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The Sweeping Effects of DOMA: Important Considerations for Benefit Plan Sponsors

July 2013Advisories

The Supreme Court’s historic decision last week striking down the Defense of Marriage Act (DOMA) will affect over 1,000 federal laws, including laws that govern employee benefits, such as the tax code and the Employee Retirement Income Security Act (ERISA). The Court’s decision means that legal same-sex marriages are no longer distinguished from opposite-sex marriages under federal law. The Court's decision is limited to marriages that have been recognized under state law. It does not strike down the portion of DOMA that permits states to refuse to recognize same-sex marriages, nor does it address any individual state's definition of marriage.

We anticipate guidance soon from agencies such as the Internal Revenue Service and the Department of Labor about how to implement the Court’s decision. In the meantime, benefit plan sponsors can prepare for the effects of the decision by doing the following:

  1. Identify which employees have same-sex spouses.
  • In which state was the employee married? If different, in which state does the employee reside?
  1. Review the federal tax withholding elections for employees with same-sex spouses.
  • Employees with same-sex spouses may need to modify their federal tax withholding (W-4) forms to reflect their married status.
  1. Identify which same-sex spouses are covered by your benefit plans.
  • Are they labeled as “domestic partners” or “spouses?" You may need to update their labels in your HR system.
  • Are any spouses covered by other insurance, including Medicare? If so, coordination of coverage may shift.
  • Are you imputing additional income to the employee for the same-sex spouse’s coverage?
  1. Identify any children of a same-sex spouse covered by your benefit plans.
  • Are they labeled as children, stepchildren, or something else? You may need to update their labels in your HR system.
  • Are those children tax dependents?
  • Are those children now eligible for coverage until age 26 under PPACA as stepchildren?
  • Are you imputing additional income to the employee for the child’s coverage?
  1. Revi ew the definitions of “spouse” and “marriage” in all benefit plans and Summary Plan Descriptions (SPDs).
  • Is the definition tied to a particular state’s definition of spouse?
  1. Review the beneficiary provisions in your welfare and nonqualified benefit plans.
  • Will a same-sex marriage invalidate an employee’s beneficiary election under your nonqualified retirement plans or welfare plans?
  • What are the default beneficiary provisions for married employees?
  • Does marriage invalidate an employee’s beneficiary election?
  1. Review the individual beneficiary designations in your 401(k) plan and other qualified retirement plans for employees who have same-sex spouses.
  • Is the same-sex spouse named as the employee’s beneficiary under your qualified retirement plans? If not, the employee needs a valid waiver from the same-sex spouse to name an alternate beneficiary.
  • Is the same-sex spouse named as the employee’s beneficiary under your other benefit plans? If not, will the default provisions of your plan invalidate the election?

We will provide further information as guidance becomes available. In the meantime, please feel free to contact your usual Goulston & Storrs attorney or the attorneys listed below:

Sonia Macias Steele
(617) 574-3583
[email protected]

Wayne H. Miller
(617) 574-3567
[email protected]

 

Pursuant to IRS Circular 230, please be advised that, this communication is not intended to be, was not written to be and cannot be used by any taxpayer for the purpose of (i) avoiding penalties under U.S. federal tax law or (ii) promoting, marketing or recommending to another taxpayer any transaction or matter addressed herein.

This advisory should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and any specific legal questions you may have.

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