does an employer need to make any changes with respect to non‐ERISA benefits for New York state employees who have same‐sex spouses?
Possibly. Now that a spouse for purposes of New York law includes a same‐sex spouse, employers should review all non‐ERISA benefits that might be extended to a spouse including leave policies (e.g., leave to care for a spouse, or bereavement leave), relocation policies and employee discount programs to determine whether changes need to be made to comply with New York state and local laws that prohibit discrimination on the basis of marital status and sexual orientation. A benefit may be "non‐ERISA" because it is not identified in ERISA sections 3(1) or 3(2) because it is within a safe harbor described in Department of Labor regulations or guidance, or because the plan is not subject to ERISA (e.g., a government benefits plan or a church plan).
9. What are the other six jurisdictions that recognize same‐sex marriage, and how is an individual who is married in one of those jurisdictions treated under New York state law?
New York is the sixth state to adopt a same‐sex marriage law. The other states which have adopted similar laws are: Connecticut, Iowa, Massachusetts, New Hampshire and Vermont. In addition, the District of Columbia has adopted a similar law.
The Equality Act is similar to the laws of New Hampshire, Vermont and the District of Columbia, which have amended their domestic relations statutes to provide for same‐sex marriages. Similarly, Connecticut has codified same‐sex marriages in its general construction of statutes by allowing the terms such as "husband," "wife," "groom," "bride" and the like to include individuals of the same sex. Although Iowa and Massachusetts recognize same‐sex marriages, it has yet to be codified in their statutes. Each state's Supreme Court has ruled that laws limiting marriage to opposite‐sex couples are unconstitutional.
New York state law previously required same‐sex spouses married validly in other jurisdictions that recognize same-sex marriage to be treated the same as opposite‐sex spouses. This requirement was put into place through a directive issued by former Gov. David Paterson in 2008. The Equality Act does not alter this requirement, nor does the act impose any additional requirement.
10. What steps should employers take with respect to health and welfare plans now that the Equality Act is in effect?
Employers with employees in New York state should review their health and welfare plan documents, summary plan descriptions, participant communications materials and open enrollment forms to determine the rights of same‐sex spouses under the Equality Act and to consider whether they would like to make any changes. If an employer sponsoring a self‐funded plan does not wish to cover same‐sex spouses, the definition of "spouse" in the plan documents should make this exclusion clear. In addition, employers should speak with their insurance providers and third‐party administrators regarding the act's requirements and work with their payroll department to address any New York state taxation issues. Finally, employers should make sure to communicate the rights of same‐sex spouses under the act, including any changes, to participants.
Groom Law Group's health and welfare practice group provides advice and counsel on a broad spectrum of health care matters to large employers, managed care organizations, insurance companies, third-party administrators, benefits counseling firms and other clients.
Originally published by Groom Law Group. Reposted with permission.
This publication is provided for educational and informational purposes only and does not contain legal advice. The information should in no way be taken as an indication of future legal results. Individuals should not act on any information provided without consulting legal counsel.
New York Marriage Law Impacts Benefits, SHRM Online Benefits Discipline, July 2011
Equal Benefits Gain Ground, HR Magazine, June 2011
Same-Sex Partner and Spouse Benefits
Health benefits for employees’ same-sex partners or spouses is a nuanced and ever-changing issue, says attorney Todd Solomon, who offers insights into some developing trends.
View this video
SHRM Online Benefits Discipline