, the California Supreme Court held that denying same-sex couples the right to marry violates the California Constitution’s equal protection clause and is a form of unconstitutional discrimination based on sexual orientation. The law also invalidated California’s Proposition 22, which provides that only a marriage between a man and a woman is recognized in California.
The primary impact for employers is that any California state law provision referring to "spouse" now includes same-sex spouse. However, even before the California Supreme Court’s decision, California law gave registered domestic partners (including same-sex partners) the same rights under state law as spouses. Accordingly, the impact of this decision may be limited.
Some employers have questioned the impact that recognition of same-sex marriages will have on their employee benefit programs. Generally, the federal Employee Retirement Income Security Act of 1974 (ERISA) pre-empts state laws relating to pension benefit plans (that is, retirement plans) and welfare benefit plans (such as health insurance plans). ERISA and the Internal Revenue Code (the Code), as well as other federal laws and any regulations adopted under those laws, must be applied consistently with the federal Defense of Marriage Act (DOMA). The DOMA defines marriage as a legal union between one man and one woman as husband and wife; spouse refers only to a person of the opposite sex who is a husband or a wife. Thus, the California Supreme Court’s decision will have little impact on ERISA-covered retirement plans and self-insured welfare plans (i.e., plans that pay benefits out of a company’s general assets).
However, ERISA does not pre-empt state laws regulating insurance; thus, insurance companies that issue policies in California to employers providing welfare benefits must comply with California’s laws governing policy coverage and benefits. Since California law already required insurance policies issued in the state to cover registered domestic partners to the same extent that the policies covered spouses, employers may not see a significant impact from the Supreme Court’s decision.
Tax issues relating to employee benefits could be complicated by the California Supreme Court’s decision. Since, for purposes of the Internal Revenue Code and its regulations the term "spouse" is limited by the DOMA to an opposite-sex spouse, benefits provided by an employer to a same-sex spouse or a domestic partner of an employee are not considered to be provided to a spouse or, in most cases, to a dependent. For example, the Code excludes from an employee’s gross income the value of accident or health plan coverage provided by an employer for an employee and the employee’s spouse and dependents. If an employer provides coverage to a same-sex spouse (either voluntarily or because the employer purchased a policy covered by California law), the value of the coverage provided to the same sex spouse is taxable to the employee and is wages that must be reported on a Form W-2 and subjected to federal income tax and Social Security tax withholding.
Tax issues relating to benefits offered through a cafeteria plan, which is subject to favorable treatment under Code Section 125, may also be affected by the Court’s decision. Additionally, there are other types of benefits available to spouses under federal law that are not available to same-sex spouses or domestic partners, such as Health Savings Account payments for medical expenses, reimbursements under Health Reimbursement Accounts, and survivor benefits under a qualified retirement plan, etc.
Employers should review the terms of their benefit plans and employee communications and adopt a clear definition of the term "spouse" to avoid any confusion. Additionally, if benefits are or will be offered to same-sex spouses or non-dependent domestic partners, employers should ensure that their payroll or accounting departments can comply with differing tax treatments under federal law.
If you have questions regarding these issues or need assistance reviewing the terms of your employee benefit plans, please contact Jeffrey Ashendorf, 212-453-5926, firstname.lastname@example.org, or any member of our Employee Benefits Practice Group. If you have any questions regarding California laws regulating the workplace, please contact any attorney in our Los Angeles office or the Ford & Harrison attorney with whom you usually work.