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October 23, 2013

Department of Labor Provides Guidance on Benefits Rights of Same- Sex Spouses

The U.S. Department of Labor (“DOL”) recently issued Technical Release No. 2013-04, a guidance document on the effect of the Supreme Court’s decision in United States v. Windsor, 570 U.S. __, 133 S.Ct. 2675 (2013), which invalidated the Defense of Marriage Act (DOMA).  The DOL’s guidance follows IRS Ruling 2013-17, which held that for purposes of federal tax law, the federal government will treat a legally married same-sex couple as married even though they are living in a state that does not recognize same-sex marriage.  The DOL’s guidance is available at http://www.dol.gov/ebsa/newsroom/tr13-04.html.

The DOL’s guidance interprets federal law to provide that same-sex marriages are valid for all tax and employee benefit purposes as long as the same-sex couple was married in a state or foreign country that recognizes same-sex marriage (a “state-of-celebration” rule). 

According to the guidance, the same-sex marriage will be considered valid under the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code even if the couple later resides in a state where same-sex marriage is not recognized.  Recognition is extended only to legal marriages and not to domestic partnerships, civil unions or other similar state-recognized unions not called “marriage.”

According to the DOL, adopting the “state-of-celebration” rule as opposed to the “state-of- residence” provides uniformity in the interpretation of “spouse” for employee benefit plans in all 50 states.

Effect On Employee Benefit Plans

In the context of employee benefit plans, the effect of the DOL’s guidance on legally married same-sex spouses include:

  • A same-sex spouse will be the surviving spouse for purposes of all pension benefit plans.
  • If the employee names no beneficiary, a same-sex spouse will be the default beneficiary.
  • The spousal consent requirements under a pension plan providing qualified joint and survivor annuity benefits will apply to a same-sex spouse.
  • A same-sex spouse is entitled to 100% of an employee’s 401(k) benefits upon the death of the employee unless the spouse consents to another beneficiary.
  • Spousal consent to loans or other distributions apply to same-sex spouses.
  • Employees may cover their same-sex spouse under their employer’s health plan on a tax-free basis.  However, if the employee resides in a non-recognition state, state taxes may apply.   
  • Employees may receive tax-free reimbursements for a same-sex spouse’s medical expenses pursuant to an employee’s participation in a health savings account (HSA) or health reimbursement account (HRA).
  • A same-sex spouse is entitled to the same special election rights under HIPPA and COBRA rights in the event of a loss of health coverage, due to termination, divorce or legal separation.
  • A same-sex spouse may be an alternate payee under a Qualified Domestic Relations Order.
  • A same-sex spouse may rollover a qualified plan distribution to his or her own individual retirement account (IRA) rather than to an inherited IRA.

Family and Medical Leave Act

Unlike ERISA and the Internal Revenue Code, the Family Medical Leave Act (“FMLA”) imposes a state-of-residence rule to determine if an employee is eligible for FMLA leave.  As such, employers are only required to offer FMLA leave to employees to care for their same-sex spouses if those employees reside in a state that recognizes same-sex marriage.

Many commentators expect that the FMLA’s state-of-residence rule will be amended in the near future.  We will keep you apprised of any amendments. 

Action Steps for Employers

All qualified pension and 401(k) plans should be reviewed, and amended if necessary, to ensure the definitions of “spouse” and “surviving spouse” apply equally to same-sex married couples. The Treasury Department has not yet announced the deadlines for such plan amendments, but plans should be reviewed as soon as possible to avoid incorrect interpretations of plan language. 

Summary plan descriptions, health plan applications, insurance forms and other benefit communications also need to be updated immediately to clarify that all legally married employees are considered to be married for purposes of their employee benefits, regardless of whether their spouse is of the same or opposite sex. 

We are available to discuss any questions you may have concerning the implementation of the DOL’s same-sex marriage guidance with respect to your employee benefit plans.