July 2013

What the U.S. Supreme Court’s DOMA Decision Means for Benefit Plans

Update: The IRS has issued guidance clarifying that, for all federal tax purposes, the legality of a same-gender marriage will be determined by the state of celebration, not the state of residence. The guidance is discussed in Sibson’s September 13, 2013 Compliance Alert.


On June 26, 2013, the U.S. Supreme Court, in United States v. Windsor, ruled that individuals in legal same-gender marriages are no longer prohibited from being treated as married under federal law.1 The Court accomplished this by declaring the language that created the prohibition unconstitutional, thereby removing it from the federal Defense of Marriage Act (DOMA).

This one change will have sweeping consequences — according to the Court, more than 1,000 federal laws are affected — including consequences for benefit plans. Although there is still uncertainty about the nature and extent of the consequences, employers should take some steps now, both to implement the change on a preliminary basis and to prepare for future compliance.

Windsor raises complicated legal issues, some of which might be resolved only through litigation. As always, employers should consult their attorneys before taking any actions with regard to benefit payments or plan changes.


Before DOMA, the regulation of marriage generally had been a matter of state law, with federal law looking to state law to determine an individual’s marital status. DOMA’s passage in 1996 changed this division of authority by creating a federal “opposite-gender” definition of “spouse” and “marriage” for any marriage-based federal benefit. This meant that any favorable benefit or treatment under the Internal Revenue Code (IRC) or the Employee Retirement Income Security Act (ERISA) designated for spouses (e.g., non-taxable employer-paid health coverage for spouses or mandatory survivor annuity coverage in retirement plans) could not be given to same-gender spouses, although alternatives generally could be offered (e.g., health coverage with taxable income imputed to the employee).


For any plan, the first task is to determine the current treatment of same-gender spouses under the relevant documents and whether changes will be necessary for purposes of plan design or compliance. Following Windsor, the meaning of various plan terms might have changed. For example, language defining “spouse” as a spouse recognized “by federal law” or “by DOMA” no longer excludes same-gender spouses. Other definitions could be affected by a plan’s “governing law” provision.

Before taking additional steps, however, employers should consider two critical, unresolved issues that affect how the ruling will be implemented for employee benefit plans. The first critical issue relates to the treatment of same-gender couples who live in states that do not license or otherwise recognize same-gender marriage (non-recognition states). After Windsor, marital status for federal law purposes generally will be determined under state law.2 Certain federal laws, including the IRC, typically but not always look to the state in which a person lives to determine whether the person is married. Under such laws, when legally married same-gender couples live in non-recognition states, it is not clear whether they will be treated as married.

The second critical issue relates to the retroactive application of the ruling. The Court did not discuss whether the Windsor ruling applies retroactively, and when the Court does not provide the answer, there is no “usual” approach. The Obama Administration and the federal agencies, including the Internal Revenue Service (IRS), are working on guidance on both of these unresolved issues.3

Group Health Plans

Group health plans are not required to cover spouses. Insured plans with insurance contracts issued in states that license same-gender marriage will generally find that insurance laws require the plan to cover same-gender spouses if it covers opposite-gender spouses, as was the case pre-Windsor. Employers with self-insured plans may have more flexibility and should review their options with their attorneys. Employers may choose to extend coverage to same-gender spouses, as they could pre-Windsor, and many have done so. Going forward, whether income will need to be imputed to the employee for federal income and payroll-tax purposes, as well as the recognition of these spouses under other federal laws, may depend on whether the couple lives in a recognition state or a non-recognition state.

Plans that currently cover same-gender spouses who live in recognition states may stop imputing income for federal tax purposes and should extend federal rights to same-gender spouses. Examples include rights to continued coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) and special enrollment rights under the Health Insurance Portability and Accountability Act (HIPAA). It is unclear whether plans may stop imputing income for spousal coverage provided to couples living in non-recognition states or whether they must be treated as spouses under other federal laws. Plans that impute income for coverage provided to unmarried same-gender domestic partners should continue to do so, because the rights of unmarried individuals are not affected by Windsor.

Account-based plans such as Health Savings Accounts, health Flexible Spending Accounts and Health Reimbursement Arrangements will be able to reimburse expenses incurred by same-gender spouses for couples living in recognition states. It is unclear whether this will be allowed for couples living in non-recognition states.

With regard to cafeteria (IRC §125) plans, regardless of the state of residence, it is unclear whether employers may allow employees, now recognized by federal law as being married, to change cafeteria plan elections mid-year (e.g., to add the spouse, to change a benefit plan option and/or change FSA contribution amounts).

Retirement Plans

Retirement plans generally are required to provide benefits to spouses and should treat same-gender spouses that live in recognition states as they would any other spouse for purposes of the various spousal benefits under the IRC, including spousal consent and surviving spouse annuities or death benefits, required minimum distributions, and qualified domestic relations orders. Section 401(k) plans that permit hardship distributions should treat same-gender spouses in recognition states as they would other spouses for purposes of the hardship distributions available for spouses (e.g., medical expenses). In both cases, it is not clear what treatment will be required for spouses living in non-recognition states, and plans might wish to delay taking action with respect to these spouses until guidance is issued.


While many questions remain, there are steps employers will want to consider now with their attorney’s advice:

  • Identify employees in legal same-gender marriages and their state of current residence.
  • Decide when to implement changes in coverage and administration (including when to stop imputing income for health benefits) and when to make plan amendments or other document revisions determined to be necessary.
  • Consider whether benefits provided to domestic partners and/or partners in a civil union, if any, need to be clarified or revised.

•  •  •

As with all issues involving the interpretation or application of judicial decisions, laws or regulations, employers should rely on their attorneys for authoritative advice on the implications of the Windsor ruling for their plans. Sibson Consulting can be retained to work with employers and their attorneys on benefits issues related to the implementation of the ruling, and related issues.

United States v. Windsor is available at http://www.supremecourt.gov/opinions/12pdf/12-307_6j37.pdf. A second case decided on the same day, Hollingsworth v. Perry, had the result of returning California to the list of states licensing same-gender marriage. Hollingsworth v. Perry is available at http://www.supremecourt.gov/opinions/12pdf/12-144_8ok0.pdf.
Same-gender marriage jurisdictions are California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota (as of 8/1/13), New Hampshire, New York, Rhode Island (as of 8/1/13), Vermont, Washington and the District of Columbia. New Jersey and New Mexico are silent on the issue of same-gender marriage. The remaining 35 states ban same-gender marriage.
President Obama has directed the Attorney General and other members of his Cabinet to act swiftly to implement the decision. The IRS has the authority to determine the retroactive application of judicial decisions affecting the tax laws. The Office of Personnel Management issued guidance for federal employees on July 17, 2013: http://www.opm.gov/retirement-services/publications-forms/benefits-administration-letters/2013/13-203.pdf

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