July 12, 2013
In 1996, President Clinton signed the Defense of Marriage Act (DOMA). Among other things, section 3 of DOMA provides that, for purposes of federal law, “spouse” only includes opposite-sex spouses. On June 26, 2013, the Supreme Court ruled section 3 of DOMA unconstitutional in United States v. Windsor. This has a number of important implications for employee benefit plans that cover participants who have same-sex spouses.
The Employee Retirement Income Security Act of 1974 (ERISA) and the tax qualification requirements of the Internal Revenue Code of 1986 (Code) impose a number of requirements on retirement plans where the definition of “spouse” is critical. Among other things:
Welfare benefits, such as medical benefits and benefits under flexible spending accounts, are also affected by the Supreme Court’s ruling. Medical benefits provided to spouses generally are tax-free, while they typically are not when provided to others who do not qualify as tax “dependents” under the Code (and most same-sex spouses do not so qualify). Medical care flexible spending accounts may provide benefits to spouses, but generally not to others who are not tax dependents. The Windsor decision changes how these rules must be applied.
In our experience, most employee benefit plans do not define who constitutes a spouse for plan purposes, and the Court’s decision does not dictate how the term must be defined in all circumstances. Plan sponsors should review their plan documents to determine whether any changes are necessary or desirable. Plans that do not define the term spouse may be deemed to include same-sex spouses for plan purposes. In addition, plan administrative procedures will have to be reviewed and revised. For example, retirement plan beneficiary designations of participants with same-sex spouses may no longer be valid if the same-sex spouse did not provide notarized consent. Employers will also have to revamp their tax reporting and withholding systems, as medical benefits provided to same-sex spouses will no longer be on an “after-tax” basis.
This important Court ruling raises difficult transition issues for employee benefit plans that will take time to implement. Among other things, the potential retroactivity of the Windsor holding is unclear. We are hopeful that the Internal Revenue Service and the Department of Labor will issue guidance on some of the key issues that Windsor raises, but plan sponsors should begin planning the transition now.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, or any of the following:
Stephen W. Fackler – Palo Alto and New York (650-849-5385 and 212-351-2392, [email protected])
Michael J. Collins – Washington, D.C. (202-887-3551, [email protected])
Sean Feller – Los Angeles (213-229-7579, [email protected])
Dina R. Bernstein – Los Angeles (213-229-7206, [email protected])
Krista Hanvey – Dallas (214-698-3425, [email protected])
© 2013 Gibson, Dunn & Crutcher LLP
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