Court's holding makes federal benefits and tax advantages available to same-sex couples but raises further questions.
On June 26, the U.S. Supreme Court issued its long-awaited decision in United States v. Windsor, ruling that section 3 of the Defense of Marriage Act (DOMA), which precludes the federal government from recognizing a same-sex partner in the definition of "spouse," is unconstitutional. Justice Anthony Kennedy wrote the Court's majority opinion in the 5–4 decision, which held that DOMA is a deprivation of same-sex couples' due process and equal protection rights guaranteed under the Fifth and Fourteenth Amendments.
Although Windsor involved one individual's claim to the estate tax exemption for surviving spouses, the holding of the Court also has important implications for employee benefit plans and federal tax and employment law statutes.
Background and Implications
Section 3 of DOMA provides that a "marriage" means only a legal union between one man and one woman as husband and wife, and the word "spouse" refers only to a person of the opposite sex who is a husband or wife. DOMA's definitions of "spouse" and "marriage" control more than 1,000 federal laws in which marital or spousal status is addressed, including the Internal Revenue Code (IRC), Employee Retirement Income Security Act (ERISA), Consolidated Omnibus Budget Reconciliation Act (COBRA), Family and Medical Leave Act (FMLA), and Health Insurance Portability and Accountability Act of 1996 (HIPAA). Many employee benefits plans use DOMA's definition of "spouse" and "marriage" to determine various entitlements and other plan-related matters. As a result, benefits that are normally afforded to opposite-sex married couples have been denied to same-sex married couples. Since section 3 of DOMA was held unconstitutional by the Court, federal law no longer distinguishes between same-sex and opposite-sex marriages.
The decision has immediate and clear implications for the taxation of benefits and the application of spousal rights in retirement plans and in other plans that already use definitions of "spouse" and "marriage" that treat a valid same-sex marriage as a marriage. For example, the tax exemption for family health benefits under the IRC is now available to same-sex spouses who are considered lawfully married and reside in a state that recognizes same-sex marriage. It is not clear, however, how same-sex couples who are considered lawfully married but who do not reside in a state that recognizes same-sex marriage will be treated with regard to federal agency regulations that define marriage based on the state of residence. In recent informal comments, President Obama has indicated that he will direct federal agencies to honor lawful marriages regardless of the state of residence.
While many questions and issues will be resolved by future interpretation and guidance from federal agencies, employers should begin thinking about the near and long-term implications of Windsor as it will have a significant impact on many employee benefits plans, including tax implications for both employers and employees. We will offer a webinar series beginning in July 2013, in which we will analyze these issues in more detail. We will also continue to keep you informed of further developments as we receive guidance from federal agencies. During the webinars, we plan to address the following issues, among others:
Health and Welfare Benefits
Payroll and Fringe Benefits
Other Tax Considerations
If you have any questions or would like additional information on this landmark decision or employee benefit plan matters in general, please contact any of the following Morgan Lewis attorneys:
Thomas A. Linthorst