Microsoft PowerPoint - #1248199v1<LIBB> -Powerpoint - Same-Sex Marriage [Read-Only]©2004. Goodwin Procter LLP
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As a result of the SJC’s decision in Goodridge v. Department of Public Health, same-sex marriages may occur in the Commonwealth beginning May 17, 2004. Under Goodridge, same-sex marriages must be treated in the same manner as opposite-sex marriages for purposes of Massachusetts law.
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Overview
• Most benefit plans are governed by the Employee Retirement Income Security Act (“ERISA”). ERISA generally preempts the application of state law that relates to ERISA-covered plans.
• However, ERISA does not preempt state laws that regulate insurance, even though they may affect benefit plans.
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Overview
• Defense of Marriage Act (“DOMA”) states that (i) no state is required to recognize as valid a marriage contracted in another state between same-sex spouses and (ii) in interpreting any federal statute, ruling or regulation, the term “marriage” means a legal union of one man and one woman.
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State Anti-Discrimination Laws
• M.G.L.c. 151B, §4 states that “(i)t is unlawful for an employer to discriminate against an employee based on his/her sexual orientation.”
• This statute should be deemed preempted with respect to ERISA- covered benefit plans. This statute does apply to non-ERISA benefit plans.
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State Anti-Discrimination Laws
• It has been reported that the MCAD will allow sexual orientation claims to proceed if same-sex spouses are denied health benefits that are afforded to opposite-sex spouses.
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Impact on Benefit Plans
• ERISA plans that are insured and that extend rights of coverages to spouses (or ex-spouses) of employees will be subject to Goodridge with respect to Massachusetts employees.
• Benefit plans that are not subject to ERISA will also be subject to Goodridge with respect to Massachusetts employees.
• ERISA plans that are not insured are not subject to Goodridge.
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Examples of Benefit Plans Not Subject to Goodridge Because of ERISA Preemption
• Pension plans • 401(k) plans • 403(b) plans with employer contributions • ESOPs • Profit sharing plans • Most non-qualified deferred compensation plans • Self-insured welfare plans (including those with
stop-loss insurance)
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Examples of Benefit Plans Subject to State Insurance Laws and Goodridge
• Health insurance • Dental insurance • Vision insurance • Life insurance • Long term care insurance
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• 403(b) plans without employer contributions
• Bereavement leave policy • Non-FMLA leave policies • Governmental plans • Church plans • Other perquisites
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Effect on Retirement Plans
• Definition of “spouse” in plan documents should be reviewed closely to reflect employer’s intent.
• Employers may always choose to extend spousal benefits to same-sex spouses. Plan documents and summary plan descriptions should be reviewed carefully and amended as appropriate to reflect employer’s intent.
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• Examples of spousal benefits • Pre-retirement spousal death benefit • Payment of benefit in form of joint and survivor
annuity • Spousal consent in certain circumstances
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Effect on Retirement Plans
• Because of DOMA, certain rights cannot be made available to same-sex spouses or former spouses even if employers choose to offer plan benefits to same-sex spouses. • A domestic relations order directing that plan
benefits be provided to a same-sex former spouse cannot qualify as a QDRO.
• A same-sex spouse cannot roll over benefits to an IRA or other qualified retirement plan.
• Certain required minimum distribution rules relating to spouses would not apply to a same-sex spouse.
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Welfare Plans
• Is the plan “Insured” or “Self-Insured?” • In a self-insured plan, benefits are paid
solely out of the general assets of the employer or employer-established trusts such as VEBAs (voluntary employees’ beneficiary associations).
• Impact of stop-loss and reinsurance on self-insured arrangements.
• Administrative services arrangements.
insurance laws. • Goodridge will not govern self-insured
welfare plans. • Coordinate coverage with stop-loss
insurer.
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Effect on Self-Insured Plans
• Because state law does not apply, employer will have the choice as to whether to extend benefits to same-sex spouses.
• Amend plan documents and SPDs to clearly reflect intent.
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Effect on Insured Welfare Plans
• Benefits are paid or provided by an insurer, HMO or through a similar arrangement.
• State laws which regulate insurance are not subject to ERISA preemption.
• Goodridge is likely to govern insured welfare plans (provided that it is deemed to be a law regulating insurance).
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Effect on Insured Welfare Plans
• Examples of state law requirements found in insurance products include mandated benefits, so-called “mini- COBRA” provisions and special rules providing benefits to ex-spouses.
• No guidance yet from Commonwealth on whether Goodridge mandates same-sex spouse coverage in insurance policies that extend benefits to opposite-sex spouses.
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Effect on Insured Welfare Plans
• Terms “spouse,” “husband,” and “wife” in any insurance statute will presumably be deemed to include a same-sex spouse.
• Some insurers have already stated intention to extend eligibility to same-sex spouses.
• In that case, same-sex spouses would be entitled to coverage (including special continuation rights).
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Effect on Insured Welfare Plans
• True regardless of whether employer has ever had a domestic partner policy.
• Contact insurers to determine their position.
• Make sure employee communications accurately reflect insurer’s position.
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Welfare Plans - Tax Issues
• Cost of welfare benefits provided by an employer to employees is generally excluded from an employee’s taxable income.
• This exclusion is subject to restrictions.
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Welfare Plans - Tax Issues
• Federal exclusion for cost of medical benefits does not extend to non- dependent same-sex spouses or non- dependent children of same-sex spouses.
• This is the same situation as has always existed with respect to non-dependent domestic partners.
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• Cafeteria plans complicate matters. • Coverage for a non-dependent same-sex
spouse or non-dependent children of a same-sex spouse is not among eligible benefits.
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Welfare Plans - Tax Issues
• Under IRS Guidance, value of employer- paid premiums on behalf of non- dependent same-sex spouse is includible in employee’s income.
• Employee-paid premium for non- dependent same-sex spouse must be made on an after-tax basis.
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• Assume a medical plan where • Single coverage costs $2,000 annually –
employee pays $400 and employer pays $1,600
• Family coverage costs $6,000 annually – employee pays $1,200 and employer pays $4,800
• Same-sex spouse is not a dependent of employee
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• Employee elects family coverage. • Employee pays $1,200 and employer
pays $4,800. • The benefit that the same-sex spouse is
receiving is the $2,000 single coverage.
Employee With Children and Same-Sex Spouse
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Welfare Plans - Tax Issues Example
• $400 should be paid by the employee on an after-tax basis and the $1,600 paid by the employer should be included in the employee’s income.
• The employee should be able to continue to pay $800 on a pre-tax basis and the $3,200 paid by the employer should continue to be excluded from income.
Employee With Children and Same-Sex Spouse
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• Employee elects family coverage. • Employee pays $1,200 and employer
pays $4,800. • $400 would need to be paid on an after-
tax basis by the employee and $1,600 of the employer’s payment would be includible in income.
Employee and Same-Sex Spouse (no children)
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• Assume children of same-sex spouse not dependents of employee.
• Full cost of the family coverage is not eligible for exclusion from wages.
Employee and Same-Sex Spouse With Children OR Employee With Children and Same-Sex Spouse With Children
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Welfare Plans - Tax Issues Example
• All $1,200 paid by the employee would be on an after-tax basis and the full $4,800 paid by the employer would be includible in the employee’s income.
• No tax benefit is available for value of the benefit that the individual employee receives which would otherwise be excludible from income or co-paid with pre-tax dollars.
Employee and Same-Sex Spouse With Children OR Employee With Children and Same-Sex Spouse With Children
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Welfare Plans - Tax Issues Example
• If same-sex spouse qualifies as a dependent of the employee, tax treatment is as with opposite-sex spouse.
• Generally, to be a dependent, a same-sex spouse must: (1) receive more than one- half of support from employee; and (2) share principal abode with employee.
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Welfare Plans - Tax Issues Example
• IRS ruling has employer receiving an annual certification from employee and domestic partner regarding dependency.
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Special Cafeteria Plan Issues
• Changes in an employee’s cafeteria plan election generally may be made outside of the annual open enrollment period only if there is a qualifying change in status.
• Same-sex marriage is not a qualifying change in status under applicable IRS rules.
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VEBA Issues
• VEBAs are tax-exempt trusts established to pay for certain qualifying employee benefits.
• Benefits for non-dependents are not included in the list of eligible benefits.
• IRS has ruled that VEBA may still pay non-dependent benefits as long as they are de minimis.
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Welfare Plans – Tax Issues
• No guidance from Commonwealth on how state tax issues will be handled.
• Presumably, employer-paid benefits for same-sex spouses will not be includible in state income.
• Open issues include state withholding and reporting.
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COBRA
• “Qualified Beneficiaries” include only opposite sex spouses and dependent children.
• Can still extend “COBRA-like” coverage to same-sex spouses – check with your insurer.
• State health care continuation requirements applicable to insured plans.
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HIPAA
• Special enrollment right for spouses will not extend to same-sex spouses.
• Employers could offer similar enrollment right to same-sex spouses.
• Check with your insurer.
• Employers should review eligibility criteria on domestic partner benefits policies.
• If policies require that to be eligible for benefits, the employee and his or her domestic partner must not be able to marry legally, effective May 17, 2004, same-sex couples residing in Massachusetts could become ineligible for domestic partner benefits.
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Effect on Domestic Partner Benefits
• Options for employers if policies exclude same-sex couples eligible to marry legally: • Allow currently eligible domestic partners to
continue to receive benefits either indefinitely or for a reasonable period.
• Amend plan eligibility provision (“may not marry” vs. “is not married”).
• Eliminate domestic partner benefits entirely.
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Effect on Domestic Partner Benefits
• Special consideration for multi-state employers: • May wish to maintain a uniform company
domestic partner benefit policy. • Consider amending eligibility provision to
exclude only same-sex couples who can legally marry in their home state and who do not do so following a reasonable period.
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• FMLA defines the term “spouse” as a “husband or wife.”
• Under DOMA, the word “spouse,” when used in a federal statute, means only a legal union between one man and one woman.
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Family and Medical Leave Act (“FMLA”)
• Employers should not be required under FMLA to provide FMLA leave to an employee to take care of the serious health condition of a same-sex spouse.
• MCAD may take the position that failing to extend FMLA benefits to care for a same-sex spouse constitutes unlawful sexual orientation discrimination.
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Family and Medical Leave Act (“FMLA”)
• If employers choose to extend FMLA leave to employees with same-sex spouses, there may be unintended consequences. For example, an employee who took 12 weeks’ leave to take care of same-sex spouse is still eligible to take up to another 12 weeks of leave during the same year for another reason.
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Massachusetts Small Necessities Leave Act (“SNLA”)
• SNLA requires employers to provide limited leave to employees for, among other reasons, the purpose of accompanying an elderly relative to appointments for professional services.
• “Elderly relative” is defined to mean an individual age 60 or older who is related by blood or marriage to an employee.
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Massachusetts Small Necessities Leave Act (“SNLA”)
• Employers would be required to provide SNLA leave to employees who need to accompany elderly relatives of their same-sex spouses to appointments.
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What Every Employer Should Do Now
• Decide on a general approach. • For welfare plans, determine if you have an
insured plan. • If self-insured, amend plan documents and
SPDs consistent with approach and coordinate with stop-loss insurer.
• If insured, seek guidance from your insurers. • For retirement plans, amend plan documents
and SPDs consistent with approach.
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What Every Employer Should Do Now
• For non-ERISA plans and policies, amend or apply employee handbook and other policy documents to comply with Goodridge.
• Review and amend domestic partner benefits policies and plans as appropriate.
• Adjust payroll withholding and tax reporting.