The Supreme Court of the United States (SCOTUS) struck down same-sex marriage bans in four states on US Constitutional grounds, effectively legalizing same-sex marriage nationwide. So how does that affect employee benefit plans? Here's a brief analysis of the issues along with practical considerations for moving forward. In general, though, the bottom line is this: Employers eager to open their plans to same-sex spouses have little risk in moving forward. Those wanting a clearer picture of the details are probably safe to wait a few weeks or months for guidance, but probably no more than a few months.It's Not the Supreme Court that Will Require Coverage of Same-Sex Spouses. It's the EEOC.
There's no federal nondiscrimination law specific to sexual orientation. One has been introduced in nearly every Congressional session since 1994, but they've never gone very far. The Supreme Court's ruling legalizing same-sex marriage didn't change that fact. However, even before the Supreme Court ruled, the EEOC and some plaintiff's lawyers have quietly been racking up court victories arguing for a more expanded reading of Title VII, which prohibits, among other things, employment discrimination on the basis of gender. Then, following the Supreme Court's decision, the EEOC formally solidified the position it had been taking on a case-by-case basis in the courts by issuing a Commission ruling squarely holding that discrimination based on sexual orientation is tantamount to gender discrimination. A Commission ruling will not bind a court, necessarily, but courts do frequently look to administrative agency rulings for guidance.Now, for those of you muttering, "ERISA preempts!" as you read this, some of those court victories I mention have been won over objections by self-insured employers making ERISA preemption arguments. So the law is moving in the direction of Title VII employment nondiscrimination applying to benefits regardless of whether you're insured or self-insured.
Both Self-Insured and Insured Plans Will End Up Covering Same-Sex Spouses
To state what is now probably obvious, if you're offering benefits coverage to opposite-sex spouses, then you'll need to offer coverage to same-sex spouses. To the extent you even have a decision to make, the national health insurance companies have largely made the decision for you. The major carriers are still in the process of issuing their guidance, but for the most part they're all making the business decision to reinterpret their existing insurance contract language as providing coverage to both same-sex and opposite-sex spouses, and it does not look like they're giving insured plan sponsors any options.Those same insurance companies, which are among the only remaining third-party administrators of self-insured plans, are also indicating that they will automatically administer self-insured plans as providing benefits to same-sex spouses unless the employer goes to great lengths to make special arrangements. As discussed above, there are some pretty good reasons the TPAs are making that assumption on employers' behalf even though technically it's the employer's decision how it will design its self-insured plan. So if it's important to your organization that benefits not be provided to same-sex spouses, then you will need to decide what is your organization's tolerance for risk—specifically litigation risk. The Supreme Court's ruling will shine a big spotlight on legal issues that have already have some precedent on the books.
Review and Update Plan Documentation
If the dependent eligibility language in your plan document or summary plan description says anything to the effect of "legal opposite-sex spouse," then you will probably need to amend it. If you've been interpreting plan document language that says, "legal spouse," to mean opposite-sex spouses only, then technically a plan amendment isn't necessary, but do make sure everyone in the human resources department who deals with employee and/or dependent eligibility is aware of the change of interpretation. Ambiguity leads to disparate application by different people. Be Mindful of Mid-Year Change Qualifying Event Rules
Revenue Code section 125 limits when employees who are making contributions on a pre-tax basis through a cafeteria plan can change elections mid-year. The IRS has not yet published guidance, but it very likely will say that mid-year changes made on account of the Supreme Court’s ruling will be permissible. A marriage is a marriage, so same-sex couples who got married after the decision will have experienced a qualifying event just like anyone else who gets married. Employers that amend their plans (or that change their interpretations of what “legal spouse” means) in the wake of the decision could possibly take advantage of a regulation that permits mid-year changes on account of “significantly improved coverage” and allow a mid-year change for same-sex marriages that occurred prior to the decision.Take note that any mid-year election change events must be listed or in some way referenced in your cafeteria plan/section 125 plan document. So if you plan on permitting mid-year changes for same-sex marriages that occurred prior to the Court's ruling on account of "significantly improved coverage," then you should make sure it's stated in your document.