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June 30 -- Employers should be prepared for major changes in their health coverage policies, survivor benefits and the benefits they may offer to unmarried couples due to the U.S. Supreme Court's June 26 ruling upholding same-sex marriage rights, Todd A. Solomon, a partner in McDermott Will & Emery LLP's Chicago office, said June 30 at the Society for Human Resource Management's Annual Conference and Exposition in Las Vegas.
In many ways, he said, the ruling (Obergefell v. Hodges, 2015 BL 204553, U.S., No. 14-556, 6/26/15) is good news for employers operating in multiple states because it imposes uniform rules across the country, unlike the situation before June 26, when some states recognized same-sex marriage and some did not.
For example, Solomon said, it is now the case throughout the country that a same-sex spouse must consent to a benefit plan participant's designation of any beneficiary, just as was always the case for opposite-sex spouses.
A beneficiary designation without the spouse's consent is invalid, Solomon noted. A participant's same-sex spouse will be the default beneficiary in the event the participant dies without having named a beneficiary, he said.
“This has important implications for the states that got pulled in post-Windsor,” those that didn't recognize same-sex marriage even after the U.S. Supreme Court struck down key portions of the federal Defense of Marriage Act in 2012's United States v. Windsor (U.S., No. 12-307, 6/26/13). Now, even the holdout states are required to recognize same-sex marriage by the Obergefell decision, Solomon said.
Another change relates to same-sex spouses who divorce, Solomon said. From now on, just like divorcing opposite-sex spouses, they may enter into a qualified domestic relations order to divide retirement plan assets, he said. Before Obergefell, Solomon said, divorcing same-sex spouses couldn't use this method of dividing assets because they weren't recognized as spouses under federal law.
Since Obergefell is a ruling on the constitutionality of same-sex marriage, it applies retroactively, Solomon said. For instance, he said, defined benefit plans generally must offer participants payment in the form of a qualified joint and survivor annuity with pre-retirement spousal death benefit coverage. Same-sex spouses couldn't get these benefits pre-Windsor.
It's a “big retroactivity issue,” Solomon said. Plan sponsors are starting to receive retroactive benefit claims from participants with a same-sex spouse who was not recognized at the time payments began, as well as from surviving same-sex spouses. Plan sponsors should be prepared to pay such retroactive claims, Solomon said.
But overall, Solomon said, retirement plans will not be “dramatically changed” by Obergefell; the big changes to those came as a result of the Windsor ruling. Obergefell will have more of an effect on health plans, Solomon asserted.
For example, from now on employers that continue to provide coverage under self-insured plans only to opposite-sex spouses “face significant risk of legal challenges under federal discrimination plans,” according to a slide Solomon presented.
When it comes to externally insured plans, same-sex spouses must be extended spousal benefit coverage under medical, dental or vision plans in states that allow same-sex marriage, which is presumably all of them now, Solomon said. State law benefit mandates may require coverage to be extended to unmarried same-sex partners as well, he said.
The Department of Health and Human Services issued guidance in March 2014 that requires insurers to offer the same coverage to same-sex spouses that is offered to opposite-sex spouses, Solomon noted.
Windsor caused “really big changes” to employee taxes, and more big changes are on the way due to Obergefell, Solomon said. Among them:
• Employees will no longer pay federal income and employment tax for income imputed on the fair market value of employer-provided benefit coverage for a same-sex spouse, regardless of whether the couple resides in a state where same-sex marriage has been legal or recognized until now.
• Employees can pay for a same-sex spouse's coverage using pre-tax contributions under a Section 125 cafeteria plan.
• Employees can take tax-free reimbursements from flexible spending accounts, health reimbursement accounts and health savings accounts.
• However, favorable federal tax treatment will not extend to unmarried same-sex partners unless the partner meets the Internal Revenue Code definition of “dependent.”
• Retroactivity applies to taxes as well. Employers may request a refund or adjustment of payroll taxes paid on imputed income for same-sex spousal benefit coverage for open tax years (usually three years).
• Employees may elect to file amended tax returns to claim refunds on income and employment taxes paid on same-sex spousal benefits in prior open tax years (usually three years). Thus, employers will likely receive employee requests for corrected W-2s or information (although fewer requests are likely for state income taxes because they are low), Solomon said.
As a result of the Obergefell ruling, a lot of big companies, such as Verizon and Delta, are eliminating or thinking of eliminating unmarried partner benefits, Solomon said. “I tell companies to give some thought to this,” he said.
One problem is that same-sex couples are still not equal to opposite-sex couples, Solomon said. They can still be fired simply for their homosexuality in a lot of states, he said. If an employer effectively requires same-sex couples to get married to receive benefits, that may be “an outward expression they may not be comfortable with,” he said. Solomon also warned of the possibility of reverse-discrimination suits from unmarried opposite-sex couples if unmarried same-sex couples are treated preferentially.
Another new and unresolved matter relates to fertility benefits, such as same-sex couples who want coverage for in vitro fertilization or surrogate pregnancies. Solomon pointed out that companies that grant less time for paternity leave than for maternity leave will be in a quandary when same-sex male couples have a baby. Thus, a lot of companies are now moving to a “primary caretaker/secondary caretaker” model, he said.
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