This post was updated on June 26, 2015 to reflect the Supreme Court’s decision in Obergefell v. Hodges, which struck down all state bans on same-sex marriage.
The Treasury Department and the IRS announced on August 29, 2013 that all legal same-sex marriages will be recognized for federal tax purposes. On September 18, 2013, the Department of Labor took the same position for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA“). The announcements and corresponding revenue ruling
Because employee benefit plans are extensively regulated by federal law, this announcement means that all employers will be required to recognize such marriages for many employee benefits purposes. Conversely, employers in states that treat civil unions or domestic partnerships as if they were marriages will nevertheless be forbidden from treating such arrangements as marriages for certain employee benefits purposes. However, the precise impact will depend on whether the plan is subject to ERISA or whether it is a governmental or church plan exempt from ERISA. The chart below sets forth areas in which the announcement will affect the operation of different types of plans.
Contents
General Notes for All Plans
- In several instances, the chart indicates that plan provisions will govern the issue of who is considered a spouse. To avoid legal issues, it is critical that plan sponsors ensure that the plan provisions are clear on this point.
- The chart distinguishes between those rules that are mandatory (e.g., providing spousal death benefits in a qualified retirement plan of an employer covered by ERISA) and those that are permitted but not required (e.g., permitting changes in cafeteria plan elections based on certain qualifying events). For an employer, the simplest option will typically be to treat all legally married same-sex couples the same way it treats opposite-sex married couples. However, for churches that have a conscientious objection to same-sex marriages, it may still be possible to make distinctions between same-sex and opposite-sex marriages as to some (but not all) benefits. Conversely, a civil union or domestic partnership can be treated as if it were a marriage for some (but not all) benefits purposes.
Retirement Plans |
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| Employee Benefits Provision | Plans Covered by ERISA (plans of private businesses and nonprofit organizations) | Governmental Plans | Church Plans |
| Qualified joint and survivor and qualified preretirement survivor annuities (QJSA and QPSA) | Pension plans are required to provide qualified joint and survivor annuities as the normal form of retirement benefits in the case of married employees. This form can be waived only if both the employee and the spouse consent. If the employee dies before retirement, the plan must generally provide for a qualified preretirement survivor annuity. While it is theoretically possible for the qualified preretirement annuity to be waived by consent of the employee and spouse if the cost of such annuity is borne by the employee’s pension benefit, in most instances a plan “fully subsidizes” the qualified preretirement survivor annuity, and thus the benefit cannot be waived. | A governmental plan is not required to provide a qualified joint and survivor or qualified preretirement survivor annuity. However, based on Obergefell v. Hodges, it appears likely that a federal, state, or local government plan cannot constitutionally treat same-sex spouses less favorably than opposite-sex spouses. In a state that has civil unions or comprehensive domestic partnerships, parties to such arrangements will typically be treated as spouses for purposes of a governmental retirement plan. | A church plan is not required to provide a qualified joint and survivor or qualified preretirement survivor annuity. In instances in which it provides either or both of such forms of benefit, the plan provisions would govern as to whether a same-sex marriage needed to be recognized. Federal laws prohibiting sex discrimination and most state laws that prohibit discrimination based on sexual orientation do not apply to churches. |
| Payment of account balance at death | A retirement plan other than a pension plan (e.g., a 401(k), profit-sharing, or stock bonus plan) must either provide the QJSA and QPSA discussed in the preceding row, or provide that 100% of a participant’s remaining account balance at death must be paid to his or her spouse. | The requirement to provide a spousal benefit at death does not apply to governmental plans. However, based on Obergefell v. Hodges, it appears likely that a federal, state, or local government plan cannot constitutionally treat same-sex spouses less favorably than opposite-sex spouses. In a state that has civil unions or comprehensive domestic partnerships, parties to such arrangements will typically be treated as spouses for purposes of a governmental retirement plan. | The requirement to provide a spousal benefit at death does not apply to church plans. If a church plan provides such a benefit, the plan definition of spouse would apply. Federal laws prohibiting sex discrimination and most state laws that prohibit discrimination based on sexual orientation do not apply to churches. |
| Hardship and unforeseeable emergency distributions | A 401(k) or 403(b) plan may, but is not required to, provide for distributions in the event of a financial hardship of a participant or his or her beneficiary. A 457(b) plan may, but is not required to, provide for distributions in the case of an unforeseeable emergency. A plan that provides for hardship or unforeseeable emergency distributions can limit the types of hardships that it will consider. However, as described below under “Health Plans,” the Equal Employment Opportunity Commission (“EEOC”) has recently taken the position that refusal to provide benefits to a same-sex spouse that would be available to an opposite-sex spouse constitutes sex discrimination forbidden by federal nondiscrimination laws. Thus, an employer that prohibits hardship or emergency distributions based on the hardship or emergency of a same-sex spouse while allowing such distributions in the case of a hardship or emergency of an opposite-sex spouse risks running afoul of laws prohibiting sex discrimination. Some state laws also prohibit discrimination based on sexual orientation. | Same as ERISA plans. Moreover, based on Obergefell v. Hodges, it appears likely that a federal, state, or local government plan cannot constitutionally treat same-sex spouses less favorably than opposite-sex spouses. In a state that has civil unions or domestic partnerships, parties to such arrangements will typically be treated as spouses for purposes of a governmental retirement plan. | Same as ERISA plans, except that federal laws prohibiting sex discrimination and most state laws that prohibit discrimination based on sexual orientation do not apply to churches. |
| Rollovers from the plan | A qualified retirement plan must provide that if a participant or beneficiary is entitled to roll over a distribution to another retirement plan or individual retirement account (IRA), the plan will directly roll over such distribution to the other plan or IRA at the participant or beneficiary’s direction. A nonspousal beneficiary can elect to roll over only to an inherited IRA. A spouse can elect to roll over to his or her own employer plan or IRA.
A plan cannot treat a civil union or domestic partnership as a marriage for rollover purposes. |
Same as ERISA plans. A governmental plan must permit the rollover by a same-sex spouse to his or her own employer plan or IRA. A governmental plan cannot treat a civil union or domestic partnership as a marriage for rollover purposes, even if state law would otherwise treat such arrangement as if it were a marriage. | Same as ERISA plans. A church plan must permit the rollover by a same-sex spouse to his or her own employer plan or IRA, even if church policy does not recognize same-sex marriage. |
| Plan loans | If a participant is married, the spouse must consent to any loan from the plan to the participant. | Federal law does not impose a spousal consent requirement on governmental plans. If the plan requires spousal consent to plan loans, it appears under Obergefell v. Hodges that the requirement must be equally applicable to same-sex and opposite-sex spouses. | The requirement to obtain spousal consent to a plan loan does not apply to church plans. If a church plan requires such consent, the plan definition of spouse would apply. Federal laws prohibiting sex discrimination and most state laws that prohibit discrimination based on sexual orientation do not apply to churches. |
| Domestic relations orders | A plan must comply with a qualified domestic relations order, or QDRO (a domestic relations order dividing benefits, typically in a divorce, which meets certain criteria). | A governmental plan is permitted, but not required, to provide that benefits will be subject to a domestic relations order. Many governmental plans provide that they will comply with a domestic relations order which would meet the criteria for a QDRO in the case of an ERISA-covered plan. If the plan recognizes domestic relations orders, the plan terms (including the applicable provisions of the state constitution and statutory law of the state in which the governmental entity is located) would govern as to whether a civil union or domestic partnership would be recognized. State law of the employee’s state would determine whether it was possible to get a domestic relations order in the case of a civil union or domestic partnership. | A church plan is permitted, but not required, to provide that benefits will be subject to a domestic relations order. If a church plan contains such a provision, it can also limit the domestic relations orders it will recognize. Federal laws prohibiting sex discrimination and most state laws that prohibit discrimination based on sexual orientation do not apply to churches. |
| Required minimum distribution rules | The required minimum distribution rules allow for more flexibility when a beneficiary is the spouse than when the beneficiary is a child or other nonspousal beneficiary. A plan cannot use a schedule that provides for distributions less rapid than those provided under the required minimum distribution rules. A plan could provide for distributions more rapid than those required. However, as described below under “Health Plans,” the Equal Employment Opportunity Commission (“EEOC”) has recently taken the position that refusal to provide benefits to a same-sex spouse that would be available to an opposite-sex spouse constitutes sex discrimination forbidden by federal nondiscrimination laws. Thus, disregarding same-sex spouses for purposes of the minimum distribution calculation while including opposite-sex spouses risk running afoul of federal laws prohibiting sex discrimination. Some state laws also prohibit discrimination based on sexual orientation.
Parties to a civil union or domestic partnership cannot be treated as spouses for purposes of the minimum distribution rules. |
Same as ERISA plans, except that under Obergefell v. Hodges, it appears that the Fourteenth Amendment would preclude less favorable treatment of same-sex spouses than opposite-sex spouses, even if federal nondiscrimination laws did not apply. | Same as ERISA plans, except that federal laws prohibiting sex discrimination and most state laws that prohibit discrimination based on sexual orientation do not apply to churches. |
| Withholding on distributions | A distributee of a retirement plan who has a same-sex spouse must be permitted to elect “married” status for purposes of federal income tax withholding.
Even in a state the recognizes civil unions or domestic partnerships, parties to such arrangements could not be treated as spouses for federal income tax withholding purposes, although they will frequently be treated as such for state income tax purposes. |
Same as ERISA plans. | Same as ERISA plans. |
Health Plans |
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| Employee Benefits Provision | Plans Covered by ERISA (plans of private businesses and nonprofit organizations) | Governmental Plans1 | Church Plans |
| Availability of health plan coverage | An employer may, but is not required to, offer health plan coverage to employees’ spouses. While the Affordable Care Act will impose certain tax penalties if employees are not covered, it does not apply to spousal coverage. Thus, a plan may exclude all spouses of its employees from health coverage. However, the Equal Employment Opportunity Commission (“EEOC”) has recently taken the position that refusal to provide benefits to a same-sex spouse that would be available to an opposite-sex spouse constitutes sex discrimination forbidden by federal nondiscrimination laws. “What You Should Know About EEOC and the Enforcement Protections for LGBT Workers.” | Same as ERISA plans, except that under Obergefell v. Hodges, it appears that the Fourteenth Amendment would preclude less favorable treatment of same-sex spouses than opposite-sex spouses, even if federal nondiscrimination laws did not apply. Some state laws also prohibit discrimination based on sexual orientation. | Same as ERISA plans, except that federal laws prohibiting sex discrimination and most state laws that prohibit discrimination based on sexual orientation do not apply to churches. |
| Taxability of health plan coverage (including health reimbursement accounts, flexible benefit plans, and health savings accounts) | If an employer provides health plan coverage to an employee’s spouse (either through an employer contribution or through a pretax employee contribution), the contribution is not includible in the employee’s W-2 income, taxable to the employee, or subject to federal income tax withholding, FICA (Social Security and Medicare taxes), or FUTA (federal unemployment taxes). Benefits paid from the plan are also not taxable income.
If a plan provides coverage to an individual with whom the employee is in a civil union or domestic partnership, such coverage will be taxable to the employee unless the individual:
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Same as ERISA plans. | Same as ERISA plans. |
| COBRA (health care continuation) | Spouse who is covered by an employee’s health insurance is entitled to up to 36 months of health care continuation (at his or her own expense) in the event of participant’s termination of employment, or the couple’s divorce or legal separation. The provision applies only to the extent that the employer provides spousal coverage in the first place. | Same as ERISA plans. Governmental plans in states that recognize civil unions or comprehensive domestic partnerships will typically provide coverage equivalent to COBRA for parties to such relationships, even though federal law does not require them to do so. | Same as ERISA plans. |
| HIPAA | A spouse who loses coverage under his or her own employer’s plan may be entitled to immediate spousal coverage, notwithstanding normal rules regarding when health coverage can be elected. However, this provision waives only normal enrollment dates, so it would not entitle a spouse to coverage if the employer plan would not otherwise provide such coverage. | Same as ERISA plans. Governmental plans in states that recognize civil unions or comprehensive domestic partnerships may provide similar relief to parties to such arrangements, even though federal law does not require it. | Same as ERISA plans. |
Dependent Care Assistance Plans |
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| Employee Benefits Provision | Plans Covered by ERISA (plans of private businesses and nonprofit organizations) | Governmental Plans1 | Church Plans |
| Qualifying person test | Dependent care assistance benefits can be provided only for the care of a qualifying person. A spouse is a qualifying person if he or she is not physically or mentally able to care for himself or herself and lived with the employee for more than half the year. A party to a civil union or domestic partnership cannot be treated as a spouse for purposes of the provision of nontaxable dependent care assistance benefits unless such person:
An employer’s plan need not cover dependent care for all qualifying persons. Thus, a plan could exclude spouses from the definition of a qualifying person. However, as described above under “Health Plans,” the Equal Employment Opportunity Commission (“EEOC”) has recently taken the position that refusal to provide benefits to a same-sex spouse that would be available to an opposite-sex spouse constitutes sex discrimination forbidden by federal nondiscrimination laws. Thus, allowing dependent care benefits for an opposite-sex spouse while disallowing them for a same-sex spouse would risk running afoul of laws prohibiting sex discrimination. Some state laws also prohibit discrimination based on sexual orientation. |
Same as ERISA plans, except that under Obergefell v. Hodges, it appears that the Fourteenth Amendment would preclude less favorable treatment of same-sex spouses than opposite-sex spouses, even if federal nondiscrimination laws did not apply. | Same as ERISA plans, except that federal laws prohibiting sex discrimination do not apply to churches. |
| Payee test | Benefits cannot be reimbursed under a dependent care assistance plan if they are paid to the spouse of the employee. Plans that recognize civil unions or domestic partnerships may, but are not required by federal law to, impose similar restrictions on paying benefits to a party to such a relationship. | Same as ERISA plans. | Same as ERISA plans. |
Cafeteria Plans |
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| Employee Benefits Provision | Plans Covered by ERISA (plans of private businesses and nonprofit organizations) | Governmental Plans1 | Church Plans |
| Changes in elections | A cafeteria plan may, but is not required to, allow employees to change their elections mid-year based on certain qualifying events, including marriage and divorce. A same-sex marriage or divorce would be treated the same as any other marriage or divorce for purposes of these rules. However, as described above under “Health Plans,” the Equal Employment Opportunity Commission (“EEOC”) has recently taken the position that refusal to provide benefits to a same-sex spouse that would be available to an opposite-sex spouse constitutes sex discrimination forbidden by federal nondiscrimination laws. Thus, an employer that excludes same-sex marriage or divorce from the qualifying events it would recognize while including opposite-sex marriage or divorce risks running afoul of laws prohibiting sex discrimination. Some state laws also prohibit discrimination based on sexual orientation.
The formation or dissolution of a civil union or domestic partnership cannot be treated as a qualifying event. |
Same as ERISA plans, except that under Obergefell v. Hodges, it appears that the Fourteenth Amendment would preclude less favorable treatment of same-sex spouses than opposite-sex spouses, even if federal nondiscrimination laws did not apply. | Same as ERISA plans, except that federal laws prohibiting sex discrimination and most state laws that prohibit discrimination based on sexual orientation do not apply to churches. |
Footnotes:
1. The extent to which a state law can or cannot impose requirements on an ERISA plan is a complex subject beyond the scope of this article. For more information, see Ann M. Caresani, “The Complex World of ERISA Preemption” [chapter 9] in Paul J. Schneider and Brian M. Pinheiro, ERISA: A Comprehensive Guide (Wolters Kluwer 4th ed. 2012 & 2013 Supp.).
The extent to which a state law can or cannot impose requirements on an ERISA plan is a complex subject beyond the scope of this article. For more information, see Ann M. Caresani, “The Complex World of ERISA Preemption” [chapter 9] in Paul J. Schneider and Brian M. Pinheiro, ERISA: A Comprehensive Guide (Wolters Kluwer 4th ed. 2012 & 2013 Supp.).