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The U.S. Supreme Court's ruling on the Defense of Marriage Act left open for interpretation whether civil unions and domestic partnerships--at least in states that treat those relationships the same as same-sex marriages--will be entitled to the same deference as same-sex marriages for federal tax purposes, an employee benefits attorney said June 28.
Although the immediate and “likely” result of the high court ruling will be for employers to treat valid same-sex marriages the same way they treat opposite-sex marriages under federal employment and employee benefit laws, employers might also consider other plan design changes, Kurt L.P. Lawson, a partner at Hogan Lovells in Washington, said during a webinar sponsored by Bloomberg BNA.
Some employers might decide, post-DOMA, that plan design changes--for example, voluntarily extending their benefit programs to domestic partners--and other design modifications beyond those now required by law would result in greater fairness and efficiency, Lawson said.
The high court ruled June 26, in a 5-4 decision, that DOMA Section 3's exclusion of state-sanctioned, same-sex marriages from the federal definition of marriage “is unconstitutional as a deprivation of the equal liberty of persons that is protected by the Fifth Amendment” (United States v. Windsor, U.S., No. 12-307, 6/26/13) (124 PBD, 6/27/13).
The court's decision left a door open for the Internal Revenue Service and other federal agencies to determine which states' laws apply when state laws conflict on recognizing same-sex marriage, Lawson said.
“Even though it is not mandated by a statute, the IRS and other agencies typically look to state law to determine whether someone is married, and--in the absence of DOMA [Section 3]--they will resume doing that” in states that permit same-sex marriage, Lawson said. How IRS and other federal agencies will interpret situations in which state laws conflict is unknown at this point, he said.
“Is it solely the state in which the [marriage] ceremony was performed, or it is perhaps also, or instead, the state where the individual resides? Previous rulings and case law in the tax area modestly suggest that it's the state where the individual resides that matters,” Lawson said.
Part of the argument that a majority of Supreme Court justices used in striking down Section 3 centered on the degree to which it interfered in an area of law historically controlled by the states, he said. “That has implications for the litigation we'll probably see over the coming years about the constitutionality of various state laws,” he added.
Generally, the high court ruling left plenty of room for private-sector employers to interpret terms such as “marriage” in their own plan documents, Lawson said.
“How you might interpret the term 'marriage’ in a plan where that term is not implementing any particular federal requirement need not be affected at all by the Windsor decision,” Lawson said.
In situations in which there is no federal requirement to apply the terms “marriage” or “spouse” in a certain way, large multistate employers might be tempted to interpret terms in a way that is uniform in all the states, Lawson said. For example, anyone with a valid marriage certificate, “or perhaps anyone who simply claims to be married,” would be treated as married, he said.
Although that approach might create uniformity in plan provisions that are not federally mandated, it would not solve the problem of having to treat the same person as not being married for certain purposes if the person lives in a state that does not permit or recognize same-sex marriages, Lawson said.
“The desire for uniformity, though it's likely to be on the top of many multistate employers' agendas, is not capable of an obvious, easy resolution,” he said. Thirteen states and the District of Columbia expressly permit same-sex marriages, and the rest of the states do not.
IRS and the Department of Labor could promote uniformity by recognizing, for federal purposes, all same-sex marriages performed legally in certain states, even if the people involved move to other states that do not recognize the marriages, Lawson said. “But at the moment, we can't be sure that that's going to be the rule,” he said.
Plan design changes that some plan sponsors might contemplate after the DOMA ruling may depend more on business or human resources considerations than legal ones, Lawson said. There is no right or wrong answer, for example, to the question of whether employers, at least in states where same-sex marriage is permitted, should insist that same-sex partners get married to continue receiving same-sex partner benefits, he said.
The same is true with respect to whether employers that provide “some kind of gross-up” for employees in same-sex relationships, primarily to compensate for their being denied federal tax preferences under Section 3 of DOMA, should continue providing those gross-ups, Lawson said.
When employers revisit their treatment of same-sex partners, they might find that some change in their treatment of opposite-sex couples is warranted, Lawson said. “For example, if they decide to insist that same-sex couples get married in order to continue to receive benefits,” they might also decide that “extending that same rule to opposite-sex couples is the right way to go,” he said.
There is some case law dealing with potential limitations on employers' ability to treat same-sex and opposite-sex couples differently, Lawson said. So far, the litigation “has not resulted in any ruling that employers cannot treat opposite-sex and same-sex couples differently, but perhaps in the coming years we'll see a bit more litigation in that area,” he said.
As to how much plan sponsors should get involved in helping employees obtain payroll tax refunds or make retroactive benefit claims following the DOMA decision, that is uncertain at this point, Lawson said. The answer “could have some fiduciary aspects to it,” although there is very little guidance and case law on the question, he said.
Refunds of federal payroll taxes--taxes that employers were required to withhold from imputed income for health care benefits for same-sex spouses--might be easier to claim retroactively than retroactive payments for same-sex spousal benefits that could not be claimed before the Supreme Court's ruling on DOMA (126 PBD, 7/1/13).
A 2004 case, Kodak Retirement Income Plan v. Burke U.S., No. 03-565, cert. denied, 1/12/04, may shed some light on how courts might think about that issue, Lawson said. In the Kodak case, the U.S. Supreme Court left standing a federal appeals court's ruling that held that a retirement plan's summary description violated the Employee Retirement Income Security Act by failing to inform plan participants that they needed to file an affidavit if they wanted their domestic partners to receive preretirement survivor income benefits (7 PBD, 1/13/04; 31 BPR 146, 1/20/04).
Employers that sponsor plans regulated under ERISA might need to be concerned in the future if state insurance regulators become more active in mandating that same-sex benefits be offered, especially to already-married same-sex couples, he said.
“There are provisions in state insurance codes mandating same-sex partners to be treated like spouses under insurance policies,” Lawson said. “We can imagine some further developments along those lines as same-sex marriages become more common,” even in states where only partnerships or civil unions are recognized, he said.
“To the extent a requirement to provide coverage to same sex-spouses on the same basis as opposite-sex spouses--or even to same-sex domestic partners and members of civil unions--is embedded in state insurance law, it is more likely to survive a preemption challenge under ERISA,” Lawson said.
Lawson spoke during a webinar titled Unraveling the Windsor Knot: How the Supreme Court's Opinion on DOMA Will Affect Employers and Employee Benefits.
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