Now that the U.S. Supreme Court has ruled that the federal Defense of Marriage Act’s refusal to recognize state same-sex marriages was unconstitutional, employers are scrambling to figure out how far they have to go in changing their employee benefit and leave policies.
“Oh my God, everybody is calling,” said A. Melinda Maher, a partner in the benefits and compensation group at Dorsey & Whitney in Minneapolis, who represents employers ranging in size from a few thousand to tens of thousands of workers.
“I’ve got employers calling me wanting to know, ‘Do I need to provide benefits to same-sex couples now?’ It’s all swirling in our heads right now,” said Mark Bodron, a partner in the Houston office of Baker Botts.
The court ruled in U.S. v. Windsor that DOMA’s definition of marriage as between a man and a woman violates the Fifth Amendment by depriving same-sex couples legally married under state law from receiving the same federal benefits conferred on other married couples, thus creating “two contradictory marriage regimes within the same state.” Twelve states and the District of Columbia currently recognize same-sex marriage.
“Employers should really get a handle on what they’ve been providing and do a full review of current plan documents, forms and operating procedures,” said Joanne Youn, a partner at Caplin & Drysdale in Washington.
Employers in states that recognize same-sex marriage should be prepared to make changes in three areas: health benefits, retirement plans, and family and medical leave policies.
While technically the court ruling does not directly obligate private employers to provide federal benefits to same-sex couples, “the writing is on the wall,” said Joseph A. Creitz, a partner at Creitz & Serebin in San Francisco who represents employees in ERISA litigation.
“If you don’t start making changes, you run the risk of being the defendant in the next test lawsuit under Title VII saying your benefits practices are discriminatory,” Creitz said.
Even in cases in which employers were already providing health benefits to same-sex spouses, those benefits were not provided on a pre-tax basis; some employers would gross-up the amount to offset the tax hit or try to fit the same-sex spouse into a loophole as a dependent.
Now, the premiums can be paid with pre-tax dollars, making it easier to administer than in the past when employers had different reporting to the state and federal government.
In Minnesota, where a law was passed recognizing gay marriage as of Aug. 1, employers have a month to get their ducks in a row.
“If an employee is in Minnesota, was married in Minnesota, it’s easy. They pay health insurance premiums pre-tax, and employers report to the state and federal government the same way — boom, you’re done,” Maher said.
Employers should also look at retirement plans such as 401(k) plans and pension plans that followed the federal definition of spouse, but now will include a same-sex spouse.
Before the Windsor ruling, “a few plans extended this rule to same-sex spouses, but most did not. Now, with DOMA being gone, [plans] are going to have to make sure they do the same thing for same-sex spouses,” said Terry-Lynne Lastovich, an attorney at Dorsey & Whitney in Minneapolis.
Employers can now give family and medical leave under federal law to employees to care for a same-sex spouse.
“Prior to this decision, even in states where same-sex marriage was recognized, if a same-sex spouse suffered a serious health condition, it wouldn’t be covered under FMLA because a same-sex spouse was not in the definition of spouse,” said Grant T. Collins, an attorney at Felhaber, Larson, Fenlon & Vogt in Minneapolis.
Lawyers are also questioning whether benefits to same-sex spouses will be retroactive, given that the court found DOMA unconstitutional.
“I think when the court says it’s unconstitutional, that means the law never should have existed,” Bodron said.
“The court’s decision doesn’t give me any reason to think it’s not retroactive. If a statute is unconstitutional, it was unconstitutional the day it passed. It didn’t become unconstitutional; it always was unconstitutional,” Collins said.
Attorneys are hoping to see guidance from the Internal Revenue Service and Department of Labor soon.
George L. Chimento, a shareholder of Davis, Malm & D’Agostine in Boston who advises employers, is telling his clients in states that recognize same-sex marriage not only to open enrollment mid-year to provide pre-tax treatment of health insurance, flex accounts and other “cafeteria” plans to same-sex couples, but also to reverse all of the taxes since Jan. 1.
Chimento also advises employers to issue a new W-2 to employees who want to amend their tax returns for prior years as a married same-sex couple.
The other 38
The question that has employee benefits lawyers stumped is how to advise employers that operate in states where same-sex marriage is either not recognized or banned.
The court left standing section 2 of DOMA, which says no state is required to recognize another state’s same-sex marriage.
It is unclear whether an employer must treat as married a same-sex couple who gets married in a state that recognizes it, then moves to a state that does not.
“Texas does not have to recognize a New York same-sex marriage, so you end up with employers not knowing what to do,” Bodron said. “If you look to state law, Texas doesn’t recognize it. Does that mean the person is still not a spouse? That’s the quandary we’re in now.”
It is even more complicated for companies that operate nationally or in neighboring states with opposite views on same-sex marriage, such as Maryland and Virginia, or Wisconsin and Minnesota, because they will potentially have to administer dual incomes for the same employee — one for purposes of state law, another for federal law.
Many employers, if only for the ease of administration, may choose to treat same-sex couples as married even if they are living in one of the 38 states that do not recognize them as married.
Clearly, that is the next shoe to drop, as same-sex couples move about the country.
“I tend to think that once the federal government recognizes a couple is lawfully married in a state that recognizes same-sex marriage, it is not going to cease to recognize it because they moved to another state,” Creitz said. “There will be no shortage of litigation over the next five to 10 years.”