In a closely watched and sharply divided opinion today, the Supreme Court invalidated the federal Defense of Marriage Act (DOMA) and its directive that only opposite-sex spouses may be recognized as spouses for purposes of federal law. Although the details and impact of the decision are still being parsed and evaluated, the bottom line is that same-sex couples who are recognized as validly married under state law are entitled to be recognized as spouses for purposes of federal law.
Brief Background. The case involved a same-sex couple, Edith Windsor and Thea Spyer, who had been married in Canada and whose marriage was recognized as valid under New York law, where they lived. Ms. Spyer died and left her estate to Ms. Windsor, who was required to pay federal estate tax because, under DOMA, she could not rely on an estate tax exception that allows for tax-free transfers of property between spouses at death. She sued for a refund of the taxes, claiming DOMA was unconstitutional.
The Court’s Analysis. Five of the nine Supreme Court justices agreed that DOMA was unconstitutional because it violated the equal protection rights of same-sex individuals who were recognized under state law as validly married. The Court essentially said that if a same-sex couple and an opposite-sex couple are treated the same under state law, they are constitutionally entitled to equal treatment under federal law.
Implication for Employee Benefit Plans. The case has many implications for employee benefit plans. For health plans, qualifying same-sex spouses that are covered under the plans can now receive that coverage tax-free and may be entitled to rights such as COBRA elections and HIPAA special enrollments. For pension and retirement plans, same-sex spouses will be entitled to spousal rights, such as the right to be named as the beneficiary and the right to tax-free rollovers of eligible rollover distributions.
But in some respects the invalidation of DOMA will not automatically bring a sea change for employee benefit plans. The case does not say that same-sex spouses must receive the same treatment by employers as opposite-sex spouses (i.e., there is no new protected class). So, for example, health plans that have not extended coverage to same-sex spouses generally are not required to begin covering same-sex spouses, even for employees who are recognized as validly married to a same-sex spouse under state law. Whether same-sex spouses are entitled to coverage under a plan will continue to depend on the terms of the plan and the impact of state law, to the extent not preempted by ERISA.
Some Unanswered Questions. Although the Court has answered one big question, its decision leaves many unanswered questions that we will be sorting through in the weeks and months (and perhaps years) to come. Here are a few.
(1) When is the decision effective? It appears the decision will be prospectively effective, once it becomes final. But there may be an argument that it is retroactively effective. Guidance on this issue from the IRS and other federal agencies is expected.
(2) Which state law applies? Let’s say a same-sex couple lives in Kansas, where same-sex marriage is not recognized, but travels to New York and gets married there. Are they treated as married for purposes of federal law? Does it make a difference if they were New York residents when they got married and later moved to Kansas?
(3) What about civil unions and domestic partnerships? Are domestic partners or partners in a civil union entitled to the same rights as same-sex spouses? Or does the relationship need to be recognized as a marriage under the law of at least some state for the individuals to be treated as spouses under federal law?
(4) Are state limitations on same-sex marriage constitutional? This case does not quite say that same-sex couples have a right to marry. It says that if they are recognized as validly married under state law, they have a right to equal treatment under federal law. But it may set the stage for broader challenges to state limitations on same-sex marriage, even though it failed to articulate the standards under which those limitations will be evaluated.
(5) Is sexual orientation a protected class? This case also stops short of identifying sexual orientation as a federally protected class. But that issue will be closely watched as the case’s rationale is applied in future disputes involving same-sex marriage and sexual orientation.
A Related Case. In a related opinion also released today, the Court addressed a challenge to Proposition 8, which would have banned same-sex marriage in California. Although the decision was largely procedural in nature, the result is that a California federal district court decision invalidating Proposition 8 will be reinstated. In effect, the Court allowed same-sex marriages to resume in California without going so far as to say that same-sex couples have a constitutional right to marry.