Whether retirement and health and welfare plans must provide benefits to same sex married couples is a question that all employers must consider. As the answer to this question develops, it is critical that employers stay up-to-date on the law and their plans’ provisions.
The U.S. Supreme Court ruled in U.S. v. Windsor
last year that the portion of the Defense of Marriage Act (“DOMA”) limiting marriage to opposite-sex couples for federal law purposes is unconstitutional. Following that decision, the IRS ruled that married same-sex couples must now be treated as married for federal tax purposes, regardless of where the couple lives, as long as the couple was lawfully married under the laws of any one of the 50 states, the District of Columbia, a U.S. territory or a foreign jurisdiction. More recently, the IRS provided additional guidance on how qualified retirement plans should treat the marriages of same-sex couples. Guidance for health and welfare plans, however, is yet to come.
Qualified Retirement Plans
According to the recent IRS guidance, qualified retirement plans must have terms consistent with the Supreme Court’s decision in Windsor
. This means that a qualified retirement plan must recognize and treat same-sex spouses on an equal basis with opposite-sex couples. For example, where spousal consent is required for a distribution from the plan, it must also be required on the same basis and in the same manner for same-sex spouses as it is for opposite-sex spouses.
In view of this guidance, plans with terms inconsistent with Windsor
must be amended to comply with the law as of June 26, 2013 or risk losing qualified status. However, a plan will not lose its qualified status merely because it did not recognize the same-sex spouse of a participant as a spouse before June 26, 2013. Some same-sex participants may, nevertheless, file claims for spousal benefits.
Whether a plan is inconsistent with Windsor
depends on the language included under its plan document. Language that explicitly limits the term “spouse” to opposite-sex couples or that incorporates DOMA into its definition is clearly inconsistent and must be amended. Even where “spouse” is left undefined or its terms are consistent with Windsor
, the plan must still operate in a way that complies with the decision. In those situations, employers may wish to adopt a clarifying amendment for purposes of plan administration.
Employers required to amend their plans must generally do so by December 31, 2014
Health and Welfare Plans
While the IRS has yet to issue much guidance for health and welfare plans, employers need to look at state laws to determine whether the plan must provide the same benefits to same-sex spouses as it provides to opposite-sex spouses. Some states have passed civil rights laws requiring insurance providers to cover same-sex spouses on an equal basis. Employer-sponsored insured plans covering employees in those states may have to expand coverage to include same-sex spouses.
For self-insured plans, the answer is a bit more complicated. Federal law does not currently require that self-insured plans provide benefits to same-sex spouses, or even to spouses in general. Yet government officials in the State of Washington recently stated their position that, under the state’s civil rights laws, all plans, including self-insured plans, must provide equal benefits to spouses, regardless of sex, to the extent they choose to provide spousal benefits.
Some plans have not specifically defined “spouse” to exclude a same-sex spouse from coverage, but have instead relied on state laws to exclude same-sex spouses from coverage. Since state laws that do not recognize same-sex marriage are under legal challenge, an employer that has relied on this approach should revise its plan’s eligibility rules.
Where a plan has already provided spousal benefits to same-sex spouses, there may be other issues to address. For example, recent IRS guidance indicates that an employee is entitled to a refund of withheld federal income taxes on the cost of covering a same-sex spouse under an employer’s health plan. Additionally, the employee may also be entitled to a refund of withheld federal employment taxes, such as for social security and Medicare. Employers who have withheld such taxes may wish to seek a refund on behalf of their employees.
What You Should Do Now
Although these issues are still evolving, it is critical that employers begin to explore how the current status of the law affects their plan or plans. Employers who have qualified retirement plans should review their plan documents to ensure that any language is consistent with Windsor.
To the extent that it is not consistent or if the language is unclear, an amendment should be drafted and implemented within the deadline to avoid losing qualified status.
For employers with a WNJ volume submitter plan definition of spouse, the terms of the plan are not inconsistent with Windsor; however, a clarifying amendment will be provided to you before the end of the year. Amendments to the language of health and welfare plans may also be required to comply with state civil rights laws or the changing legal landscape.
If you have questions regarding whether you should amend your plans, contact Mary Jo Larson at firstname.lastname@example.org
, for qualified retirement plan amendments, or Norbert Kugele at email@example.com
, for health and welfare amendments, or any other member of the Warner Norcross and Judd LLP Employee Benefits/Executive Compensation Group.