Benefits for Same-Sex Spouses: Where Things Stand

Employers are revisiting how they design their plans

By Oct 30, 2014
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On Oct. 6, 2014, the U.S. Supreme Court denied review of seven petitions challenging federal court of appeal rulings in the Fourth, Seventh, and Tenth Circuits that had struck down state bans on same-sex marriage. The Supreme Court’s orders did not legalize same-sex marriage in all states; however, they do mean that lower-court decisions went into effect striking down bans in Indiana, Wisconsin, Utah, Oklahoma and Virginia, so same-sex marriages will be recognized in these states. Same-sex marriage should soon be legal in six more states (Colorado, Kansas, North Carolina, South Carolina, West Virginia and Wyoming) that are bound by the regional federal appeals court rulings that had struck down other bans.

Same-sex marriage was already legal in the District of Columbia and 19 U.S. states.

What does the Supreme Court’s action (or rather, inaction), mean for employers that maintain employee benefit plans? The Internal Revenue Service and U.S. Department of Labor (DOL) had previously issued guidance that provides, for purposes of the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA), that whether a marriage is valid depends on its recognition in the state where the marriage ceremony occurs. This means federal protections under ERISA and the tax code already extended to same-sex spouses—even those who reside in one of the states in which same-sex couples cannot marry.

As for employee benefit plan issues that are not dictated by the tax code or ERISA, the recent Supreme Court decision does not directly impact an employer’s ability to decide whether to extend coverage to a same-sex spouse. As the law stands today, sponsors of self-insured health plans may continue to choose whether or not to offer coverage to same-sex spouses (and state law that provides otherwise should be preempted by ERISA). Earlier this year, a federal district court in New York found that a self-insured employer health plan that extended eligibility only to opposite-sex spouses did not violate section 510 of ERISA.

However, because limiting health coverage to opposite-sex spouses may lead to challenges or employee relations issues, some employers are revisiting how they want to design their plans. Employers that sponsor fully insured health plans also must consider the impact of state insurance laws that may require same-sex spousal coverage.

Below is a list of the protections and rules that currently apply under ERISA and the tax code to all “spouses,” using the IRS’s and DOL’s definition that looks to the state of ceremony for determining the legality of the marriage.

Qualified Retirement Plans

Assuming a same-sex marriage occurs in a state that recognizes same-sex marriage, the following protections are available:

  • JSAs and QPSAs. Defined benefit plans and certain defined contribution plans must provide qualified joint and survivor annuities (QJSAs) and qualified preretirement survivor annuities (QPSAs) for same-sex spouses.
  • Default Beneficiaries. Defined contribution plans that are not subject to QJSA and QPSA requirements (e.g., most 401(k) plans) must treat a same-sex spouse as the defined beneficiary unless the same-sex spouse consents to the participant’s designation of another beneficiary.
  • QDROs. A same-sex spouse may have a right to a portion of the participant’s accrued benefit or plan account under a qualified domestic relations order (QDRO).
  • Rollovers. A surviving same-sex spouse may make rollovers to another employer’s eligible retirement plan or to a personal or inherited individual retirement account, rather than only to an inherited individual retirement account.
  • Hardship withdrawals. A same-sex spouse is now entitled to a hardship withdrawal regardless of whether he or she is designated as the primary beneficiary.

Also, plan sponsors need to check the terms of their tax-qualified plans to determine whether they need an amendment to reflect the IRS guidance that recognizes a marriage based on the state of ceremony. (For example, plans that define “spouse” based on the Defense of Marriage Act will need to be updated.) Generally, plan sponsors have until the end of 2014 to update their plans to address the IRS guidance.

Health and Welfare Benefit Plans

Assuming a same-sex marriage occurs in a state that recognizes same-sex marriage, the following protections are available:

  • Cafeteria plans. If an employer extends health care coverage to same-sex spouses, employees can make pre-tax salary reduction elections for federal income tax purposes for health coverage (including coverage for same-sex spouses) under a cafeteria plan sponsored by the employer. On the state income tax level, the applicable state tax laws must be reviewed to determine whether they follow federal tax treatment or instead disallow pre-tax salary reduction for same-sex spouses.
  • Imputed income. Employers should no longer impute federal income tax to an employee when the employee pays premiums for certain welfare benefits for his or her same-sex spouse. On the state income tax level, the applicable state tax laws must be reviewed to determine whether they follow federal tax treatment or instead require imputed income for same-sex spouses.
  • COBRA. A same-sex spouse has the same rights as an opposite-sex spouse to elect continuation of health coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA).
  • Health FSAs and HRAs. Qualified medical expenses of same-sex spouses are reimbursable from a health flexible spending account (FSA) or a health reimbursement arrangement (HRA), without imputation of income.
  • Dependent care FSAs. If applicable requirements are met, care for same-sex spouses is reimbursable without imputation of income. For married couples filing a joint tax return, the maximum contribution is $5,000.
  • HSAs. The joint contribution limit for health savings accounts (HSAs), which is $6,550 for 2014 (rising to $6,650 in 2015), applies to same-sex couples.

Christina Broxterman is an attorney shareholder in the Atlanta office of Ogletree Deakins. Karen Shriver is an associate in the firm’s Atlanta office. © 2014 Ogletree Deakins. All rights reserved. Reposted with permission.

Related External Article:

Group health plans for same-sex spouses: Equal treatment required or not?, McAfee & Taft, November 2014

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