Defense of Marriage Act

On October 21, 2015, the IRS issued proposed regulations to clarify the treatment of same-sex spouses for federal tax purposes. By way of background, in 2013, the United States Supreme Court held in United States v. Windsor that the portion of the Defense of Marriage Act defining marriage as being between opposite-sex partners was unconstitutional. 

Having settled into the new year, we reflect on decisions from the U.S. Supreme Court in 2013 that are likely to have a significant impact in the world of pension and welfare employee benefits and, in some cases, already have had such an impact. The issues addressed by the Supreme Court are wide ranging and are both substantive and procedural.

They include same sex marriage benefits, welfare plan reimbursement provisions, statute of limitations and class certification. Looking ahead into 2014, we see that the Supreme Court has already agreed to decide several significant benefits issues, including issues pertaining to Employee Retirement Income Security Act stock-drop litigation, the so-called “contraceptive mandate” under the Affordable Care Act and whether the Federal Insurance Contributions Act tax applies to reduction in force related severance pay.

A few weeks after the Internal Revenue Service (IRS) stated that it will apply a “place of celebration” rule in recognizing same-sex spouses for purposes of the Internal Revenue Code (including with respect to employee benefit plans), the U.S. Department of Labor (DOL) announced today that it too will interpret the term “spouse” as including

As a result of the U.S. Supreme Court’s decision in United States v. Windsor, 133 S. Ct. 2675 (2013), in which the Court held that Section 3 of the federal Defense of Marriage Act (“DOMA”) was unconstitutional, same-sex marriages will be recognized for purposes of federal laws, protections, and obligations.  Because the Court did not go so far as to require states to permit same-sex marriage or recognize same-sex marriages entered into in other jurisdictions, there are many open issues that require resolution (either through government guidance or the courts) to provide employers with certainty concerning the administration of their ERISA-governed employee benefit plans.

A federal district court in Pennsylvania issued the first reported post-Windsor decision relating to ERISA plan benefits.  As discussed below, the district court concluded that a deceased employee’s same-sex spouse was entitled to a surviving spouse benefit under a profit-sharing plan, even though the couple was married in a foreign jurisdiction (Canada) and resided in a state that does not allow same-sex marriage (Illinois) but recognizes out-of-state same-sex marriages under its civil union law.  Cozen O’Connor, P.C. v. Tobits, No. 2:11-cv-0045-CDJ (E.D. Penn. July 29, 2013).

If the U.S. Supreme Court rules that the federal Defense of Marriage Act (“DOMA”) is unconstitutional in Windsor v. U.S., which is expected to be decided this month, will employers that offer health benefits to employees’ same-sex domestic partners cease offering “domestic partner” benefits separately from benefits for employees and their spouses? Currently, one rationale for offering same-sex domestic partner health coverage is based on an equitable argument that, because an employee’s same-sex domestic partner typically cannot be treated as a spouse or dependent for federal tax purposes, a special coverage category is warranted. At the same time, this special status results in an economic hardship in that the employee must pay income tax on the value of coverage provided to the domestic partner. A repeal of DOMA would enable same-sex couples to avoid this economic hardship (at least with regard to federal income taxes). In other words, if DOMA is repealed, the definition of “spouse” for purposes of federal laws will no longer be limited to an opposite-sex spouse. Consequently, same-sex couples will have the opportunity to avoid federal taxation of their benefits by marrying. That could lead employers to conclude that the special category of domestic partner coverage is no longer needed.

Proskauer’s Employee Benefits Practice Center’s DOMA Task Force, which is comprised of lawyers from our offices nationwide, regularly advises employers and other plan sponsors on the myriad benefits issues that arise in the context of domestic partner benefits. As more states legalize same-sex marriage and the U.S. Supreme Court is poised to issue a decision