With the ruling by the Supreme Court of the United States, United States v. Windsor, comes significant changes to the federal laws in regards to same-sex spouses. This ruling, in part, has mandated that when certain conditions apply benefits currently offered to opposite-sex spouses be immediately extended to same-sex spouses.
As a result of the ruling, there is an immediate impact on employers who provided benefit plans. This article will explain three important points the Human Resources profession needs to know about same-sex spouses in regards to federal law and benefit plans. This article will define the “State of Celebration” Rule as defined by the Department of Labor and the effects it has on health plans and qualifying retirement plans.
”State of Celebration” Rule
As defined by the United States Department of Labor, “the term ‘spouse’ will be read to refer to any individuals who are lawfully married under any state law, including individuals married to a person of the same sex who were legally married in a state the recognizes such marriages, but who are domiciled in a state that does not recognize such marriages.” One goal of the “State of Celebration” rule is to provide a uniform rule that can be applied with certainty by employers and plan administrators.
Effects to Health Plans
On Sept. 23, 2013, the IRS issued Notice 2013-61 to provide guidance for the employer that previously allowed employees to cover same-sex domestic partners on their health plans. As summarized by the New Hampshire Business Review , the three main changes are:
- Employers will no longer be obliged to impute earnings.
- Employers may make adjustments for 2013 income tax withholdings, provided they have repaid and reimbursed the employee for the over-withheld amount of the income tax before the end of 2013.
- Employers may retroactively claim a refund or adjustment for any excess Social Security and Medicare taxes paid attributable to imputed income for 2013 and the preceding three tax years.
Whether the ruling requires or permits employers to allow employees in same-sex marriages to make the mid-year election changes to cafeteria plans, flexible spending and dependent care account plans has not of yet been clarified by the IRS. Employers should continue to monitor for future guidelines.
Tax Qualified Retirement Plans
Under the ruling, as of Sept. 16, 2013, all federal tax laws must treat same-sex spouses the same as opposite-sex spouses. This includes tax qualified retirement plans. Same-sex marriage partners are now entitled to:
- A survivor-annuity-protection in pension plans
- Automatic death benefits in 401(k) and 403(b) plans
- Direct rollover to another retirement plan or IRA
In addition, former same-sex spouses are now entitled to receive a portion of the retirement plan account at divorce on a tax-tree basis.
Employers should evaluate their benefit plans to determine whether their current plans will require amendments due to the recent changes to federal law in regards to benefits to same-sex spouses. All applicable policies and documents will need to be updated. Human resources professionals will need to be prepared to communicate changes that have resulted from this ruling. Through this communication, employee confusion and the chance of future lawsuit can be avoided.