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July 3, 2015

The Law of the Land: A Spouse is a Spouse (article)

On June 26, 2015 the Supreme Court rendered its opinion in the matter of Obergefell v. Hodges.  Two questions were addressed.  First, the Supreme Court has determined that it is a violation of the Fourteenth Amendment’s Due Process Clause of the U. S. Constitution (the equal protection clause) for a state to restrict marriage to only opposite sex people.  Secondly, the Supreme Court ruled that a state must recognize same-sex marriage entered into in another jurisdiction. In short, as a result of this decision, all states must recognize same sex marriages whether entered in that state or in another state. 

 

This decision comes two years to the day from the United States v. Windsor case where the Court struck down the Defense of Marriage Act (see CBIZ Benefit Beat, Supreme Court Opines on Same-Sex Marriage Issues, 7/5/13), effectively making same-sex marriage recognized for all federal purposes. 

 

Impact on Employee Benefits

What the Obergefell v. Hodges ruling means for employment and particularly employee benefit purposes will surely evolve in the days and months to come, as states discern how to implement this ruling.

 

Health Coverage.  It is probable that insurance laws defining spouse will be reviewed and modified, if necessary, to reflect this broader definition.  Similarly, insurance contracts, such as health insurance contracts and life insurance contracts that define spouse may be modified by the insurers to reflect this new definition. 

 

At this point, it is unclear whether a self-funded health plan subject to ERISA could define spouse more narrowly.  As a reminder, ERISA does not define spouse for welfare benefit plan purposes.  Even if a self-funded plan can be written to define spouse to include only opposite sex spouse, this could raise discrimination issues, particularly in jurisdictions that have laws prohibiting discrimination based on sexual orientation.  Any employer contemplating a limited definition of spouse should consult with legal counsel before taking any action. 

 

A couple married in a state that newly recognizes same-sex marriage, the marriage would qualify as a special enrollment opportunity for health plan purposes. 

 

Coordination with Domestic Partner Coverage.  Employers that offer domestic partner benefits may want to consider whether to continue these provisions.  Some states, such as California, continue to require coverage of registered domestic partners for many benefit plan purposes.  In many other jurisdictions, however, this is not required.

 

If an employer chooses to retain an eligibility classification for domestic partnerships, civil unions or the like, it is important to remember that the tax consequences for benefits provided in such situations remain unchanged.  In other words, only if the domestic partner qualifies as a tax dependent can tax-favored benefits be provided.

 

Employer provided pension and retirement plans.  For retirement plan purposes, this new ruling will have little impact on ERISA plans since they are governed by federal law and the definition of spouse was broadened by Windsor.  However, for state and local government plan purposes, spouse will now include both same and opposite sex.

 

Beneficiary designations.  Employers might want to recommend that employees review their beneficiary designations as it applies to the relevant plan(s) such as life insurance and retirement plans.  This is generally a good practice at open enrollment to remind employees to review and update, as appropriate, their beneficiary designations.

 

State tax matters.  As a result of Windsor, a same-sex spouse is treated for tax purposes in the same manner as an opposite sex spouse.  With the advent of this new ruling, for state tax purposes, all spouses whether same or opposite sex will be treated in the same manner. It is likely states will issue guidance on this matter in the near future.

 

Once again, employers should review their definition of spouse in all of their welfare benefit plans, cafeteria plans, and retirement and savings plans and make any necessary modifications.  In addition, an employer might also want to review all of its employment policies to ensure these policies include an appropriate definition of spouse.

The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

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