During the final week of March 2013, the U.S. Supreme Court heard long-awaited challenges to federal and state restrictions on same-sex marriages. On March 27, the court heard arguments in a case seeking to overturn a section of the federal Defense of Marriage Act (DOMA), which was enacted in 1996 and denies federal benefits to married same-sex couples. A day earlier, the court heard arguments in a case seeking to restore same-sex marriage in California. Rulings in both cases are expected by the end of June.
In U.S. vs. Windsor, the court was asked to find unconstitutional DOMA’s definition of marriage as solely between a man and a woman for all purposes under federal law—including access to spousal benefits under the tax code and other federal laws and regulations.
While issues were raised early in the hearing as to whether the leadership of the House of Representatives had authority, or standing, to defend DOMA before the court when the executive branch refused to do so, legal analysts said it was more likely that the court would issue a ruling on DOMA’s constitutionality than it was to rule on the constitutionality of California’s ban on same-sex marriage, as noted below.
However, some doubt remained as to whether a majority of the justices believed they were free to rule on the merits of the DOMA case. Failing to decide on the statute's constitutionality would likely keep in place two lower-court rulings nullifying DOMA and lead the Obama administration to cease enforcement of the law, according to legal experts. That would effectively extend federal marriage benefits to same-sex spouses in states that recognize their marriages as legal, currently nine plus the District of Columbia, as well as for spouses of federal employees.
Because of DOMA, “same-sex couples can't currently receive the federal tax advantages that come with being married in terms of employer-provided health benefits,” said Todd Solomon, a partner at law firm McDermott Will & Emery in Chicago, to SHRM Online. “If they are able to add their same-sex spouse or partner to their company health plan, their payments for their spouse or partner must generally be made as an after-tax contribution rather than pre-tax. And the employer's contribution for the spouse or partner is generally treated as taxable income to the employee. That could be a large amount of taxable income where an employee is not getting cash. This is quite a harsh tax result.”
Reduced Cost and Fewer Administrative Burdens
“More and more employers are extending spouse benefits where legally possible to same-sex couples, and that practice will only continue to spread, judging from broad employer support for same-sex couples at the Supreme Court,” said Hunter Carter, a litigation partner at Arent Fox in New York and Washington, D.C., to SHRM Online. “To do so [currently] often costs more than for legally married heterosexual couples, in terms of both benefit costs and administrative burden. Overruling DOMA will immediately, if not yet universally, lower or eliminate those costs. Some same-sex couples who can legally marry, however, will have to do so to secure those spousal benefits.”
He added that, at least in states recognizing same-sex marriage, overturning DOMA “will simplify how to determine employee marital benefits. The only question employers will have to ask is, 'Are you legally married?' They know how to treat legally married couples.”
However, Carter noted that “states do not yet have to enforce each other's marriages when it comes to same-sex marriages under a different part of DOMA that is not before the court,” and some could argue that when a same-sex couple who were legally married in one state move to a state that does not recognize same-sex marriage, they should not be considered legally married in that state by the federal government.
In Carter's view, however, that is not an argument that could prevail in the courts. “If DOMA is struck down, the federal government will not be able to 'pick and choose' the states whose laws it will enforce when it comes to legally married same-sex couples. That would just perpetuate the prohibited discrimination,” he said.
Still, issues regarding federal benefits for same-sex spouses in states that don't recognize same-sex marriage would likely end up being adjudicated in future lawsuits.
Federal vs. State Issues
Solomon concurred that, while a DOMA ruling “could solve many problems for same-sex couples, it could also make things extremely complicated as well, particularly in the area of employee benefits.” Absent DOMA's federal definition of spouse, for instance, “benefit plans will presumably have to look to states' varying definition of spouse in order to determine the taxation of same-sex partner health benefits and eligibility for pension survivor benefits,” he pointed out.
“If the Supreme Court overturns DOMA, those same-sex couples in states that allow same-sex marriages, such as New York, would see the most dramatic expansion of benefits at a federal level,” Solomon noted. “There are over 1,000 federal rights that married couples receive under federal law, including the right to receive tax-free health benefits coverage under an employer’s plan, receive Social Security spousal death benefits and file taxes jointly. However, for those same-sex couples in states that do not recognize same-sex marriage, such as Florida, a repeal of DOMA may not end up being that meaningful.” (This U.S. map shows the status of same-sex marriage in each state.)
Another complexity: If the court strikes down DOMA’s provision banning the federal government from recognizing same-sex marriages that are valid under state laws, it’s likely that an employer in a state that recognizes same-sex marriage could provide the spouse of a same-sex employee with health care benefits that are exempt from federal and state taxation. However, in a state that does not recognize same-sex marriages, the employer might be required to provide health care benefits that are exempt from federal taxation but still subject to state taxation.
This would be a good time for employers to review how their benefit plans refer to spouses, Solomon advised. “If the Supreme Court only strikes down the definition of marriage at a federal level and leaves it to the states to define marriage in any way they choose, the results for benefit plan purposes will be very dependent upon the plan's terms, choice of law provisions, etc. Employers should now specifically define the term 'spouse' in their benefit plan documents,” he said.
Among specific benefits issues that would be affected by a DOMA ruling are the following:
- Health care “gross-ups.” A growing number of U.S. employers are providing tax-equalization “gross-ups” to cover the additional federal and state taxes employees must pay on same-sex domestic partners’ or spouses’ health benefits in the U.S. That practice and its associated costs would not be necessary if same-sex couples received the same tax treatment as opposite-sex spouses, Solomon noted.
- Retirement benefits. Same-sex couples living in states where they can marry would be entitled to joint-and-survivor annuity payments required for spouses with defined benefit pension plans if DOMA is overturned, Solomon said. In addition, they would automatically become each other’s beneficiaries on 401(k) accounts unless giving consent for someone else to be listed.
- FMLA leave. The Family and Medical Leave Act (FMLA) allows an eligible employee up to 12 weeks of unpaid, job-protected leave for specified family and medical reasons. A Supreme Court decision overturning DOMA could affect how the FMLA covers employee leave to care for a same-sex spouse who suffers from a serious health condition. According to the U.S. Department of Labor’s FMLA Advisor website, FMLA regulations provide that “spouse” is defined in terms of the applicable state law. This FMLA provision, however, has been limited by DOMA’s definition of “spouse” to mean only opposite-sex spouses.
“Employers as well as members of the LGBT [lesbian, gay, bisexual and transgender] community are anxiously awaiting further guidance from the Supreme Court in June 2013 regarding this issue,” said Michele Dearing, senior counsel at Jackson & Campbell P.C. in Washington, D.C. “If the Supreme Court rules that DOMA violates the rights of same-sex couples who are legally married under the state laws where they reside, then an employee—at least in states where same-sex marriage is legal—should be entitled to request FMLA leave to care for a same-sex spouse,” she noted.
California’s Ban on Same-Sex Marriage
Many Employers Seek DOMA's Repeal
Several leading business, nonprofit and municipal employers filed an amicus brief in support of the challenge to the Defense of Marriage Act (DOMA). The brief argued that DOMA requires employers to treat employees married to someone of the same sex and those married to someone of a different sex unequally in terms of spousal benefits, and that the law strains business efficiency and damages morale.
Signers included Amazon.com, Apple, CBS, Cisco Systems, Citigroup, Facebook, Google, JetBlue, Johnson & Johnson, Levi Strauss & Co, Marriott International, Microsoft, Morgan Stanley, Nike, Pfizer, Starbucks, Twitter, Viacom, Walt Disney Co. and Xerox.
On the previous day, March 26, the Supreme Court heard arguments in Hollingsworth v. Perry on the constitutionality of California’s Proposition 8, a November 2008 ballot initiative that banned same-sex marriage in the state. Same-sex marriage had become legal in California in June of that year.
According to legal analysts, Justice Anthony Kennedy, who is considered the key swing vote, suggested that the court could allow to stand a lower court ruling striking down California’s ban on same-sex marriage without ruling broadly on the issue.
Given that the anti-gay-marriage petitioners in this case were individuals and not representatives of the state of California, “Several justices seriously doubt whether the petitioners defending Proposition 8 have ‘standing’ to appeal the district court ruling invalidating the measure,” wrote Tom Goldstein, who teaches Supreme Court litigation at the Stanford and Harvard law schools, on the website SCOTUSblog. “These likely include not only more liberal members but also the Chief Justice. If standing is lacking, the Court would vacate the Ninth Circuit’s decision.”
Justice Kennedy seemed “very unlikely to provide either side with the fifth vote needed to prevail,” continued Goldstein. “He was deeply concerned with the wisdom of acting now when in his view the social science of the effects of same-sex marriage is uncertain because it is so new. He also noted the doubts about the petitioners’ standing. So his suggestion was that the case should be dismissed.”
Predicting a court ruling based on the justices’ questions and comments is never a sure bet. But if the court finds that the defenders of Proposition 8 lacked standing to bring the case, it would likely restore the legality of same-sex marriage in California. However, the ruling would not apply to other states.
Another possibility would be for the court to issue a “dismissed as improvidently granted” resolution, finding that the case should not have been heard at this time, which several commentators think possible. That, too, would restore same-sex marriage in California alone.
“We’ll most likely get a jurisdictional decision, with no clear win or loss for the ultimate cause, a vacated Ninth Circuit decision, and some large questions about the scope and effect of the district court’s order,” said Dale Carpenter, professor of civil rights and civil liberties law at the University of Minnesota Law School, to SHRM Online.
How DOMA Affects Benefit Plan Sponsors
"We want the Supreme Court to understand the unequal tax treatment that DOMA applies to employees who are legally married in states recognizing same-sex marriages and the burdens it imposes on employer sponsors of health and retirement benefits," said James A. Klein, president of the American Benefits Council, which signed the above-menioned amicus brief seeking DOMA's repeal. The council's members directly sponsor or administer health and retirement benefits.
The brief describes how DOMA "requires that employers treat one employee differently from another, when each is married, and each marriage is equally lawful." According to an analysis by the council, this disparate treatment creates challenges for both employees and companies sponsoring benefit plans, such as:
- Federal income tax imposed (and the corresponding withholding required) on the value of health benefits for spousal coverage, applicable only to coverage of same-sex spouses (pages 15-16 of the brief).
- Differing eligibility for participation and use of pretax "cafeteria" plans (16-17).
- Differing eligibility for preretirement hardship distributions from retirement plans (20-21).
- Disqualification of same-sex spouses from the estate-tax marital deduction on proceeds from employer-sponsored life insurance (21-22).
- Differing eligibility for receiving spousal pension benefits in the form of a qualified joint and survivor annuity (22-23).
- Administration of dual systems of benefits and payroll—related to federal tax withholding, payroll taxes and workplace benefits that turn on marital status—imposing additional costs and tax burdens on employers (25-26).
- Requiring employers to determine how DOMA corresponds with state nondiscrimination laws (31-32).
"Companies that offer benefits to their employees' same-sex spouses do not want those families to face unequal treatment under the law," Klein said. "And employers want to commit their resources to core business goals and the workforce that makes achieving those goals possible. For many employers and workers, DOMA is an unnecessary and troublesome obstacle."
Editor' note: Earlier versions of this article incorrectly stated that same-sex marriage become lawful in California after the measure was passed by the legislature and signed by the governor. While the California legislature passed a same-sex marriage law in 2005, it was vetoed by then-Gov. Arnold Schwarzenegger. Same-sex marriage became legal in California in June 2008, following a ruling by the state's Supreme Court. That ruling was overturned by Proposition 8 in November 2008. SHRM Online regrets the error.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Related SHRM Video:
Related External Article:
Same-Sex Marriage Cases: Are Your Benefit Plans Prepared?, Davis Wright Tremaine LLP, March 2013
Related SHRM Articles:
New York Marriage Law Impacts Benefits, SHRM Online Benefits Discipline, July 2011
Best-Practice Benefits for Same-Sex Couples, SHRM Online Benefits Discipline, July 2010
Amending Plan Documents to Recognize Same-Sex Spouses, SHRM Online Benefits Discipline, June 2010
Employer Gross-Ups, HR Magazine, September 2009
SHRM Online Benefits page