United States: Impact Of New York’s Marriage Equality Act On Employers

On July 24, 2011, New York's Marriage Equality Act (the Act) became effective, making New York the sixth, and largest, state to permit same-sex marriage. The Act "formally recognizes otherwise-valid marriages without regard to whether the parties are the same or different sex" and provides that all married couples "be treated equally in all respects under the law."

While employers are not singled out under the law, they must understand how the Act impacts their employee benefit plans and policies and then take action to comply with the Act's requirements.

The following provides a general overview of these considerations:

QUALIFIED RETIREMENT PLANS

Qualified retirement plans (for example, employer-sponsored 401(k) plans) are governed by federal law and not state law. These plans, therefore, should not be affected by the Act, and would continue to comply with the federal Defense of Marriage Act (DOMA), which only recognizes opposite-sex marriage.

Employers must bear in mind, however, that the language of the plan may create obligations on the part of the employer to recognize same-sex marriage. For instance, if the plan merely states that the default beneficiary under the plan is an employee's "spouse" without defining it as a legal spouse under federal law or state law, that plan may not have clear direction on how to distribute benefits following the death of an employee with a same-sex spouse. Employers should review the language of their plans to ensure the meaning of the term "spouse" is consistent with the company's intended meaning.

HEALTH AND WELFARE BENEFITS

Self-Funded Plans

Self-funded health and welfare plans are generally governed by federal law and not state law, so these plans should not be impacted by the Act. These plans would continue to comply with DOMA, which only recognizes opposite-sex marriage. However, as with qualified retirement plans, the language of the plan may create additional obligations and should therefore be reviewed carefully.

Insured Plans

Insured health and welfare plans are subject to state law. Accordingly, plans subject to New York state insurance law must now treat same-sex spouses the same as opposite-sex spouses. Forms, policies and procedures should be reviewed to ensure that benefits are being provided in accordance with the new law.

TAX IMPLICATIONS

The new law does not change the federal tax treatment of benefits provided to same-sex spouses. This means that:

• the value of any employer-provided health coverage for a same-sex spouse who is not otherwise a federal tax dependent should be included in the employee's income for federal tax purposes; and
• any premiums the employee pays for same-sex spouse coverage must be paid with after-tax dollars.

For New York state tax purposes, it is expected that same-sex spouses will now receive the same advantageous tax treatment as opposite-sex spouses, which means that for New York state tax purposes:

• the value of any employer-provided coverage for a same-sex spouse will be excluded from the employee's income; and
• the employee can pay for the coverage on a pre-tax basis.

Some companies have been grossing up the pay of an employee to account for the tax treatment of health benefits for same-sex partners, and companies may want to continue doing so after adjusting for the change in New York state tax treatment.

Employers need to ensure their payroll practices account for the differing treatment of New York and federal laws.

GENERAL EMPLOYEE POLICIES

Employers must ensure their policies, such as family leave (other than leaves mandated under the federal Family and Medical Leave Act), bereavement leave, or other types of leaves are applied in a non-discriminatory manner.

ADDITIONAL CONSIDERATIONS: DOMESTIC PARTNERSHIP OPTIONS

Because same-sex couples now have the right to marry in New York, some employers are considering ending benefits for domestic partners, particularly where the reason for granting those benefits was because same-sex couples could not marry. If an employer elects to end those benefits, it should consider implementing the changes in phases over a period of time to allow same-sex couples to exercise their new right to marry.

Before eliminating domestic partner benefits, employers should consider employee relations issues. Furthermore, employers should recognize that there may be reasons same-sex couples choose not to marry despite having the option to do so. These include, but are not limited to: immigration status/issues; implications for child adoption; and complications arising from differing tax treatment at the federal level than state. In addition, opposite-sex couples who have chosen not to marry may ask for the same benefits as same-sex couples who choose not to marry even though they are allowed to do so. Also, consider that some employees who work in New York may live in neighboring states where they are still not allowed to marry.

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.