In a case that has obvious implications for employee benefit plans, the Veterans’ Administration (“VA”) has just provided survivor benefits to the partner of a service member, even though the partners were not married before the service member’s death.

The VA Case

In the case, Joe Krumbach and Army veteran Jerry Hatcher registered in Seattle as domestic partners in 2003. In 2008, Hatcher died. In 2012, Washington State automatically converted all existing domestic partnerships (other than those for certain seniors) to marriage. In 2013, after the U.S. Supreme Court struck down the federal Defense of Marriage Act in United States v. Windsor, Krumbach applied for VA dependency and indemnity compensation as well as health insurance based on the marriage. He was denied. The VA told him at that time that that the reason for rejection of his claim was that Jerry died four years before marriages by same-sex couples were legal. The VA’s position at the time was that individuals would not be recognized as spouses unless “the marriage was legal in the place where the Veteran or the Veteran’s spouse lived when he or she filed a VA claim or application (or a later date when the Veteran became eligible for benefits).”

However, in the wake of the Supreme Court’s decision in Obergefell v. Hodges, which recognized same-sex marriage as a Constitutional right nationwide, the VA has reversed its position. The Obergefell decision allowed Krumbach to retroactively amend Hatcher’s death certificate to show they were married. The VA then allowed the benefits to Krumbach as the surviving spouse.

Implications for Employers

The retroactive recognition of domestic partnerships as marriages appears to be an issue specific to Washington State. Washington State appears to be the only state that retroactively converted existing domestic partnerships to marriages.

However, the case highlights the issues employers face in applying existing policies with respect to employees who may have married many years ago. Some Canadian provinces permitted same-sex marriage beginning as early as 2003, and Massachusetts permitted same-sex marriage beginning in 2004, so same-sex couples may have been married for as much as twelve years before the Supreme Court decision in Obergefell. Moreover, until the 2013 Windsor decision, federal law did not recognize same-sex marriages, so employers that wished to provide benefits to same-sex spouses encountered tax and other obstacles to doing so.

However, recent developments have raised the possibility that employers may have some liability for correcting past failures to include same-sex spouses in spousal benefits. The Equal Employment Opportunity Commission’s (EEOC’s) Strategic Enforcement Plan (SEP), adopted by a bipartisan vote in December of 2012, lists “coverage of lesbian, gay, bisexual and transgender individuals under Title VII’s sex discrimination provisions, as they may apply” as an enforcement priority for FY2013-2016.

Obviously, an employer cannot now change what it did in 2003 with regard to same-sex spousal benefits. In many instances, an employer may simply have to respond to a lawsuit if and when one is filed. However, an employer needs to give serious consideration to how it will currently treat same-sex marriages entered into before it changed its policies to recognize such marriages. The discussion below focuses on steps the employer may consider to mitigate liability in the future, rather than on its response to individuals who claim benefits now based on the employer’s actions or inaction in the past.

Specific Types of Plans

1. Retirement Plans

Pension plans covered by the Employee Retirement Income Security Act of 1974 (“ERISA”), which includes most pension plans other than governmental or church plans, are required to provide that the normal form of benefits for a married participant are to be in the form of a qualified joint and survivor annuity (“QJSA”) for the life of the participant plus the life of the spouse, unless the spouse consents to a different form of benefits. Employers may want to consider what to do about instances in which a participant is currently receiving a life annuity or other form of benefits that is not a qualified joint and survivor annuity with the spouse. An employer may wish to consider converting all such pensions prospectively to a QJSA form, unless the consent of the spouse is obtained now. However, some practical problems would need to be addressed:

1. How would a plan determine the marital status of existing pensioners? Normally, a participant is required to make a statement regarding marital status before benefits begin to be paid. However, this would typically not have happened in the case of a participant with a same-sex spouse. Simply asking retirees their marital status now would permit a retiree to defeat the spouse’s consent requirement by not responding to the question. Would the plan cut off benefits for a retiree listed as single who did not respond to an inquiry regarding marital status, or is there some other way of handling these situations?
2. A QJSA typically provides a lower annual pension than a life annuity, to reflect the fact that the benefit is expected to be paid out over a longer period. In the case of an employee who has already been receiving benefits in the form of a straight life annuity but whose benefits are converted to a QJSA, would future benefits need to be reduced to take account of the deemed overpayment in past years? If the retiree dies before the recoupment was complete, would the spouse’s pension be reduced to provide for the recoupment?
3. In the case of a retiree who has already died, would any provision be made for paying a lifetime annuity to the surviving same-sex spouse? If so, this could be a significant cost issue for some plans. If not, the plan would be creating a serious disparity between a participant who died immediately after the employer converted existing life annuities to QJSAs, and one who died immediately before such date.

In the case of ERISA-covered retirement plans other than pension plans (e.g., 401(k) plans), a plan is required to provide a QJSA and a qualified preretirement survivor annuity (“QPSA”) unless it provides that 100% of a participant’s remaining account balance at death must be paid to his or her spouse, unless the spouse consents to the naming of a different beneficiary. Obtaining information on the marital status of deceased employees originally listed as single may not only be administratively inconvenient, but potentially result in the plan paying out multiple claimants for the same benefits. For example, if the employee named her brother as her beneficiary, and benefits were paid out to him, the plan might still owe benefits to the employee’s wife. And recovering the benefits already paid to the brother might be expensive and time-consuming, if it were possible at all. At the same time, failure to pay lump sums to spouses could possibly subject the plan to the QJSA and QPSA rules, which could be even more expensive for the plan.

2. COBRA Coverage

A spouse who is covered by an employee health plan is entitled under the Consolidated Budget Reconciliation Act (“COBRA”) to elect up to 36 months of continuation coverage at his or her own expense in the event of a divorce or legal separation. In some instances, a same-sex spouse was in the past denied spousal coverage. With respect to existing employees, employers are typically now allowing them to elect spousal coverage. However, should the employer be considering opening up COBRA coverage to spouses who never had health coverage due to the fact that their marriages were never recognized?

For example, suppose that employee A was married to B at some time before 2013. Had their marriage been recognized, B would have received spousal coverage under the employer’s plan. However, in 2013 (before the employer began offering health coverage to same-sex spouses), A and B divorced. Had B had spousal coverage at that time, he or she could have continued COBRA coverage until 2016. Should the employer be giving B notice of COBRA availability at this point? If so, should it be allowing B to elect COBRA coverage for 36 months beginning in 2013, or beginning in 2015?

Obviously, finding past COBRA-eligible spouses may be a cumbersome process. At the same time, not providing COBRA notices may result in substantial expenses to employers. The reason is that typically, COBRA premiums on average cover the expense of providing health benefits to covered individuals. However, a particular individual may pay premiums for years without incurring any covered benefits, while another may incur medical costs far in excess of the premiums. If COBRA notices are not given, a former spouse who incurs no medical costs will not pay the premiums. However, a former spouse who can argue that he or she would have elected COBRA if the notice had been given (whether or not that was actually true) could sue the employer for the excess of medical claims that should have been covered over the premiums that would have been paid.

3. Retiree Health Plans

In many instances, retiree health plans will provide for spousal coverage, typically at the expense of the employee. These plans can be particularly valuable if the spouse is too young for Medicare coverage, but old enough so that private insurance is expensive.

Typically, spousal retiree health coverage is available only if a) elected at the time of retirement, if the employee is then married, or b) elected at the time of marriage, if the employee marries after retirement. For an individual now who is married at the time or retirement, or marries thereafter, a plan will typically provide that a same-sex spouse is covered under the same conditions as an opposite-sex spouse. However, if an individual in a same-sex marriage retired after marriage, but before the plan began recognizing same-sex marriages, he or she may never have had the opportunity to elect spousal retiree health coverage. Such a plan may wish to consider whether to provide a one-time election into spousal retiree health coverage for affected spouses.

Conclusions

The above is obviously not a comprehensive list of all of the ways in which an employer might need to take action now to mitigate potential liability based on past actions. However, the important points are that a) an employer does not necessarily avoid all exposure simply by beginning to recognize same-sex marriages now, and b) an employer should consider ways in which to mitigate potential exposure.