Employers may wish to send out an all-employee communication concerning the Supreme Court’s recent partial reversal of the Defense of Marriage Act. Employees may welcome reassurance that their benefit plans will immediately reflect the required changes.
Employers can explain that same-gender spouses will now receive all the advantages granted to spouses under the company’s retirement, health, welfare, insurance, and fringe benefit plans. Effective immediately, medical plan participants will no longer be taxed on the company’s coverage of their same-gender spouses.
Employees will be anxious about the retroactive effect of the Supreme Court ruling. Unfortunately, there is no guidance yet. Your company’s letter might just note that the IRS and Department of Labor have not yet issued guidance on whether the ruling has any retroactive effect. The company will notify the employees as soon as the federal agencies decide this question.
We expect that the IRS will permit employees to make a mid-year election to enroll their same-gender spouses in the company health or flex plans. It may smooth this process if companies contact their 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.
It’s also possible that the IRS will allow employers to amend their quarterly tax filings already made for their current fiscal years in order to reverse the imputed income treatment arising from covering same-gender spouses under the health plan, if the employers wish. Any salary “gross-ups” given to balance this imputed income treatment would also be reversed. Employers would be able to claim refunds on payroll taxes paid, and refund withholdings to their employees.
This is a weighty administrative burden, and if the retroactive amendment is optional, some employers may choose not to apply benefits retroactively.
For welfare plans, the DOMA reversal affects:
- Tax treatment of coverage
- COBRA coverage
- Mid-year change rules for medical and flex plan elections (new marriage, spouse’s change in employment, divorce)
- Family Medical Leave Act. This Act determines marital status under the state law of the participant’s residence.
- Ineligibility for dependent care, if spouse is not gainfully employed or seeking work
- Qualified child medical care orders
- Step-children coverage.
For qualified retirement plans, such as 401(k)s and pension plans, it affects:
- 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
- Minimum distribution rules.
Employers may wish to immediately adopt a general, global plan amendment of all employee benefit plans and arrangements, effective prospectively only, as of the first pay period immediately following June 26, 2013 (for welfare and fringe benefit plans), or the scheduled benefit commencement date first following that date (for qualified retirement plans), changing all appropriate document provisions and procedures so that all spouses are treated uniformly, provided that the spouse is recognized as a spouse under the state law of the participant’s residence.
This global amendment will forfend against any retroactive claims by employees and clarify difficult situations concerning employees moving from state to state and divorce.
As next-step agenda items, employers should review plan documents to ensure that they specify that the state law of the participants’ residence will determine their marital status. General definitions of a spouse as being “legally married” to the participant may give rise to confusion, as states are not required to honor the same-gender marriages of other jurisdictions, even after the recent Supreme Court decision.
Summary plan descriptions should be reviewed to correct or clarify as needed. The letter sent to employees will serve as the required “summary of material modifications.”