In a recent blog, we discussed a case that challenges the constitutionality of the Defense of Marriage Act (“DOMA”), which defines marriage for federal law purposes as a legal union between a man and a woman. DOMA was enacted during the administration of President Bill Clinton. Presuming DOMA is deemed constitutional by the courts and is not repealed by Congress (a possibility that appears remote at this point in time), employers theoretically could comply with federal employee benefits laws contained in ERISA by adopting (or maintaining) the DOMA definition of spouse. In turn, the broad preemption doctrine contained in ERISA tends to invalidate contrary state laws that relate to the delivery of benefits under ERISA-governed employee benefit plans (other than plans–generally health care plans–that are provided through insurance). Accordingly, any state or local laws that attempt to define “spouse” more broadly generally would be irrelevant for federal law purposes if ERISA preemption applies.
Despite the broad application of DOMA, and perhaps to some extent because of it, states have begun to consider and in some cases enact laws that extend marriage rights to same sex couples. By extension, these laws effectively require employers within those states to provide certain benefits to same sex couples to the extent that these laws are not found to be preempted under ERISA or otherwise in conflict with federal law. This state experimentation generally takes place in the health care area. Over recent years, five states have enacted legislation to extend protections to same sex couples, including Connecticut, Iowa, Massachusetts, New Hampshire and Vermont, as well as the District of Columbia. This past summer, New York became the latest and the largest state to extend same sex marriage rights to its citizens.
On June 24, 2011, the New York Marriage Equality Act (the “Equality Act”) was signed into law by New York Governor Andrew Cuomo. The Equality Act generally provides that no government treatment or legal status, right, benefit or privilege, derived from whatever source of law, may differ based on the parties to the marriage being (or having been) of the same sex. The Equality Act applies to legally performed marriages, whether or not the marriage took place in New York. The Equality Act became effective on July 24, 2011.
The Equality Act raises both income tax and benefit coverage issues that employers with New York operations must consider.
If an employer is currently providing domestic partner or same sex marriage health care coverage in New York, or amends a plan to provide such coverage, the employer will need to address an income tax issue. This issue relates to whether the value of health care coverage extended to the partner of an employee involved in a same sex relationship is subject to income taxation under federal and state income tax rules (including any applicable local income tax rules). Prior to the enactment of the Equality Act, this coverage was fully taxable under all such income tax laws. However, the New York Department of Taxation and Finance has published guidance after the enactment of the Equality Act that clarifies that this coverage no longer is subject to taxation under New York state and local income tax rules to the extent that the coverage is extended to a spouse in a same sex marriage. If an employee involved in a same sex marriage provides the employer with proof of a valid marriage, the employer should no longer withhold on the value of that coverage. The affected employees may also revise their withholding status to reflect this new rule. Federal taxation remains unchanged.
In addition, the New York State Insurance Department has concluded that any New York employer that provides health care coverage to spouses must now extend that coverage to same-sex spouses if they are legally married in New York, to the extent the employer’s health care plans are subject to the Equality Act. It should be noted that the Equality Act does not require employers to provide spousal coverage under their health care plans, and generally applies only to health care programs provided through insurance. The New York State Insurance Department had issued a Circular Letter in 2008, providing that New York insurers were required to cover same sex spouses where legal marriages occurred in other jurisdictions. This development expands coverage to same sex spouses legally married in New York.
Employers that maintain self funded health care programs (i.e., they do not use insurance products) are protected by ERISA’s preemption rule and thus are not subject to the Equality Act. Of course, these employers voluntarily can elect to extend health care coverage to spouses of employees in a same sex marriage (and even could deny coverage to the partners of employees in same sex relationships who have not gotten married) assuming their plan documents contain the appropriate language.
The enactment of the Equality Act will compel employers to consider certain compliance steps.
- Employers that offer health coverage to same-sex married couples in New York (whether or not under an insured program and without regard to whether ERISA preemption applies) will need to revise their payroll systems to cease withholding for state and local income tax purposes on the value of health coverage extended to spouses of employees in same sex marriages. This includes plans that cover “domestic partners,” regardless of whether the plans cover same sex spouses per se.
- Employers are well advised to review their programs to determine what benefits are and, under the new law, must be provided to same sex couples under those plans.
- We also suggest that employers consider which definition of “spouse” should be incorporated in their various benefit plans (e.g., plans of New York employers that are covered by ERISA preemption still can incorporate the definition of “spouse” set forth in DOMA).
- New York employers might want to take this opportunity to consider whether the enactment of the Equality Act affects the provision of benefit coverage to domestic partners generally (including persons in a same sex relationship who have not gotten married). For example, employers that currently cover domestic partners may want to switch to only covering spouses (including same sex marriages), while employers that do not cover domestic partners or same sex spouse may wish to consider expanding their coverage.
- Depending on the resolution of these issues, it might become necessary or appropriate to draft and adopt certain plan document amendments and communications.