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Same-sex Marriage Ruling Impact on Employee Benefit Plans

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On June 26, 2015, the U.S. Supreme Court issued a historic decision in Obergefell v. Hodges, holding that same- sex couples may exercise the fundamental right to marry in all States and to require States to validate same-sex marriages on other States. The decision has been determined to apply to Puerto Rico. (See Conde-Vidal, et al v. Ruis-Armendariz, et al, CA1 July 8, 2015, and Hons. María M. Charbonier Lureano y otros v. Hon. Alejandro García Padilla y otros, PRSC July 18, 2015). The question now is what are the immediate implications for private employers sponsoring employee benefit plans and related services provided.

Previously, in 2013, the U.S. Supreme Court issued its decision in United States v. Windsor, defining “spouse” and “marriage” to include same-sex couples for federal purposes. Subsequently, both the Internal Revenue Service and the US Department of Labor issued guidance on how retirement plans should treat same-sex marriages (under the so called “rule of place of celebration”). However, legal uncertainty for same-sex marriage still remained for state law purposes.

Impact on Health and Welfare Benefit Plans: It is not clear if private employers who sponsor employee health and welfare benefit plans may not be directly impacted by the Obergefell decision. On the other hand, the Fourteenth Amendment’s Equal Protection Clause (the basis of the Obergefell case) does not bar discriminatory conduct in the private sector. Moreover, under federal preemption principles, employers with benefit plans governed by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) are not generally required to offer any particular benefits. Further, even though state insurance laws apply to employer health benefit plans that provide benefits pursuant to an insurance contract, an employer’s self-insured plan is not subject to state insurance laws. However, the question that still remains is whether employers sponsoring self-insured plans can define the term “spouse” to encompass only opposite-sex spouses. Therefore, employers who treat opposite-sex spouses differently from same-sex spouses face a risk of federal and state discrimination lawsuits.

Impact on Pension Benefit Plans: Although the decision in the Windsor case in 2013 reshaped the legal landscape regarding same-sex spousal rights in the context of most pension benefits (e.g. beneficiary designations, spousal consents, survivors rights, etc.) some additional impacts can be expected from the Obergefell decision. At this very least, instances of operational compliance with same-sex marriage rights will surely accelerate, given the mandate of such case on all marriage laws in all states jurisdictions (including Puerto Rico). Furthermore, additional guidance from the IRS and/or DOL could be forthcoming given the Obergefell decision impact on the “rule of place of celebration” (since all states and Puerto Rico must now recognize same-sex marriage).

Next Steps: In light of the above, we strongly recommend employers to review their benefit plans to determine whether any Obergefell-related (or Windsor-mandated) amendments or operational modifications are warranted. Specifically, employers should revisit the following provisions in their plans, as applicable: (a) definition of “spouse” and “marriage” to include same-sex couples; (b) required spousal benefit entitlements that arise under COBRA; (c) determine whether to phase-out coverage of unmarried domestic partners, as applicable. If it is determined that certain amendments are required, employers should consider communicating these changes to participants and/or beneficiaries. It is also advisable that employers review and update their plan’s tax reporting to ensure the proper federal (and local) and tax treatment with respect to the benefits extended to same-sex spouses.

This document has been prepared for information purposes only and is not intended as, and should not be relied upon as legal advice. If you have any questions or comments about the matters discussed in this notice, wish to obtain more information related thereto, or about its possible effect(s) on policy or operational matters, please contact us.