Same-Sex Spouses in MA: The Effect on Employee Benefits

The news lately has been filled with stories about the Massachusetts Supreme Judicial Court's ruling that a law banning same-sex marriages is unconstitutional. The ruling has a 180-day delayed effective date. Employers should begin to examine their benefit programs, as well as their policies and procedures, to determine what impact this ruling may have on their employee benefit plans.

The federal Defense of Marriage Act of 1996 defines “marriage” as the legal union between one man and one woman, and “spouse” as a person of the opposite sex. At the federal level, therefore, same-sex spouses are not recognized.

This conflict between federal and state law may cause confusion for employers and their employees. For example, same-sex spousal benefits, such as health insurance, may be tax-exempt at the state level, but taxable at the federal level. While certain benefits (such as qualified retirement plans) will not need to recognize same sex-spouses because such benefits are not subject to state law, other benefits (such as fully insured medical benefits) may be required to cover same-sex spouses because they are subject to state insurance laws.

To avoid potential problems and confusion, employers should clearly communicate to their employees the impact of this decision on their plans and their organizations, and update their programs accordingly (eg, all plan documents and summary plan descriptions (SPDs) should clearly define the term “spouse” consistent with the employer's plan design objectives).

What Impact Does the Ruling Have on Qualified Retirement Plans?

Even though qualified retirement plans are subject to Employee Retirement Income Security Act (ERISA), a federal law that generally preempts state law, there are several issues that could arise. For example, qualified retirement plans are required by ERISA to provide a pre-retirement death benefit to a participant's spouse. Unfortunately, very few plan documents and SPDs clearly define the term “spouse.” Many documents simply define “spouse” as “the person to whom a participant is legally married.” This definition could cause confusion for both participants and plan administrators. Plan administrators could take the position that benefits required by ERISA are subject to the federal law definition of spouse (ie, a person of the opposite sex), while participants could argue for a more liberal interpretation that would require the plan to recognize same-sex spouses.

Employers may, but are not required to, extend qualified retirement plan spousal benefits to same-sex spouses, and they should decide if they want to provide these benefits to same-sex spouses.

What Impact Does the Ruling Have on Welfare Benefit Plans?

Insured benefits are subject to state insurance law in Massachusetts and may be required to comply with the ruling. For example, a fully insured health plan may be required to cover a same-sex spouse if the participant elects coverage for his or her same-sex spouse. A health plan may also be required to extend state-mandated continuation health coverage to same-sex spouses.

Self-insured plans (eg, self-insured health benefits and flexible spending accounts) are not subject to state law and will not have to recognize same-sex spouses. Even though it is not required, an employer may nevertheless decide to extend coverage to same-sex spouses.

What Other Impact Will the Ruling Have on Employers?

The impact of this ruling may extend beyond employers' pension and welfare plans to other state-mandated benefits, such as paying wages owed to a deceased employee to his or her spouse. As a result, an employer should review all of its policies and procedures to determine what affect this ruling will have. In certain cases, the employer may decide to provide a benefit, such as extending its family leave program to same-sex spouses, even though not required to do so by state law.

What Action is Recommended?

• Employers should examine all of their policies, procedures and benefit programs to determine how this ruling will affect their organizations and employee benefits.
• Employers should decide if they want to extend benefits to same-sex spouses, even where they are not required to do so.
• Employers must review their policies, procedures, plan documents, SPDs, and any other documentation describing policies, procedures and plan benefits, and modify them accordingly.
• Any changes should be clearly communicated to employees to avoid misunderstandings.

The news lately has been filled with stories about the Massachusetts Supreme Judicial Court's ruling that a law banning same-sex marriages is unconstitutional. The ruling has a 180-day delayed effective date. Employers should begin to examine their benefit programs, as well as their policies and procedures, to determine what impact this ruling may have on their employee benefit plans.

The federal Defense of Marriage Act of 1996 defines “marriage” as the legal union between one man and one woman, and “spouse” as a person of the opposite sex. At the federal level, therefore, same-sex spouses are not recognized.

This conflict between federal and state law may cause confusion for employers and their employees. For example, same-sex spousal benefits, such as health insurance, may be tax-exempt at the state level, but taxable at the federal level. While certain benefits (such as qualified retirement plans) will not need to recognize same sex-spouses because such benefits are not subject to state law, other benefits (such as fully insured medical benefits) may be required to cover same-sex spouses because they are subject to state insurance laws.

To avoid potential problems and confusion, employers should clearly communicate to their employees the impact of this decision on their plans and their organizations, and update their programs accordingly (eg, all plan documents and summary plan descriptions (SPDs) should clearly define the term “spouse” consistent with the employer's plan design objectives).

What Impact Does the Ruling Have on Qualified Retirement Plans?

Even though qualified retirement plans are subject to Employee Retirement Income Security Act (ERISA), a federal law that generally preempts state law, there are several issues that could arise. For example, qualified retirement plans are required by ERISA to provide a pre-retirement death benefit to a participant's spouse. Unfortunately, very few plan documents and SPDs clearly define the term “spouse.” Many documents simply define “spouse” as “the person to whom a participant is legally married.” This definition could cause confusion for both participants and plan administrators. Plan administrators could take the position that benefits required by ERISA are subject to the federal law definition of spouse (ie, a person of the opposite sex), while participants could argue for a more liberal interpretation that would require the plan to recognize same-sex spouses.

Employers may, but are not required to, extend qualified retirement plan spousal benefits to same-sex spouses, and they should decide if they want to provide these benefits to same-sex spouses.

What Impact Does the Ruling Have on Welfare Benefit Plans?

Insured benefits are subject to state insurance law in Massachusetts and may be required to comply with the ruling. For example, a fully insured health plan may be required to cover a same-sex spouse if the participant elects coverage for his or her same-sex spouse. A health plan may also be required to extend state-mandated continuation health coverage to same-sex spouses.

Self-insured plans (eg, self-insured health benefits and flexible spending accounts) are not subject to state law and will not have to recognize same-sex spouses. Even though it is not required, an employer may nevertheless decide to extend coverage to same-sex spouses.

What Other Impact Will the Ruling Have on Employers?

The impact of this ruling may extend beyond employers' pension and welfare plans to other state-mandated benefits, such as paying wages owed to a deceased employee to his or her spouse. As a result, an employer should review all of its policies and procedures to determine what affect this ruling will have. In certain cases, the employer may decide to provide a benefit, such as extending its family leave program to same-sex spouses, even though not required to do so by state law.

What Action is Recommended?

• Employers should examine all of their policies, procedures and benefit programs to determine how this ruling will affect their organizations and employee benefits.
• Employers should decide if they want to extend benefits to same-sex spouses, even where they are not required to do so.
• Employers must review their policies, procedures, plan documents, SPDs, and any other documentation describing policies, procedures and plan benefits, and modify them accordingly.
• Any changes should be clearly communicated to employees to avoid misunderstandings.