Flurry of Guidance Issued on Same-Sex Spouse Benefits

Lyndsey Barnett

In the first two months following the Supreme Court’s decision to overturn a portion of DOMA, guidance from the federal agencies was non-existent to slow at best on how employers were supposed to react to the decision in their employee benefit plans. The agencies are finally starting to pick up the pace. In the past week, employers have received several helpful pieces of guidance.

Last week, the DOL issued a Technical Release that adopted the “place of celebration” approach for purposes of recognizing a same-sex marriage under ERISA and its underlying rules, regulations and guidance. This is the same approach that was announced by the IRS in late August. The significance of the DOL’s announcement is that it takes away the concern that some plan sponsors had about providing same-sex spousal benefits in states that didn’t recognize same-sex marriages. Due to ERISA’s broad preemption of state law, a plan sponsor can offer same-sex spouse benefits even in states that don’t recognize same-sex marriages without having to be concerned about violating state law.

Employers can provide same-sex spouse benefits, but they don’t have to…at least not yet. IRS official, Stephen Tackney, informally indicated last week during a forum at the American Bar Association Sections of Taxation and Real Property CLE Meeting in San Francisco that “[t]here’s never any obligation for an employer to provide health care coverage, and they can carve in and out anyone” other than individuals who are protected under federal law of course. Currently, federal law does not protect same-sex spouses the way it protects individuals being discriminated against for race, age, gender, etc. Whether an employer must provide same-sex spouse benefits if they provide opposite-sex spousal benefits is almost certain to be the subject of future litigation. Only time will tell where the law comes out on this important issue. In the meantime, employers who do not wish to provide same-sex spouses benefits in their health and welfare plans should ensure that their plan documents clearly define who is a spouse. A clear and unambiguous definition of spouse and marriage is likely the best defense against an employee claiming you were required to provide them with same-sex spouse benefits.

At this same CLE meeting, another IRS official stated that the IRS is considering a range of options on the retroactive and prospective application of employee benefit tax provisions to same-sex spouses. The IRS’s position could range “from requiring plans to fully recognize the holdings all the way back to the beginning of time or saying that they don’t have to apply the holdings retroactively at all.” If the IRS guidance requires retroactive application for pension plans subject to spousal survivor benefit rules, it would likely create a huge administrative burden for employers and their TPAs. In some cases, survivor benefits may have been paid to the wrong beneficiary. According to Tackney, the IRS understands this potential burden and has to weigh the rights of employers with the rights of employees with same-sex spouses who arguably have very different interests in terms of whether the law has a retroactive application.

And the guidance doesn’t stop there. Yesterday the IRS issued a Notice that provides employers with two special administrative procedures to correct overpayments of employment taxes paid on same-sex spouse benefits. The Notice provides guidance on how to treat 2013 as well as prior years. The first method allows employers to use Form 941 in the 4th quarter of 2013 to correct overpayment for the first 3 quarters of 2013. The second alternative permits an employer to file Form 941-X to correct the overpayment of all taxes withheld in 2013. For years prior to 2013, employers should take the approach of filing a Form 941-X.

While employers still need additional guidance, hopefully this past week is an indication that it will be issued very soon. But as someone who must read through all the new guidance when it is issued, I guess I should be careful what I wish for.