Guest Article

(From the May 24, 2004 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Federal Law Doesn't Recognize Same-Sex Marriages: Effect on Employee Benefits

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Massachusetts on May 17 became the first state to issue marriage licenses to same-sex couples. As a result, same-sex couples in Massachusetts can marry and enjoy all the legal rights and privileges granted to married couples under Massachusetts law. The state of Vermont has recognized same sex civil unions since 2000, and Oregon soon may become the next state to begin recognizing either civil unions or same-sex marriages. However, the federal Defense of Marriage Act (DOMA) precludes recognition of same-sex marriages or civil unions for purposes of federal law-- including the many federal benefit- and employment-related laws.

Effect on Employers

The different definitions of "marriage" and "spouse" under federal and state law will raise a number of complicated legal (and Constitutional) questions that may take years to answer. In the employment and benefit contexts, many of these questions will turn on whether a federal or state law is at issue. If a federal right or privilege-- such as the right of a group health plan participant's spouse to elect COBRA continuation coverage in certain circumstances-- is at issue, then the DOMA will control. If a state statute is at issue-- a state COBRA law is a good example - then the state law definition of spouse presumably would apply. But there undoubtedly will be many gray areas that employers (and their attorneys) will have to navigate.

Employers with employees in Massachusetts will have to begin dealing with these types of issues sooner rather than later. All other employers probably should at least start thinking about them because of the likelihood that other states will begin recognizing same-sex marriages in the future.

Federal Law

According to the 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 wife.

Thus, a same-sex couple legally married in Massachusetts still may not claim any of the tax preferences or other rights available to married couples under the Internal Revenue Code, ERISA, or various other related federal laws. A General Accounting Office report identifies 1,138 federal statutory provisions "in which marital status is a factor in determining or receiving benefits, rights, and privileges." Some relevant examples include:

IRC section 106 (and related regulations), which provides an exemption from gross income for health coverage an employer provides to employees, their spouses, and dependents. IRC section 401(a)(11), which requires certain tax-qualified pension plans to offer a qualified preretirement survivor annuity to the surviving spouse of a vested participant who dies before the annuity starting date. IRC section 401(a)(13), which creates the qualified domestic relation order exception to the tax-qualified plan anti-alienation rule. IRC section 417(a), which requires spousal consent for any waiver of a qualified joint and survivor or qualified preretirement survivor annuity. IRC section 4980B, which creates COBRA continuation coverage rights for group health plan participants, their spouses, and dependent children, who lose coverage in certain circumstances. FMLA section 2612, which guarantees to eligible employees the right to take up to 12 weeks of unpaid leave in a 12-month period to care for a spouse with a serious health condition.

Plan Interpretation

ERISA plan documents frequently refer to a participant's "spouse" without specifically defining that term. For example, as required by IRC section 417(a), a pension plan will require a married participant's spouse to consent if the participant wants to elect a lump sum distribution in lieu of Deloitte Global Employer Rewards Washington Bulletin May 24, 2004 the qualified joint and survivor annuity. If the participant lives in Massachusetts and has a same-sex spouse, should the plan treat the participant as married or single for purposes of this requirement?

Because the question involves interpreting the terms of an ERISA plan, and because ERISA preempts any state laws to the extent they "relate to" ERISA plans, the presumptive answer is that federal law controls. But plan sponsors may want to consider reviewing their plan documents and possibly amending them to clarify the meaning of the terms "spouse" and "marriage" as used in their plans. (Of course, plan sponsors should consult with their attorneys before making any such changes to their plans.)

Other Considerations for Employers

The fact that same-sex spouses are not treated as "spouses" for purposes of these and other federal laws does not mean employers cannot extend many of these same rights to their employees' same-sex spouses. For example, as some employers now do for domestic partners, an employer might create parallel COBRA-type rights for employees' same-sex spouses. Likewise, an employer could create FMLA-type rights for employees to take unpaid leave to care for same-sex spouses.

Employers may choose to provide health benefits to same-sex spouses. However, as is the case with health benefits many employers now provide to domestic partners, the value of these benefits will be taxable income to the employee unless the same-sex spouse qualifies as a dependent under IRC section 152.

Finally, employers should be mindful of state employment and benefit mandates they may have to honor with respect to same-sex spouses. For example, Massachusetts is one of many states that has enacted a COBRA-type law. To the extent that law creates rights for spouses, those rights would have to be extended to same-sex spouses.

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The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Tom Brisendine 202.879.5365, Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Mike Haberman 202.879.4963, Stephen LaGarde 202.879.5608, J. D. Lutz 202.879.5366, Bart Massey 202.220.2104, Diane McGowan 202.220.2077, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5324, Tom Veal 312.946.2595, or Deborah Walker 202.879.4955. Copyright 2004, Deloitte.

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