Massachusetts Employment Law Letter

DOMA ruling changes benefits landscape in Massachusetts

Although Massachusetts law has recognized same-sex marriages since 2003, the Defense of Marriage Act (“DOMA”) has interfered with the ability of Massachusetts employers to grant same-sex couples full equality under the law.  Now that the United States Supreme Court has ruled that Section 3 of DOMA is unconstitutional, Massachusetts employers need to update their policies and procedures. 

State law definition applies

DOMA governs all federal statutes, including the Employee Retirement Income Security Act (“ERISA”), the Internal Revenue Code (“IRC”), and the Family and Medical Leave Act (“FMLA”).  Under Section 3 of DOMA, the term “marriage” meant marriage between one man and one woman, and “spouse” meant person of the opposite sex.  However, on June 25, the Supreme Court ruled that Section 3 of DOMA was unconstitutional in the case United States v. Windsor.  The Court’s Windsor decision means that state law can apply to the definition of marriage and spouse.  Under Massachusetts law, therefore, couples who are married in and reside in Massachusetts must all be treated the same, regardless of whether they are of the same or opposite sexes.

ERISA

Typically, health and welfare benefits that are insured by an insurance company are governed by state law, so if you have a fully insured health plan, you have already been required to apply Massachusetts law to your benefits plan.  However, benefit plans for employers who are self-insured are subject to ERISA, which is a federal statute.  Prior to the Court’s ruling on DOMA, Massachusetts employers with self-insured plans were not required to offer such plans to their employees who were in same-sex marriages.  The Court’s decision in Windsor changes that.  A same-sex marriage now is considered a qualifying change-in-status event, so same-sex married couples will no longer need to wait for open enrollment to add their spouse to the employer’s health plan.  However, it’s unclear as to how this will work with employees who are already married to same-sex spouses.  We expect that the IRS will permit employees to make a mid-year election to enroll their same-sex spouses in the company health or flex plans, and you may want to contact your insurers now to prepare for this likely step.  But, it’s wisest not to mention this option to employees until formal IRS permission is issued.  Mid-year elections may be an option left to the employer’s choice.  For those same-sex spouses who are already enrolled, remember that if the employee loses coverage, you will need to provide COBRA coverage to same-sex spouses, under the same circumstances that apply to opposite sex spouses.

The Court’s DOMA decision will also affect retirement benefits, such as 401(k) plans and pensions as well.  Areas where the Court’s ruling will affect pensions and other similar benefits include who is considered an automatic beneficiary, spousal consent for non-spouse beneficiaries, QDRO protection, automatic death benefits, and the timing and amounts of death benefit payments, special roll-over rules, hardship distribution criteria, and minimum distribution rules.  You should consult your insurance carrier, your pension and 401(k) administrator, and your labor and employment counsel to be sure that your ERISA practices are in line with the changes in federal law.

Tax implications

Changes in employee benefits also raise tax implications.  Many employers in Massachusetts already allow same-sex spouses to be covered under the employee’s health insurance plan, but unless the same-sex spouse was the employee’s dependent for tax purposes, the value of the healthcare coverage provided was subject to federal income and employment taxes.  This meant two tax structures, one for federal and one for state, because those benefits were not considered income for state tax purposes.  The Court’s ruling now brings federal and state tax policy into alignment:  same-sex spouses are considered spouses for employee benefit purposes, and the value of health insurance benefits provided to that spouse under the employee’s plan is not considered taxable income, just as would be the case for opposite sex spouses.  Employees may consider filing amended returns to recover taxes paid on benefits in past years.

FMLA

Prior to the Court’s DOMA decision, employers who granted leaves to employees to care for their same-sex spouse could not count that leave time against the employee’s FMLA entitlement, which could mean that the employee with a same-sex spouse would be entitled to double the amount of job-protected leave.  Since the FMLA specifically states that “spouse” is determined by state law, Massachusetts employers will now be required to permit employees to take FMLA leave to care for a same-sex spouse with a serious health condition and may count that leave against the employee’s annual FMLA allotment.

What about operations in other states?

For Massachusetts employers who have operations in other states, the question will arise:  what should I do about employees who may have been married in a state that recognizes same-sex marriages but who work in a state where such marriages are not currently recognized or are perhaps prohibited by a constitutional amendment?  Here, we are awaiting guidance from the various federal agencies that have been impacted by the changes brought by the DOMA decision.  The Court’s ruling left Section 2 of DOMA intact, which provides that states that do not recognize same-sex marriages are not required to recognize same-sex marriages that take place in other states.  There may be an executive order in the future or changes in regulations that would give employers some guidance as to how to treat these employees who work for Massachusetts companies and are married in Massachusetts but happen to be based in another state where same-sex marriages are not recognized.  So, stay tuned and stay in touch with your labor and employment counsel for further developments.

Article By: Susan G. Fentin
Reprinted from the July 2013 issue of the  Massachusetts Employment Law Letter.

Susan G. Fentin is a Partner at the firm Skoler, Abbott & Presser, P.C., and Editor of the Massachusetts Employment Law Letter. Susan can be reached at (413) 737-4753 or sfentin@skoler-abbott.com.