Following the Supreme Court’s 2013 decision in U.S. v. Windsor (in which the Court held that Section 3 of the federal Defense of Marriage Act (“DOMA”) was unconstitutional), one of the questions facing sponsors of tax-qualified retirement plans was whether the plans were required to recognize same-sex spouses on a retroactive basis for purposes of entitlement to spousal benefits.  The IRS answered that question in Notice 2014-19, in which it stated that, for tax-qualification purposes, such plans are required to treat same-sex marriages in the same manner as opposite-sex marriages effective as of June 26, 2013 (the date of the Windsor decision). The IRS also clarified that plans could be amended to recognize same-sex marriages prior to that date, but such earlier recognition was not required for qualification purposes.

Last week, the Internal Revenue Service (IRS) issued Notice 2015-86, providing guidance on the application of the U.S. Supreme Court’s decision in Obergefell v. Hodges to qualified retirement plans and health and welfare plans, including cafeteria plans.  Importantly, and as expected, the IRS comments in the Notice that it does not anticipate that Obergefell will have a significant impact on the application of federal tax law to employee benefit plans.

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.

Continuing its implementation of the United States Supreme Court decision in U.S. v. Windsor, the Internal Revenue Service (IRS) recently issued Notice 2013-61, which provides guidance for employers to make claims for refunds or adjustments of overpayments of Federal Insurance Contributions Act (FICA) and Federal income tax withholding (employment taxes) for 2013 and prior years with respect to certain fringe benefits and remuneration provided to same-sex spouses of employees.

In Revenue Ruling 2013-17 issued in August, the IRS announced that effective September 16, 2013, for Federal tax purposes, it would recognize same-sex marriages and was adopting a “place of celebration” rule pursuant to which all same-sex couples married in a state or foreign jurisdiction permitting such marriages would be recognized as spouses for federal tax purposes, regardless of their state of residence. It also announced that it intended to distribute streamlined procedures for employees who wish to claim refunds for federal income taxes paid on the value of health coverage to same-sex spouses and guidance for employers who wish to claim refunds for payroll taxes paid on such benefits.

Notice 2013-61 provides these special streamlined administrative procedures. Under these procedures, if an employer that withheld employment taxes for same-sex spouse benefits paid to or on behalf of an employee in the third quarter of 2013 ascertains the amount withheld on those benefits and repays or reimburses the employee for these amounts before filing the third quarter Form 941 (Employer’s Quarterly Federal Tax Return) due on October 31, 2013, an employer need not report these wages and withholding on the third quarter Form 941. If an employer does not repay or reimburse the employee for the overcollected amount before it files the third quarter 2013 Form 941, an employer must report the amount of the overcollection on that return and can use one of two special administrative procedures to make an adjustment or claim a refund.

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).

On August 29, 2013, the U.S. Department of the Treasury and the Internal Revenue Service issued important guidance for employers and employees relating to the impact of the Windsor decision on employee benefit plans. In Revenue Ruling 2013-17, the agencies ruled that a same-sex couple legally married in any jurisdiction will be recognized as spouses by the IRS for federal tax purposes even if the couple resides in a jurisdiction that does not recognize the validity of their marriage. This “place of celebration” rule is welcome news for employers and other benefit plan sponsors, who may now administer their benefit plans in a uniform manner with regard to same- and opposite-sex married couples. (The Ruling confirms, however, that unmarried domestic partners and civil union partners will not be recognized as married for federal tax purposes, whether the partners are the same or opposite sex.). See (http://www.proskauer.com/publications/client-alert/special-alert-for-employers-and-other-benefit-plan-sponsors/) for our Client Alert discussing the impact of Windsor on employee benefit plans.

In the first reported ERISA decision post-Windsor, the U.S District Court for the Eastern District of Pennsylvania held (in Cozen O’Connor, P.C. v. Jennifer Tobits) that a same-sex spouse is to be treated as the decedent’s lawful spouse for purposes of entitlement to death benefits under a retirement plan. In reaching its decision, the court relied on Windsor and reasoned that ERISA and the Internal Revenue Code (Code) provide the definition of spouse; ERISA and the Code incorporate valid state law; and, under Illinois’ civil union statute, Illinois recognizes lawful same sex marriages solemnized in other jurisdictions.