In the well-publicized case of U.S. v. Windsor, the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA), which had prohibited the federal government from recognizing same-sex marriage. Even though Idaho law does not permit same-sex marriage (a 2006 amendment to the Idaho Constitution limits marriage to opposite-sex spouses), many Idaho employers could be affected by the Supreme Court’s ruling.
The invalidation of DOMA affects over 1,300 federal laws, including the Internal Revenue Code and federal laws that regulate employee benefit plans, such as the Employee Retirement Income Security Act (ERISA). As a result, the federal government must recognize same-sex marriages that are valid under state law for tax and employee benefits purposes. This has important implications for Idaho employers because they are subject to these federal laws.
The extent that an Idaho employer will be affected by the DOMA invalidation depends on whether the employer also has employees in a state that recognizes same-sex marriage or domestic partnership (in the West, Washington and California allow same-sex marriage and Oregon, Nevada, and Colorado recognize domestic partnership).
The Supreme Court’s decision does not require any state to allow same-sex marriage. It only requires the federal government to recognize same-sex marriages validly entered into in states that allow them.
Whether a valid same-sex marriage in one state must be recognized for federal purposes in Idaho or another state that does not allow same-sex marriage is a complicated constitutional question and the answer may vary from state to state. It is significant that the Windsor decision did not invalidate Section 2 of DOMA, which provides that no state will be required to recognize a same-sex marriage from another state.
At this point it is unclear whether, for benefits purposes, employers in states without same-sex marriage will be required to recognize valid same-sex marriages from other states. The Internal Revenue Service (IRS) has indicated that it is working on guidance.
Employees in states with same-sex marriage
For Idaho employers with employees in states that recognize same-sex marriage (such as Washington and California), same-sex marriages in those states will be recognized by the IRS and Department of Labor (DOL) for the purposes of the following:
• Spousal consent requirements for distributions and beneficiary designations (previously consent of a same-sex spouse was not required)
• Spousal distribution rights and privileges (previously same-sex spouses were not recognized as spouses for these purposes)
• Spousal rollover rights, hardship withdrawal rights, and required minimum distribution requirements (previously same-sex spouses were treated as non-spouse beneficiaries)
• Spousal rights to retirement plan benefits in divorce (previously a participant’s retirement benefits were not available to same-sex spouses and former same-sex spouses in divorce)
• Tax-free treatment of medical, dental, and vision coverage (previously employees were imputed taxable income of the value of coverage provided to same-sex spouses)
• Reimbursements under flexible spending accounts, health reimbursement accounts, and health savings accounts for expenses incurred by a same-sex spouse (previously the reimbursement rights of same-sex spouses were significantly limited)
• Federal insurance contributions act and federal unemployment tax act taxes (previously FICA and FUTA taxes were charged on the imputed income noted above)
• COBRA and HIPAA special enrollment rights (previously same-sex spouses were not treated as spouses for these purposes)
Employees in states with domestic partnership
It is not yet clear whether and under what circumstances Idaho employers with employees in states that recognize domestic partnerships (such as Oregon, Nevada and Colorado) must recognize domestic partners as spouses. Depending on the similarity of rights granted to a same-sex couple under a state’s domestic partnership law compared to a marriage, the treatment of domestic partnerships under federal law may vary from state to state. Additional guidance is expected.
Significant questions remain
Additional guidance is needed from federal regulators before employers can take significant steps to comply with the Windsor decision, including guidance on the following issues:
• Whether and under what circumstances an Idaho employer will be required to recognize a valid same-sex marriage from a state with same-sex marriage. For example, will Idaho employers be required to recognize a same-sex marriage obtained by an Idaho resident in Washington? What if an employee with a same-sex spouse resides in Washington but commutes to work in Idaho?
• When the Windsor decision will be effective for benefits purposes. Will regulators provide a transition period? Does the Windsor decision have retroactive effect?
• In states with same-sex marriage, whether employers that provide coverage to spouses can exclude same-sex spouses.
• How employers with employees in multiple states may define marriage in their benefit plans.
• The extent that domestic partnerships will be treated as same-sex marriages.
While waiting for guidance from the IRS and DOL, Idaho employers should do the following:
• Review the definitions of “spouse” and “marriage” in plan documents and participant communications. Many plans define spouse and marriage with reference to federal law, which is problematic in light of the Windsor decision.
• Consider what definition to use going forward.
• For employees in states that allow same-sex marriage, determine any administrative changes required to recognize same-sex spouses.
Bret Clark, an attorney at Hawley Troxell, provides legal services to the firm’s employee benefits and executive compensation clients. He can be reached at email@example.com.