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Employers affected by the U.S. Supreme Court's June 26 ruling on same-sex marriage should take some steps immediately to comply with the decision and wait, at least for a brief period, before taking other steps that might be necessary, according to benefit attorneys who are advising clients on how to proceed.
The court ruled, 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).
The court's ruling affirms a holding of the U.S. Court of Appeals for the Second Circuit.
In Windsor, Edith Windsor challenged the tax code provisions that required her to pay $363,053 in estate taxes upon her wife's death. The two women were married in Toronto in 2007, a union that the lower courts concluded would have been recognized by their home state of New York.
Windsor paid the tax bill and filed a request for a refund. The Internal Revenue Service denied the request, prompting Windsor to sue in federal district court.
The Supreme Court's ruling will have far-reaching consequences, as the language of DOMA's Section 3 affects, according to the decision by Justice Anthony M. Kennedy, more than 1,000 federal laws.
Laws related to estate and gift taxes, retirement accounts, qualified pension plans, Social Security benefits, and tax return filings are all areas in which taxpayers and practitioners will see major effects from the court's ruling.
The decision, which made it “a significant day for benefit plan sponsors and certainly for their employees,” created “a mass of confusion” with respect to administering the benefits of employees with same-sex spouses who live in states that do not recognize same-sex marriage but were legally married in states that do, said Todd A. Solomon, a partner McDermott Will & Emery in Chicago.
Employers that sponsor qualified plans that offer same-sex benefits in states that recognize same-sex marriages can begin by implementing federal tax changes and death benefit protections authorized by the Supreme Court decision, said George W. Schein, an associate attorney at Thompson Hine in Cincinnati.
“If it's a health and welfare plan, they would immediately want to cease imputing income and taxing the amount of those benefits,” Schein said.
If the same employer sponsors a qualified retirement plan, and the plan recognizes same-sex spouses, the employer should immediately apply federal laws that provide death benefits and spousal annuity protection to ensure that same-sex spouses may receive the same benefits as opposite-sex spouses, he said.
“There's no deadline imposed at this point” for updating plan documents, Schein said. However, employers should consider the timing of those changes, he said.
“I would advise them to discuss with their own employee benefits counsel the speed at which they want to implement those changes,” Schein said. The changes would vary depending on the state where the employer is located, he said.
Waiting too long could make the employer a target of litigation or do harm to employer-employee relations, he said.
Benefit practitioners are hopeful that the Internal Revenue Service will issue guidance relatively quickly on the timing of amendments, particularly for retirement plan documents, said attorney Leslie E. DesMarteau at Harter Secrest & Emery in Rochester, N.Y.
“Those plans are at the highest risk of having a nonconforming document because they have to give spouses certain rights,” she said.
Employers affected by the DOMA ruling also need guidance on how to amend their health and welfare benefit plan documents, DesMarteau said. Employers generally have more leeway in timing those amendments, but they should begin talking with their insurers about what they need to do next, she said.
Even before considering withholding tax changes or plan amendments, employers should be prepared to communicate with employees, not knowing when a death might require an immediate response to a claim for same-sex spousal rights, DesMarteau said.
In addition, if an employer provides benefits for same-sex spouses and domestic partners, “they'll need to find out who is married and who has a domestic partner,” she said.
The high court's recognition of same-sex marriages for federal tax purposes did not extend to same-sex civil unions or registered domestic partners.
The DOMA ruling raises the question of “to what extent does a plan administrator have the obligation to make these determinations versus putting the burden on the participant or the claimant?” said Louis T. Mazawey, a principal at Groom Law Group in Washington.
The court's decision on DOMA also might cause some employers to reconsider their offer of same-sex benefits to domestic partners, at least in those states that recognize same-sex marriages.
Rich Stover, a principal at Buck Consultants in Secaucus, N.J., said that a client he visited in New York on the day of the Supreme Court ruling indicated it might stop offering benefits for same-sex domestic partners, forcing same-sex domestic partners in states that recognize marriage to get married if they expect to receive spousal benefits.
Same-sex marriage is recognized in 13 states, including New York, and the District of Columbia.
That number increased by one on the day of the DOMA decision, as the court also dismissed a case involving California's Proposition 8, which banned same-sex couples from marrying.
The court, which did not address the measure's constitutionality, ruled that the private sponsors of Proposition 8 did not have legal standing under federal law to appeal a federal district court ruling that declared the proposition unconstitutional (Hollingsworth v. Perry, U.S. No. 12-144, 6/26/13).
As a result of that action by the court, California is expected to resume issuing marriage licenses to same-sex couples within 30 days or less, said Todd A. Solomon, a partner at McDermott Will & Emery in Chicago.
Greta E. Cowart, a shareholder at Winstead PC in Dallas, said the DOMA decision arrived at a time when human resources departments are overloaded and stretched thin with preparations for implementing the Affordable Care Act. Employers will be looking to IRS for guidance, she said.
“We're going to need a lot of guidance from the IRS,” including answers on whether plans can enroll same-sex spouses into health plans under the Health Insurance Portability and Accountability Act special enrollment rules now that federal law recognizes same-sex marriage, Cowart said.
“What we [also] don't know from the IRS yet is what they are going to do with people who previously paid a higher premium for covering domestic partners. Can the employer now request a refund of all those taxes they paid when they did the withholding and refund it to the employee?” she said.
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