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Employee Benefits After The Supreme Court’s Same-Sex Marriage Decision

July 15, 2015

The Supreme Court’s recent decision in Obergefell v. Hodges establishes a national right to same-sex marriage and requires states to recognize same-sex marriages performed in other states.

Generally speaking, this ruling will simplify employee benefit plan administration, particularly for employers operating in multiple states. Previously, in states that did not recognize same-sex marriages, welfare plan benefits provided to same-sex spouses could be taxed differently at the federal and state levels. This caused headaches for both employers (particularly those with employees in multiple states) and participants. The Obergefell decision will eliminate this differential tax treatment, as same-sex spouses nationwide will now have the same tax treatment under state law as under federal law.

Other effects of Obergefell depend on an employer’s previous approach to the benefits of same-sex couples and spouses.

Employers Already Offering Benefits To Same-Sex Spouses

Employers offering same-sex spousal benefits prior to Obergefell will not be significantly affected by the decision, aside from the need to reexamine state tax withholding and reporting of benefits provided to same-sex spouses. For example, an employer will need to change withholding rates for employees with same-sex spouses from “single” to “married,” and certain same-sex spousal benefits (such as spousal health insurance) that may have been subject to state taxation will now be exempt, as if they were provided to an opposite-sex spouse.

Employers Not Previously Offering Benefits to Same-Sex Spouses

For employers that restricted benefits available to same-sex spouses, there is now a question of which benefits must be offered. Some spousal benefits are now mandated. And even in the case of those that are not, it may be impermissible to provide a benefit to an opposite-sex spouse that is not provided to a same-sex spouse.

Following the Supreme Court’s Windsor ruling in 2013 (striking down the federal Defense of Marriage Act), the Department of Labor and Internal Revenue Service issued guidance requiring federally regulated benefits, such as tax-qualified retirement plans, to extend the same benefits to same-sex spouses as are extended to those in opposite-sex marriages. Therefore, these plans will likely not need to make any changes in response to Obergefell. However, the Obergefell ruling did not address how same-sex spouses should be treated with respect to welfare benefits such as health plans.

Currently, employers are not required to offer health coverage to spouses, whether same-sex or opposite-sex. If an employer wishes to deny coverage to both same-sex and opposite-sex spouses of employees, it may do so. But the Obergefell ruling adds to the uncertainty of whether a medical plan may offer coverage to opposite-sex spouses but deny coverage to same-sex spouses. Fully-insured medical plans will now likely be required to cover same-sex spouses to the same extent they cover opposite-sex spouses, because state insurance law will require that the term “spouse” be interpreted to include them. But self-insured medical plans may have more freedom to treat same-sex and opposite-sex spouses differently, because state insurance law does not apply to such plans.

That said, self-insured medical plans may face challenges under federal and state employment discrimination laws if they exclude same-sex spouses from coverage while including opposite-sex spouses. While no federal law explicitly prohibits discrimination based on sexual orientation, the Equal Employment Opportunity Commission has taken the position that discrimination against gay or lesbian employees is forbidden as sex discrimination by the Civil Rights Act of 1964. Although there is no case law yet on the issue, making a decision whether to provide spousal insurance benefits based on the gender of the spouse would appear to be subject to a straight sex discrimination as opposed to sexual orientation analysis under both state and federal law.

Employers Previously Offering Domestic Partner Benefits

Employers in states that have adopted same-sex marriage have increasingly been eliminating domestic partner benefits. Domestic partner benefits were originally based on the idea that employees with same-sex partners were disadvantaged relative to those with opposite-sex partners, due to the fact that same-sex marriage was not recognized under applicable state law. However, these benefits are often difficult to administer, as the existence of a domestic partnership is harder to document than a marriage, and a domestic partner is often not eligible for the same favorable tax treatment as a spouse is.

An employer’s decision whether to stop offering domestic partnership benefits is not a simple one, and there are many factors to consider. The Obergefell decision does not explicitly place any additional restrictions on an employer’s right to discriminate against gay individuals, and in many states, a gay or lesbian employee can still legally be fired based on their sexual orientation. Therefore, an employer might not find it desirable to force an employee to take the public step of getting married to continue receiving benefits.

Recommendations for Employers

Employers in all states should perform a review of their benefit plans to ensure compliance with applicable law with regard to benefits for same-sex spouses. Employers should also prepare for requests for benefit coverage from employees who marry their same-sex partner, and determine whether any amendments to health or welfare plans are necessary to clarify the administration of spousal rights or benefits for same-sex spouses. Employers should also review their procedures with respect to withholding and taxation of benefits provided to same-sex spouses to ensure proper federal and state tax treatment.

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