United States: Governmental Plans: Moving Forward After The Obergefell Decision

NOTE: This bulletin is tailored for government retirement systems and government plan administrators.  There are significant differences in the impact of the Supreme Court's holding in Obergefell on plans covered by the Employee Retirement Income Security Act (ERISA).  If you have an ERISA-covered plan, please see our bulletin for private sector plans here.

Background

On June 26, 2015, the U.S. Supreme Court issued its monumental decision in the case of Obergefell v. Hodges, finding that same-sex couples have the legal right to marry in all U.S. jurisdictions and that states must recognize same-sex marriages performed in other states.  As a result of Obergefell, all governmental plan administrators must recognize same-sex spouses.  Because the Supreme Court partially based Obergefell on the U.S. Constitution's Equal Protection Clause, it appears that governmental employers and plans can no longer make distinctions between opposite-sex and same-sex married couples.  This will require all governmental employers and plans to review employment policies and employee benefit plans to ensure that all married couples are treated equally.  Given the enormity of this decision, we want to identify specific areas of concern for governmental plan administrators and provide some preliminary recommendations.  Governmental plan administrators considering immediate changes to their benefit plans will want to take these issues into consideration. 

The Obergefell decision follows the Supreme Court's decision in United States v. Windsor, in which the Court struck down section 3 of the Defense of Marriage Act (DOMA), which - for federal law purposes - limited the terms "marriage" and "spouse" to opposite-sex persons.  The Windsor decision, however, did not address section 2 of DOMA, which allowed states to refuse to recognize same-sex marriages performed in other states, nor did it address state laws or state Constitutional bans on same-sex marriages.  As a result, many governmental plans did not implement full recognition of same-sex spouses for purposes of spousal benefits due to state law bans on same-sex marriage in the state where the plan is located.  Those plans must now revisit all provisions that make distinctions between opposite-sex and same-sex spouses and, we believe, eliminate those differences.

Governmental Retirement Plans Considerations

Many governmental retirement plans contain design features that will need to be reviewed, and likely amended, to comply with Obergefell.  Governmental retirement plans should already be in compliance with plan qualification requirements under the Internal Revenue Code following Windsor.  This would include requirements related to the treatment of eligible rollover distributions to same-sex spouses under IRC Sec. 401(a)(31), the treatment of minimum required distributions for same-sex spouses under IRC Sec. 401(a)(9), and the testing of survivor benefits for same-sex spouses under IRC Sec. 415(b).

The Obergefell decision will now impact state level eligibility and benefit plan designs that are not governed by the qualification requirements of the Internal Revenue Code.  Following Obergefell, impacted plan features likely include:

  • Survivor Benefits: Survivor benefits provided to spouses must be amended to provide the same treatment to opposite-sex and same-sex spouses.
  • Death Benefits:  Forms of death benefits provided to "surviving spouses" (both optional and automatic) must include both opposite-sex and same-sex spouses.
  • Beneficiary Provisions: The treatment of beneficiary designations, changes, and revocations must be the same for same-sex spouses and opposite-sex spouses.  Any provisions providing benefits to surviving spouses in the absence of or in lieu of a beneficiary must include same-sex spouses.
  • Qualified Domestic Relations Orders (QDROs):  Governmental plans that accept QDROs will be required to recognize and administer domestic relations orders issued in divorces of same-sex spouses.

Governmental Health and Welfare Plans

Neither Obergefell nor Windsor addressed whether a same-sex spouse must be treated the same as an opposite-sex spouse for purposes of eligibility for health and welfare plans.  However, Windsor made clear that if same-sex spouses are eligible for health, dental, vision and cafeteria plan coverage, they  must be treated the same as opposite-sex spouses for all federal tax purposes.  Accordingly, if a governmental employer offers same-sex spouse health coverage, vision or dental coverage, flexible spending account coverage, or pre-tax premium coverage under a 125 plan, then Windsor requires that the covered same-sex spouse is entitled to the same federal tax benefits as an opposite-sex spouse. 

State Income Tax Issues

As a result of Windsor, governmental employers located in states that recognized same-sex marriage and that, therefore, extended health and welfare benefits to same sex spouses, health and welfare benefit plan administration has largely been identical for both state and federal income tax purposes.  However, if a governmental employer provided same-sex spouses with health coverage (perhaps through domestic partner benefits) in a state that did not recognize same-sex marriage, the employer would be required to impute state income to the employee on the value of the same-sex spouse's health coverage (even though such coverage was not taxable for federal income tax purposes).

Obergefell now requires all states, including the District of Columbia and U.S. territories, to recognize same-sex marriages.  Therefore, all states will be required to treat same-sex and opposite-sex spouses identically, and the state law impact on coverage for same sex-spouses should now follow the tax treatment of opposite-sex spouses.

Are Employers Now Required to Offer Same-Sex Spouses Health and Welfare Coverage?

In Obergefell, the Supreme Court relied on the Fourteenth Amendment to find that state laws prohibiting same-sex marriage was unconstitutional.  State and local governments are subject to the Fourteenth Amendment, so we believe that governmental plans are now required to treat same-sex spouses the same as opposite-sex spouses for all federal and state law purposes. For governmental plan administrators that have not yet extended same-sex spousal coverage under their health and welfare plans, the time may be ripe to consider amending these plan provisions.

Additional Considerations

Domestic Partner Benefits

For many employers, the reasons for offering domestic partner benefit coverage no longer exist.  Because same-sex couples will now have the opportunity to marry in any state and have their marriages recognized in all states, some employers that currently offer same-sex domestic partner benefits are considering whether to eliminate domestic partner benefit coverage.  In addition, governmental plan administrators must also now consider the ramifications of maintaining same-sex domestic partner benefits, including the risk of Fourteenth Amendment discrimination claims by opposite-sex employees who are not offered domestic partner benefit coverage.  Employers considering eliminating their domestic partner benefits should carefully consider several factors including: (1) the number of employees affected; (2) cost of maintaining such coverage; and (3) whether domestic partner benefits were added to address other state or local requirements or other concerns.

Plan sponsors might determine that terminating domestic partner coverage reduces administrative complexity in plans.  For example, by eliminating domestic partner benefits, a plan would not have to maintain a separate set of rules for domestic partner eligibility, which may require domestic partner affidavits and documentation to provide proof of a marriage-like relationship.  Furthermore, administering mid-year status changes due to the beginning or end of a marriage is generally more straightforward than administering mid-year changes due to the beginning or end of a domestic partnership, which is often more difficult to determine.  Finally, eliminating domestic partner benefits will also eliminate the need to impute income to an employee on the value of benefits provided to domestic partners so the value of those benefits can be taxed (to the extent that the domestic partner is not a tax dependent).

If the decision is made to eliminate domestic partner benefit coverage, a transition period should be established to allow affected employees the opportunity to consider all of their options for benefits coverage, which might include getting married or finding other coverage options for a domestic partner.  We believe that many employers will use a one-year transition period in conjunction with the open enrollment period in 2016, resulting in the elimination of domestic partner benefits for the 2017 plan year.  However, each employer will need to determine what is a reasonable transition period given its unique employee population.

Retroactivity of Obergefell Decision

An open issue that has not been decided is the effective date for employers to comply with Obergefell.  In other words, what is the date upon which a same-sex marriage should be recognized?  For example, if a previously unrecognized same-sex spouse was denied a death benefit because the plan did not recognize the marriage, does the plan have to go back and pay the death benefit if the plan participant died prior to the Obergefell decision?  How far back must a plan go with respect to these benefits?  Similarly, if a plan refused to recognize a QDRO of a divorcing same-sex couple that was ordered prior to the Obergefell decision, must it now recognize that QDRO, or will it only have to recognize QDROs for same-sex divorcing couples that are ordered after the date of the Obergefell decision?

Following the Windsor decision, the Internal Revenue Service (IRS) issued guidance which required changes for plan qualification purposes to be made on a prospective basis only (see Ice Miller notice dated April 14, 2014 click here).  The guidance also required employers to treat employees in same-sex marriage as though their date of marriage was effective on the date of the Windsor decision.  In the absence of other guidance, a reasonable plan administrator might turn to the IRS's approach after Windsor (even if only by analogy) and set the "compliance date" for Obergefell as the date of the Court's decision (June 26, 2015).  While we think this is a reasonable approach, it could still be challenged in federal court by same-sex spouses claiming that the Constitution requires retroactive recognition of their marriage to their wedding date.  Moreover, since the Obergefell decision will largely affect the tax laws of those states/jurisdictions that previously did not recognize same-sex marriage, each state or jurisdiction may issue its own guidance on the timing of the implementation of the Obergefell decision (which may present a series of compliance hurdles).

While we have addressed some of the areas of concern that governmental plan administrators should be considering in light of the Obergefell decision, it is too soon to know its full implications.  We will continue to monitor legal developments and advise on approaches taken by governmental plans and employees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.