The Defense of Marriage Act (DOMA), which provides that under federal law marriage is between one man and one woman, is no stranger to employers. DOMA is the reason that employer health benefits provided to same-sex spouses are taxable, and is the reason that tax-qualified plans are not required to provide survivor benefits to same-sex spouses. DOMA also is shaping up to be no stranger to the news in 2012. This year, two federal courts – including one at the First Circuit Court of Appeals level – have ruled the provision of DOMA that limits marriage to an opposite-sex union unconstitutional. Also, last month President Barack Obama announced his support of gay marriage – although he did not go as far as addressing whether there should be a federal right to gay marriage. While these types of developments are indeed newsworthy, they do not yet rise to the level of requiring (or allowing) employers to modify their plans to fully recognize same-sex marriages in all contexts.
Background on DOMA
DOMA, which was signed into law by President Bill Clinton in 1996, provides that states are not required to recognize a same-sex marriage that is treated as a marriage in any other state. DOMA also provides that, for purposes of federal law, only a marriage between a man and a woman is recognized. Because a person’s marital status determines numerous benefits, rights and privileges under the United States Code, the provision of DOMA restricting marriage to opposite-sex unions has far-reaching implications, including implications with respect to the administration of employee benefit plans governed by the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code, both federal laws.
Effect of DOMA on Employee Benefits
A person’s marital status is determinative of many benefits offered under an employee benefit plan. If the employee benefit plan or provision provides a tax-preferred benefit under the Internal Revenue Code – then generally the benefit cannot be extended to a same-sex spouse without incurring tax implications. Likewise, there are certain spousal benefits that are mandated or allowed under ERISA or the Internal Revenue Code – and those benefits do not extend to same-sex spouses. For example:
- Survivor Annuities Under Certain Tax Qualified Plans. Under both ERISA and the Internal Revenue Code, certain tax qualified plans are required to provide survivor annuities – whereby upon the death of the participant, the “spouse” has a right to survivor benefits unless previously waived by the participant and spouse. Because the survivor annuities are a creation of federal statutes, DOMA prevents a plan administrator from applying these rules to same-sex spouses. Rather, the rules would view a participant in a same-sex marriage as “unmarried.” A plan may, however, allow optional forms of benefits whereby a same-sex spouse is the designated beneficiary.
- Hardship Distributions. Under the Internal Revenue Code, a cash or deferred arrangement or “Section 401(k) plan” can permit participants to receive a hardship withdrawal in the event of certain financial hardship. Prior to a 2006 change in the law, the financial hardship events were limited to those affecting the participant or a spouse, or a dependent of the participant. Unless a participant’s same-sex spouse also qualified as a participant’s tax dependent, a hardship distribution was unavailable in the event of a hardship faced by the participant’s same-sex spouse. A 2006 law attempted to address this result by expanding the list of hardship events to include hardship expenses (such as medical or funeral expenses) relating to a “primary beneficiary” under the plan (which can include a same-sex spouse). However, if a plan has not been amended for this permissive expanded hardship definition, a participant’s hardship events remain restricted by DOMA and plan administrators can only look at the hardship expenses relating to the participant, an opposite-sex spouse and a tax dependent.
- Health Coverage. There is nothing in ERISA or the Internal Revenue Code which limits employer-provided health coverage to an employee, the employee’s spouse (as defined under federal law) or the employee’s dependent. An employer (other than the federal government) can design its group health plan to permit coverage of a same-sex spouse. However, because medical coverage received under an employer provided health plan is excludable from income for the medical care of only the participant, the participant’s spouse and the participant’s tax dependent, the benefits provided under the group health plan (or alternatively, the employer contributions made to the group health plan) would be taxable in light of DOMA.
The Status of DOMA
In a February 22, 2012 decision where DOMA was successfully challenged in a federal district court in San Francisco – Golinski v. United States Office of Personnel Management – a federal government employee attempted to enroll her same-sex spouse in the government’s health plan. Coverage was denied because DOMA proscribed federal health coverage to same-sex spouses. The participant challenged the interpretation, arguing that DOMA violated her rights to equal protection under the Due Process Clause of the Fifth Amendment, which limits the distinction the federal government may make between groups or categories of people by placing the burden on the government to justify its reasoning for the distinction. The district court agreed with the participant and found that her same-sex spouse was entitled to benefits under the health plan.
On May 31, 2012, in Massachusetts v. United States Department of Health and Human Services, the First Circuit also held that DOMA did not withstand scrutiny based on equal protection and federalism concerns and was thus unconstitutional. This case was the companion case to Gill v. Office of Personnel Management, in which the surviving same-sex spouses of federal employees sought health benefits under a federal health plan. The First Circuit ruled on DOMA but stayed its applicability to any cases pending in the courts (including Gill) until the U.S. Supreme Court has had a chance to review the issue of DOMA’s constitutionality.
Implications for Employee Benefits
Although the recent case law may be indicative of the tide turning against the constitutionality of DOMA, it is too early to tell. More litigation on the issue is expected. The district court decision in San Francisco is not binding on other courts, even courts in the same district. The First Circuit decision has been stayed, so it also is not binding on other courts, although lower courts in the First Circuit as well as in other federal circuit courts of appeal may find it persuasive. What that means is that plan administrators will need to watch future decisions to determine whether they impact their respective plans. If a split develops in the federal circuit courts of appeal, administrators will have difficult decisions to make about whether or not DOMA is still applicable in their jurisdiction. If a benefit plan is applicable in more than one jurisdiction, plan administrators’ jobs will be even more difficult because they may have to reconcile conflicting court decisions. Uniformity will not occur unless or until the constitutionality of DOMA is considered by the U.S. Supreme Court or the law is amended by Congress. In the meantime, plan administrators of both welfare and retirement plans will need to take into account DOMA’s more limited definition of marriage when applying and drafting employee benefit plans.