Yesterday, in a landmark case, the U.S. Supreme Court issued its decision in United States v. Windsor, Case No. 12-307 (June 26, 2013) striking down a key part of the Defense of Marriage Act (“DOMA”). The decision will have far-reaching effects in Minnesota and all other states that recognize same-sex marriage.
DOMA’s Definition of Marriage
The main issue was Section 3 of DOMA, which defined “marriage” and “spouse” for purposes of federal law as “only a legal union between one man and one woman . . . .” This obviously conflicted with the dozen states that include same-sex unions into their definition of “marriage.” In those states, persons considered to have been legally married were still denied a variety of benefits under federal law, including the right to file joint income tax returns or to obtain spousal benefits under the Social Security system.
State Definitions of Marriage Are Now Controlling
Writing for a 5-4 majority, Justice Anthony Kennedy ruled that Section 3 of DOMA is unconstitutional because it deprives lawfully married same-sex couples of equal protection under the Fifth Amendment. The Court was careful to limit its decision to only “lawful marriages,” i.e. those same-sex marriages that are legally recognized under state law. The Court stopped short, however, of declaring that all states must recognize same-sex marriage.
Benefits Implications for Minnesota Employers
The practical effect of the Court’s ruling is that same-sex couples who are married in a state which permits same-sex marriage are now recognized as married in the eyes of the federal government. At present, there are 12 states, (including Minnesota as of August 1, 2013), where same-sex couples can legally marry.
Minnesota employers should immediately assess the impact of this landmark ruling on their benefit plans and make appropriate changes to their tax and payroll systems. To start, figure out which plans are governed by federal laws.
- Health Coverage: If an employer offers self-insured coverage, the plan is governed by ERISA, a federal law. In accordance with the Court’s ruling, ERISA plans that provide spousal coverage in a state that recognizes same-sex marriage, the definition of “spouses” will now include same-sex partners. For federal tax purposes, no longer will the value of the employer-paid coverage to same-sex spouses be treated as imputed income and reported on Form W-2. Similarly, for employers who offer a Code Section 125 cafeteria plan and allow employees to pay their portion of the premium on a pre-tax basis, the value of the coverage extended to same-sex spouses will not be imputed to the employee.
- Retirement Benefits: Many retirement benefits, such as a 401(k) plan or a pension, are subject to the Internal Revenue Code and ERISA. The Court’s decision means employers must treat same-sex spouses identically as opposite-sex spouses who are providing retirement benefits. Employers will be required to recognize same-sex spouses for purposes of determining surviving spouse annuities and death benefits. Plans must provide a qualified joint and survivor annuity and a qualified pre-retirement survivor annuity to a participant with a same-sex spouse. Pension plans that define a spouse as a “DOMA spouse” need to be amended, so too do beneficiary designations to require same-sex spouses to consent to beneficiary designations.
In addition, all spouse-related leaves in Minnesota under the Family and Medical Leave Act (FMLA) apply to employees in same-sex marriages. For example, a Minnesota employee married to a same-sex partner will be entitled to take FMLA leave to care for his or her spouse who is suffering from a serious health condition, for military caregiver leave, or to take leave for a qualifying exigency when a same-sex spouse is called to active duty in a foreign country in the military.
Bottom Line
The implementation process will present employers with significant challenges, particularly those who operate in multiple states. In the end, it may streamline and simplify benefit plans and reduce paperwork, but the coming weeks and months are a critical time. Employers should conduct a thorough review, implement the appropriate changes and educate their human resources personnel to address employee questions.
Attorneys Grant T. Collins and Michael G. McNally contributed to this post.