Benefit Plan Issues Raised by Same-Sex Marriages

The Issue

Same-sex marriages produce uncertainty as to who is a “legal spouse” and create confusion for benefit plan administrators who must make many determinations based on an individual?s status as a “spouse.” For example, a plan administrator might need to determine whether a same-sex spouse is eligible to enroll in health benefits as a spouse, whether a same-sex spouse?s benefits may be paid for on a pre-tax basis, or whether a same-sex spouse is a “spouse” for purposes of making a distribution of death benefits from a 401(k) plan. Although health care coverage presents the most immediate issue, the determination of a participant?s “legal spouse” impacts cafeteria plan and 401(k) plan administration and may implicate other employment policies as well.

Complicating Factors

Defining “legal spouse” is complicated not only by the legal uncertainty surrounding the recent issuance of marriage certificates in San Francisco, but also by the disparate treatment that is developing between localities, states, and the federal government. For example, on Tuesday, April 20, 2004, an Oregon court ordered Multnomah County, Oregon to stop issuing same-sex marriage licenses, but ordered the State of Oregon to recognize the 3,000 licenses already issued. This disparate treatment is particularly confusing for benefit plan administration because the insurance companies that insure many welfare plan benefits must follow state law, but federal tax treatment is controlled by the Defense of Marriage Act. Finally, even if a same-sex partner?s status as a “legal spouse” can be determined for a particular benefits related decision, new court decisions, legislation, and possible constitutional amendments could upset that determination.

No Easy Answers

Although the confusion and complication could be resolved by simply acknowledging or disregarding same sex marriages for all purposes, the benefit plan sponsor cannot make this decision if it conflicts with state or federal law. Whatever approach employers decide to take today, it will be necessary to continue to monitor developments and, if necessary, make adjustments to respond to those developments. While any blanket decision to recognize or not recognize same-sex marriages invites lawsuits and adverse tax consequences, employers need to establish some uniformity in treatment across plans and between participants.

Possible Approaches

We believe that in general there are two basic alternative approaches to this issue. The first is to do nothing and decide claims as they arise. The second involves plan amendments. The two approaches are described below.

  • An employer may assess the legality of each marriage at the time the enrollment application or benefit claim arises. This approach would generally not require plan amendments, but it would prevent the employer from clearly articulating a uniform policy, because the law is rapidly changing. It also might create administrative difficulties because a same-sex partner?s status as spouse might change as these issues move through the courts and legislatures. It might also result in increased legal costs because each separate enrollment or claim would need to be analyzed under the law that exists at the time the enrollment or benefit claim arises. Finally, if a decision required a plan to permanently release control of substantial assets, the case-by-case approach might require court involvement to protect the plan from double payments.
  • An employer may amend plans to create more certainty in treatment. For example, many plans could be amended to provide that until federal law recognizes marriages between same-sex spouses, same-sex spouses will be treated as domestic partners for all purposes under the plans except for coverage and benefits provided by insurance. For coverage and benefits provided by insurance, coverage and benefits of an employee?s same-sex spouse could be based on the insurance policy as interpreted by the insurance company. For self-funded benefits, federal laws provides the protection of ERISA and Defense of Marriage Act preemption. For insured benefits, state law will apply. The proof of marriage would substitute for the proof otherwise required to show domestic partner status.

Under either approach, beneficiary designations, including designation forms and default provisions, should be reviewed and revised to decrease ambiguity as much as possible. For example, we believe that beneficiary designation forms that use status as “spouse” rather than a specific name are likely to create conflicts and litigation.

Recommended Steps

We recommend employers take coordinated action to develop a unified and consistent approach to same-sex marriages under all their employee benefit plans and employment policies. The following steps should help employers in addressing this issue and avoiding litigation:

  • Have legal counsel review and revise beneficiary designations to eliminate or decrease ambiguities that might result in litigation.
  • Review plan administrative actions and employment practices to determine which actions and practices are impacted by spousal status.
  • Chose an approach to resolving spousal status and implement that approach. In a case-by-case approach, determine who will review and approve legal determinations as they arise. In an amendment approach, review all benefit plans and execute amendments.
  • Communicate with participants as appropriate. Provide notices and summary of material modifications as required by ERISA and educate human resource professionals to ensure that they are providing consistent and accurate information to plan participants and beneficiaries.