On June 26, 2013, the US Supreme Court, in US v. Windsor, invalidated Section 3 of the Defense of Marriage Act (DOMA). For 17 years, Section 3 of DOMA defined marriage under federal law as "a legal union between one man and one woman" and defined a spouse as "a person of the opposite sex who is a husband or a wife." In a hotly contested 5-4 decision, the majority held that DOMA's definition of marriage was unconstitutional under the equal protection element of the Fifth Amendment's Due Process Clause. A companion decision to Windsor confirmed that the power to define marriage now returns to the individual states. As a result, plans cannot blindly continue past practices, beginning now.
In its opinion, the Court stated "[t]he States' interest in defining and regulating the marital relation, subject to constitutional guarantees, stems from the understanding that marriage is more than a routine classification for purposes of statutory benefits." Slip Op. at 19. This reclassification, however, will impact more than 1,138 federal laws (according to the Human Rights Campaign) and countless federal regulations which confer rights and benefits (and impose obligations) on married couples. In particular, the decision has changed employee benefit plans governed by the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA).
Emerging complexities abound. For retirement plans, the definition of spouse affects many plan operations, including survivor benefits, consent requirements (for loans, beneficiaries and distributions), beneficiary designations and minimum distribution requirements. For welfare plans, the definition of spouse affects eligibility and taxability of at least health, dental, vision and accident benefits; changes cafeteria plans; and influences other welfare benefits. Nonqualified deferred compensation plans may not escape, depending on the approach they took to defining a spouse. The state tax treatment of responsive plan changes may not comport with the new federal treatment in all jurisdictions. Plan sponsors and administrators must take a close look at their plan documents and administration to make sure they comply prospectively with the Court's ruling.
On the other hand, the ruling may simplify some plan administration. For example, employers who voluntarily covered same-sex spouses under their welfare plans may now provide pre-tax benefits to same-sex spouses in the same way they provide benefits to opposite-sex spouses without violating the Internal Revenue Code. Others who have been paying gross-ups to remedy inequitable tax treatment can stop doing so. But the majority opinion does not address difficult questions "that will now arise absent a uniform federal definition of marriage." Slip Op., J. Scalia Dissent at 19. Specifically, the Windsor ruling calls into question which state's definition of marriage should apply to the plan or to a particular participant. Plans, plan sponsors and (perhaps ultimately) plan fiduciaries must start today dealing with conflicting state laws defining marriage to determine who is a spouse under plan terms. It is unclear how to make this determination. For example, does the plan document's choice of law provision prevail on this issue, or must the plan decide on a case-by-case or participant-by-participant basis? How much depends on the details of an individual's marriage, i.e., state of celebration vs. state of domicile?
Another important concern is raised by Windsor's silence. The day on which Section 3 of DOMA became unconstitutional is not identified. For almost two decades, many plans have acted relying on DOMA, in some cases concerning plan qualification concerns. Was that reliance misplaced? Prompt attention must be given to plans' operations and administration as they existed prior to June 26, 2013, as well as to possible corrective actions.
The decision also affects plan design. Some benefit plans have voluntarily covered same-sex spouses prior to the Windsor opinion. Now, at least in the 12 jurisdictions that recognize same-sex marriage today, other benefit plans cannot rely on federal law to deny spousal recognition to legally married same-sex spouses. What they can do with plan terms about providing same-sex spouses with the same or different benefits as opposite-sex spouses assumes much greater visibility.
Windsor creates a host of issues and questions for plans and their sponsors. Answers will lie in the technical scrutiny of plan language and administration, as well as close monitoring of legislative or regulatory guidance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
