Two recent court decisions by the Massachusetts Supreme Judicial Court and same-sex marriages in a number of states have created challenges for employers with employee benefit plans. Employers should consider the impact these developments will have on the design and the ongoing administration of their employee benefit plans.
Same-Sex Marriage Developments
In Goodridge v. Department of Public Health, seven same-sex couples sued the Massachusetts Department of Public Health, alleging that the denial of a marriage license solely because they were same-sex couples violated their rights under the Massachusetts Constitution. The Massachusetts Supreme Judicial Court held that the Massachusetts Constitution barred the Commonwealth from denying an individual the "protections, benefits and obligations of civil marriage" solely because the person desires to marry a person of the same sex. In a second ruling, the Massachusetts court clarified that a law permitting same-sex civil unions would not be a legally sufficient alternative to permitting same-sex marriages. The court’s rulings will take effect on May 17, 2004.
The Massachusetts Attorney General has denied the governor’s request to stay the court’s ruling. These developments mean that absent extraordinary circumstances same-sex couples can legally marry in Massachusetts beginning on May 17. Although the Massachusetts legislature has proposed an amendment to the state constitution to prohibit same-sex marriages but allow civil unions, any such amendment cannot take effect until 2006 at the earliest.
Shortly after the Goodridge rulings in Massachusetts, city and county officials in a number of other states began issuing marriage licenses to same-sex couples. At this point, the legal status of these marriages is not clear and is subject to review by the state courts where couples were issued licenses. However, employers should be prepared to address thesewhen reviewing and potentially revising their plan documents.
Potential Effects of Massachusetts Same-Sex Marriages
Employers that provide employee benefits to Massachusetts employees or to employees who are legally married to a member of the same sex under Massachusetts law will need to review their employee benefit plans to determine how a "spouse" is defined under the plan. A typical employer-sponsored group health plan provides coverage to a covered employee’s spouse, who is defined as someone legally married to the covered employee under applicable state law. Because same-sex couples would be married legally under Massachusetts law, a same-sex spouse of a covered employee would be entitled to benefits under a plan that includes this definition of a spouse.
It is not clear how this issue will affect employers with non-Massachusetts employees who were married to a same-sex partner under Massachusetts law. Generally, states recognize legally valid marriages in other states due to the constitutional principle of comity. However, under the U.S. Federal Defense of Marriage Act, states are not required to recognize a same-sex marriage in another state and 38 states have adopted laws that prohibit the state from recognizing any marriage other than one between a man and woman. Still, depending on the definition of "spouse" in an employer’s plan, a same-sex spouse may be eligible for benefits under the employee benefit plan regardless of the employer’s location.
Strategies for Clarifying the Uncertainty Surrounding Same-Sex Marriages
The developments in Massachusetts and other states will undoubtedly spawn many lawsuits. Some employers are already facing requests from same-sex spouses. Employers can clarify how these recent developments will affect their plans by conducting a thorough review of (and making changes as necessary to) the definitions of "spouse" contained in all of their benefit plan documents.
One approach for employers to consider would be to amend the definition of spouse in their plans to require that a "spouse" be married as defined under federal law. This approach could apply either to employers that do not want to provide benefits to same-sex spousesor to employers that want to provide domestic partner benefits (but not "spousal" benefits) to same-sex spouses. Employers may need to amend certain enrollment and forms to continue to administer their plans consistently. For example, employers may need to revise plan enrollment forms to request information about the sex of an employee’s spouse to determine whether the individuals are "spouses" within the meaning of federal law.
Employers that want to cover same-sex spouses as a "spouse" under their plans (as opposed to coverage as "domestic partners") may also need to revise the definition of spouse under their plans. One approach would be for an employer to amend benefit plans to specifically incorporate same-sex spouses into the definition of spouse.
Employers should still bear in mind that, for federal law purposes, same-sex spouses (and domestic partners) are not recognized as spouses for whom favorable tax benefits could apply. This means that tax-favored benefits (like pre-tax cafeteria plan or flexible spending account benefits) cannot be provided to employees who add non-tax code dependent same-sex spouses (and domestic partners) to group health plan coverage. Employers that wish to provide for same-sex spouse (and domestic partner) benefits need to consider the tax implications for employees. Also, certain benefits for spouses mandated by federal law, such as COBRA continuation health coverage and FMLA leave, would not apply to same-sex spouses (or domestic partners). Employers that choose voluntarily to offer such benefits to same-sex spouses will need to amend their plans to provide for such coverage and consider how these legal rules will apply in the context of same-sex relationships where there is no recognized marriage or divorce.
Domestic Partner Benefits
Employers that currently provide domestic partner benefits only to same-sex domestic partners also need to review their plan documents. Among employers that offer domestic partner benefits to same-sex partners only, "domestic partner" is commonly defined, in part, as someone who cannot legally marry the employee. Until recently, this definition effectively limited eligibility for domestic partner benefits to same-sex domestic partners. However, the developments in Massachusetts and other states allowing same-sex couples to marry raise the possibility that domestic partners could actually lose coverage under an employer’s plan if they can (under the new law) legally marry. Therefore, depending on the definition of domestic partner in an employer’s plan, some same-sex domestic partners may no longer be eligible for benefits under the plan unless the definition of domestic partner is amended.
Steps for Employers to Consider Now
Employers should begin now to review these new developments and consider reevaluating their current policy on domestic partner benefits. As part of this reevaluation, employers should consider the following additional pieces of information:
Through a number of court decisions and statutory changes, many states are providing greater protections for domestic partners. Similarly, the number of companies that offer benefits to domestic partners consistently increases each year.
Many employers offer domestic partner benefits because they view these benefits as necessary to remain competitive in recruiting and in retaining valuable employees.
Offering domestic partner benefits may improve public relations, depending on an employer’s industry and customer base.
Domestic partner health coverage may not cost that much. Studies in the late 1990s found that offering same-sex domestic partner health benefits increased an employer’s health plan costs by an average of one-half of one percent, largely due to low domestic partner enrollment.
An employee whose non-tax code dependent domestic partner receives health coverage under an employer’s group health plan will be taxed on the value of that coverage for federal income tax purposes. Although most states would also tax the employee for this coverage in the same manner as federal law, a few states exempt from tax the value of coverage provided to a domestic partner.