Employers in states that had banned same-sex marriage must comply with new state insurance laws, and be aware of the changes to payroll and tax withholding issues.
Exactly two years to the day from its landmark Windsor ruling, the United States Supreme Court issued its decision in Obergefell v. Hodges. The June 26, 2015, ruling held that state same-sex marriage bans violate the Fourteenth Amendment’s Due Process Clause and Equal Protection Clause. This legalized same-sex marriage throughout the U.S., its possessions and territories, including the 14 states where same-sex marriage was previously banned.
Employers should see no impact to qualified retirement plans, since these are governed by federal law (ERISA). However, employers operating in states that had banned same-sex marriage must comply with new state insurance laws, and must be aware of upcoming changes to payroll and tax withholding issues in their states.
In light of the Obergefell decision, it is time to revisit spousal considerations in all employee benefit plans.
Qualified retirement plan provisions extend to all spouses
The 2013 Windsor decision required employers to amend qualified retirement plans, (if plan language did not recognize same-sex marriages), so that benefits would extend to participants and beneficiaries in same-sex marriages. Thus, all qualified retirement plans should already be in compliance. However, now is the time for employers to review and update plan operations and available forms. Affected provisions include:
- Qualified joint and survivor annuity payment provisions and spousal survivor benefits
- Spousal financial considerations when determining an immediate and heavy financial need, in the case of hardship distributions
- Required minimum distribution rules and surviving spouses
- Spousal consent for plan loans
- Rollover rules that relate to surviving spouses
- Qualified domestic relations orders
- Beneficiary designation forms
It is not certain at this time whether Obergefell v. Hodges decision will apply retroactively.
Avoid discriminatory practices
Employers in states that banned same-sex marriage should contact their insurance carriers to determine the appropriate course of action. In addition, leaders should review their benefit plans, policies, communications, and payroll systems to ensure they comply with new state insurance laws and avoid discriminatory practices.
While no employer is required to offer health and welfare coverage to spouses of eligible employees, same-sex married couples now have the same rights and tax treatment as opposite-sex married couples.
Private sector employers who sponsor fully-insured health and welfare plans should review the definition of “spouse” under their plans to ensure the term includes same-sex partners. Although self-insured plans are not subject to state insurance laws, updating plans to cover same-sex spouses, will help avoid discriminatory practices.
Benefit issues to review
In general, you must offer the same benefit to same-sex partners as you offer to opposite-sex partners. This applies to the following issues:
- Employer-provided health insurance coverage to an employee’s same-sex spouse is no longer imputed income to the employee for state tax purposes if the same coverage is tax-free when provided to an opposite-sex spouse. State income and payroll taxes should no longer be withheld from these amounts.
- Certain dependent care payments that may have previously received favorable state income tax treatment only if they were made to someone other than a spouse may now be treated like any other payment to a spouse.
- In the case of states that do not tax certain fringe benefits to opposite-sex married couples, employers must provide the same treatment for same-sex married couples.
- Group health plans providing coverage to adopted children of employees will be required to provide benefits to the adopted children of same-sex married couples.
- Group health plans providing coverage to step-children of employees will be required to provide benefits to the step-children of same-sex married couples.
How we can help
CliftonLarsonAllen can help you review provisions specific to states that banned same-sex marriage such as: COBRA coverage; mid-year elections in cafeteria plans and group health plans for qualifying events such as marriage, death of a spouse, legal separation, or annulment; limits on amounts contributed to a health savings account (HSA); and beneficiary designations.
Companies may begin to eliminate or reduce domestic partner benefits since the demand for this coverage is expected to decrease. However, some sort of domestic partnerships coverage may still be necessary for a variety of situations that are not marriages. We expect additional guidance concerning effective dates and whether Obergefell will be applied retroactively or prospectively. CLA will continue to monitor developments and provide updates as they become available.