DOL Guidance on Same-Sex Spouses Mirrors IRS's, but Practitioners See Some Divergence

Department of Labor guidance providing that the terms “spouse” and “marriage” under the Employee Retirement Income Security Act now include same-sex legally married couples was a confirmation of earlier Internal Revenue Service guidance, but some issues remain on the health and welfare plan side that could lead to legal action down the line, practitioners told Bloomberg BNA in a series of interviews.     

“They're sort of companion guidance. There's the IRS guidance that came out in the form of an IRS notice [and revenue ruling] and then there's the ERISA guidance,” Todd A. Solomon, a partner at McDermott Will & Emery in Chicago, said Oct. 24. Together, both pieces of guidance “have significant impact on any qualified plan, or plan governed by ERISA,” he said.                  

Solomon said the difference between the IRS and the DOL guidance is that “there are certain mandated provisions that apply to spouses under ERISA and the tax code as to retirement plans and [that is] not necessarily the case for health and welfare plans.”         

On Sept. 18, the DOL followed guidance on same-sex married couples issued by the IRS with Technical Release 2013–04. In the guidance, the DOL said its new reading of the terms “spouse” and “marriage” is consistent with the U.S. Supreme Court's June 26 decision in United States v. Windsor (U.S., No. 12-307, 6/26/13), which invalidated a key provision of the Defense of Marriage Act.         

On Aug. 29, the IRS released Revenue Ruling 2013–17, which announced that the IRS would recognize all legally married same-sex couples for federal tax purposes regardless of where the couple lived. On Sept. 23, the IRS added to that guidance with Notice 2013–61, providing employers with two special administrative procedures to correct overpayments of employment taxes for 2013 and prior years for certain same-sex spouse benefits such as employer-provided health care or cafeteria plans.        

Comforting Guidance      

Laurie DuChateau, a principal in Buck Consultants' tax and legal retirement practice, said Oct. 23 that the DOL guidance wasn't very surprising, but it “gave us additional comfort in knowing the agencies were going to be mirroring each other.       

DuChateau said that under the new guidance, same-sex spouses are now entitled to qualified joint and survivor annuities and also have the right to sue under ERISA.     

Mark C. Nielsen, a principal at Groom Law Group in Washington, said Oct. 18 that the DOL's guidance “makes perfect sense given that both the IRS and DOL have sort of overlapping jurisdictions for benefit plans.”         

While the IRS guidance was far-reaching in its sweep, Nielsen said the DOL guidance on its own is much more limited in its impact.          

“For the DOL side, I think that the impact is really much more limited in that to the extent the term spouse or marriage or husband and wife is used in ERISA, which is pretty slim and few and far between, it's going to interpret [it] the same way that the IRS does,” he said.         

Retirement Plans          

The biggest changes to ERISA and the tax code came on the pension side, where plans will now have to pay qualified joint and survivor annuities to same-sex spouses, a benefit that traditionally only was applicable to opposite-sex spouses, Solomon said.        

“That's a brand new benefit for most plans. It can enhance or increase the cost of plans because it's a benefit that typically would not have been provided, and now it's provided,” Solomon said.         

“Obviously, there's not thousands and thousands of same-sex spouses at any company, but if you have a large-enough company, this could be additional people receiving a benefit, which could increase the cost of the plan. So this requires updates to plan administration, which plans should already [have] completed,” he said.         

These changes also require plan amendments, which need to be completed by Dec. 31, 2013, for calendar-year plans, Solomon said. Some relief on this deadline is anticipated from the IRS, but none has been issued to date, he said.            

 “It's expected [the IRS] will issue some relief extending that deadline, but it has not done so yet and so it's too early to say whether they will. I think the government shutdown didn't help things in terms of timing of the release. So it's possible the IRS will get around to it,” he said.         

Plans also may want to revisit any beneficiary designations, because any employees with a same-sex spouse may want to revise their designations, Julie Stich, research director for the International Foundation of Employee Benefit Plans, said Oct. 23.        

If employees designated other beneficiaries “because of tax ramifications, they might have put someone else down like a mother or a child or something. Now they'll need to go back and change that for their spouse. Definitely, employers are going to have to look at things like that,” Stich said.         

Plans also are going to need to look at how marriage and spouse are defined in their plan documents and summary plan descriptions, she said.        

Health and Welfare Plans         

While the necessary changes to ERISA-governed retirement plans are fairly clear, there is more ambiguity on the health and welfare plan side, Nielsen said.        

“I don't think [the DOL guidance] gets to the core question of whether or not it's going to require health plans to actually cover same-sex spouses to begin with. And that I think is one of the really big outstanding questions that people have about what the impact of Windsor and the DOL guidance is,” he said.         

“There are people that are out there who have looked at the DOL technical release and they've just assumed that it means that health plans have to cover same-sex spouses now the same way that a retirement plan has to extend those benefits,” Nielsen said. So while the guidance brought some clarity to employers, some may be “over-reading” the guidance as saying that employers are now required to extend health benefits to same-sex spouses, he said.        

When it comes to the retirement plan side of ERISA, employers can't avoid extending certain benefits, Solomon said. For example, “it's not an option for an employer that maintains a qualified retirement plan to get around the spousal annuity provisions,” he said. But “on the welfare side, there's no similar provision saying that an employer has to offer welfare benefits to a spouse,” he said.         

 “ERISA does not mandate who is required to be covered for health care coverage and it also does not mandate that any spouses be covered and it doesn't define spouse for purposes of coverage,” DuChateau said.        

 Because of this, same-sex spouses are not required to be covered by self-insured medical plans, Solomon said. “The problem is if the plan does not cover same-sex spouses, the primary justification for excluding same-sex spouses, the Defense of Marriage Act, is no longer in effect, at least Section 3 is not in effect,” he said.        

Employers wishing to continue to not extend health coverage to same-sex spouses for political, religious or other reasons will have a harder time excluding them because they could open themselves up to discrimination lawsuits, Solomon said. Because of this, employers may want to look at the legal ramifications of this practice, he said.          

 “A lot of people are framing it as ERISA welfare plans are required to cover same-sex spouses, which I don't think is quite right. But I think they're saying as a practical matter, it can be very difficult to exclude unless you want to risk a discrimination lawsuit,” Solomon said. “It's probably at this point a best practice to cover same-sex spouses, but it's not technically legally required,” he said.         

 Nielsen said that while further guidance from the DOL in this area would be beneficial to plans, he isn't counting on it.         

“I think it's pretty unlikely that we're going to get DOL to come out on that. Particularly because on the health plan side, plans sponsors have traditionally had much more flexibility for how they design their plans and who they cover. You don't have the same kind of spousal protection built in on the welfare plan side that you see on the pension plan side,” he said.

Excerpted from a story that ran in Pension & Benefits Daily (10/25/2013).