Benefit Plans After United States v. Windsor: Round One

Under Section 3 of the federal Defense of Marriage Act (DOMA):

In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word "marriage" means only a legal union between one man and one woman as husband and wife, and the word "spouse" refers only to a person of the opposite sex who is a husband or a wife.

This past June 26, the United States Supreme Court, in a 5-4 decision written by Justice Kennedy, held in United States v. Windsor, __ U.S. __, 2013 WL 3196928 (2013), that Section 3 "is unconstitutional as a deprivation of the liberty of the person protected by the Fifth Amendment of the Constitution." The decision involved the denial by the Internal Revenue Service (IRS), pursuant to Section 3, of the federal estate-tax marital deduction for amounts passing to the surviving spouse in a same-sex marriage. As a result of the Court's striking down Section 3, the marital deduction became available to the decedent's estate. Although Windsor did not involve any employee benefit plan, its holding presents many issues for sponsors and administrators of benefit plans subject to ERISA and the Internal Revenue Code (Code).

Before Windsor, some employers chose to follow the DOMA definition of "spouse" when dealing with domestic partners and same-sex spouses under their employee benefit plans and programs, thereby sidestepping these issues. However, more and more employers in the years before and after DOMA was passed have extended benefits to employees and their families, regardless of whether those family units were designated as "traditional." Coverage arrangements for stepchildren and grandchildren have also required careful planning and documentation. Employers have been addressing these issues by extending benefits to redefined family-member groups, amending plans to incorporate those groups and to ensure that benefits are available under the terms of the plans and administering plans and programs to benefit all eligible groups.

This WorkCite will provide a brief overview of the issues that employers faced in the pre-Windsor era in dealing with the provision of benefits to the domestic partners or same-sex spouses of their employees. While the ruling in Windsor removes the immediate impediment, the void is filled with as many questions as answers, as is often the case. Those issues facing employers in the post-Windsor era along with some answers will be outlined and discussed. In the coming weeks, look for further information in WorkCite articles as IRS, the Department of Labor (DOL) and other federal agencies respond to the Windsor ruling with much-needed guidance.

Employee Benefits Issues under DOMA before Windsor

Group Health Plans

Under Code Sections 105 and 106, and in accordance with Section 3 of DOMA, employer payments for group health plan benefits, either directly or through insurance, for an employee, the employee's opposite-sex spouse, and the employee's dependents have generally been excluded from the employee's income. In addition, an employee has been able to exclude from income amounts contributed to a Code Section 125 cafeteria plan for premiums covering these same individuals. To receive this favorable tax treatment, IRS regulations have provided that an individual is an employee's dependent if the individual meets the definition of "dependent" under Code Section 152 without regard to the income threshold of that section.

The IRS has stated (in a private letter ruling) that because of DOMA, while a domestic partner (or same-sex spouse) is not the employee's spouse under federal law, such a person may be the employee's dependent if the requirements of Section 152 are met. In order for a same-sex spouse or domestic partner to be an employee's dependent for purposes of group health plan coverage, the domestic partner or same-sex spouse must meet the requirements of a "qualifying relative" under Section 152(d). If the domestic partner or same-sex spouse is an employee's dependent under Section 152(d), the net value of the health coverage provided will not be included in the employee's taxable income and will not be subject to FICA taxes. In addition, the employee's share of premiums for health coverage may be deducted from the employee's pay on a pre-tax...