While two groundbreaking U.S. Supreme Court decisions settled a host of long-standing questions about employee benefits for same-sex spouses, lingering issues remain around retroactive benefit claims and the treatment of unmarried partners.
Meanwhile, benefits for transgender employees are prompting new questions about equal treatment for lesbian, gay, bisexual and transgender (LGBT) employees, explained Todd A. Solomon, a partner at law firm McDermott Will & Emery in Chicago. Solomon spoke at the Society for Human Resource Management’s 2016 Employment Law & Legislative Conference on March 14 in Washington, D.C.
In June 2013, the Supreme Court’s ruling in U.S. vs. Windsor overturned section 2 of the federal Defense of Marriage Act, after which the spousal benefits and protections under federal law were extended to all legally sanctioned same-sex marriages. In June 2015, the Supreme Court’s Obergefell v. Hodges ruling recognized same-sex marriages nationwide. “Federal and state law no longer distinguish between same-sex or opposite-sex marriages,” Solomon said.
Retirement Plan Considerations
As regards employee benefits, the effects have been far-reaching, including:
- For tax-qualified retirement plans, a same-sex spouse must consent to a participant’s designation of any other beneficiary.
- Absent an affirmative designation, a participant’s same-sex spouse will be the default beneficiary.
- Same-sex spouses who divorce may enter into a qualified domestic relations order (QDRO) to divide retirement plan assets.
“Employers that haven’t done so may still need to amend plan language that was written to exclude same-sex spouses,” Solomon said. “All Windsor amendments generally must have been adopted by Dec. 31, 2014, so consider a voluntary correction program application” if your plan failed to do so, he advised.
Another issue plan sponsors may have overlooked: If a nonspouse was named as plan beneficiary prior to the Windsor ruling, he or she must be renamed as the beneficiary post-Windsor, and an employee’s same-sex spouse must affirmatively give consent, or else the spouse will be treated as the default beneficiary. “If a participant’s intention was to name a mother, brother or child, those wishes won’t be heeded” otherwise, Solomon cautioned.
With defined benefit pension plans, lawsuits have been brought seeking retroactive application of survivor benefits for spouses who, at the time of the participant’s death—prior to the Windsor ruling—were married under state law. Among these, Schuett v. FedEx Corp. was filed last year before a federal district court in California, with further action pending.
Health Plan Issues
For fully insured health plans, which are governed under the federal Employee Retirement Income Security Act (ERISA) and applicable state laws, “same-sex spouses must be extended spousal benefit coverage by employers,” Solomon noted. For self-insured plans, same-sex spouses “technically are not required to be extended spousal benefit coverage, but employers that continue to provide coverage only to opposite-sex spouses face significant risk of legal challenges under federal discrimination law,” he said.
A July 2015 Equal Employment Opportunity Commission (EEOC) decision held that complaints of discrimination on the basis of sexual orientation are sex discrimination claims under Title VII of the Civil Rights Act of 1964.
Among the cases now moving through the courts, Cote vs. Wal-Mart, a class-action lawsuit filed in June 2015, seeks retroactive coverage of medical claims accrued when it was legal to deny benefits to same-sex spouses (Wal-Mart now treats all spouses equally under its health plans). The case is scheduled for trial in November 2016 before a U.S. district court in Boston.
Employees no longer must pay federal or state taxes for income “imputed” on the value of employer-provided health coverage for a same-sex spouse. Employers may request a refund or adjustment of payroll taxes paid on imputed income for same-sex spousal benefit coverage, usually limited to the previous three tax years, Solomon said. “Employers could still receive employee requests for corrected W-2s or information about the amount imputed in their income in prior years.”
Some employers provided gross-up payments to cover the employee portion of federal and sometimes state taxes on same-sex health benefits, Solomon said, but “few if any employers are continuing to provide gross-ups” now that same-sex partners have the option of getting married.
If an employee’s unmarried domestic partner—whether same or opposite sex—receives health benefits under the employer’s plan, taxes are still owed on the benefit’s imputed value.
On the broader question of whether to continue sponsoring domestic partner benefits at all, Solomon expects employers that provided partner benefits only to same-sex couples, as a matter of fairness since they could not legally wed, have already or are likely to eliminate these programs—typically with a grace period of one or more years. “They could even face a ‘reverse discrimination’ lawsuit if they keep partner benefits solely for unmarried same-sex couples, Solomon said.
But employers that have provided benefits to both opposite- and same-sex partners to recognize diverse family arrangements are likely to maintain their partner programs.
A point of consideration, Solomon said, is that annual ratings under the Human Rights Campaign Foundation’s Corporate Equality Index still require unmarried partner benefits for same-sex partners—at the least—for an employer to receive a 100 percent rating. “The value of receiving the top rating may have to be balanced against maintaining administratively burdensome procedures for imputing income on partner benefits,” Solomon said.
Transgender Employee Benefits
Gender-transition benefits are “the big issue that’s come up post-Windsor and -Obergefell,” Solomon observed. Health plans that cover sexual-reassignment surgery also need to consider whether related procedures—such as facial shaping and hair removal—will be insured. This can get tricky, because health plans may have coverage exclusions for “cosmetic” surgery. Also, expenses related to cosmetic procedures generally only receive favorable tax treatment if they are deemed medically necessary. But, when they are part of a gender transition, “there is some case law holding that these related procedures may be considered medically necessary,” Solomon pointed out.
Because issues involving gender transition are complex, “employers will need to work closely with insurers to third-party administrators to add this benefit,” Solomon advised.
Leave, Fertility and Other Benefits
Employers should ensure that language is gender-neutral as regards adoption assistance, fertility benefits, surrogacy benefits and parental or other leave, Solomon recommended.
For instance, “some plans are written to limit fertility benefits to couples that have tried to conceive naturally,” he said.
Under the Family and Medical Leave Act (FMLA), unpaid leave must be given to care for same- or opposite-sex partners on an equal basis. Beyond FMLA minimums or for paid leave, “an employer might have a plan that gives 18 weeks of maternity leave to a new mother and four weeks of paternity leave for a new father,” Solomon pointed out.
To ensure equal treatment for same- and opposite-sex couples, “Employers should consider gender-neutral language in their leave plans, such as ‘primary caregiver’ and ‘secondary caregiver,’” Solomon recommended.
Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow me on Twitter.