Swimming in the Wake of Windsor

February 11, 2014

The Matrimonial Strategist · February 2014 · by Karen Kalzer

When the United States Supreme Court announced its pair of same-sex marriage decisions on June 26, 2013 (Perry v. Hollingsworth and United States v. Windsor), commentators began to forecast the tsunami of tangible changes that would result. And as predicted, one of the most prominent impacts has been the effect on employment law benefits and statutes, and the expanded field of those who can now access them.

In sum, Edith Windsor sought a refund of federal estate taxes, which she had been required to pay following the death of her wife. Ms. Windsor had married her same-sex spouse in Canada and the couple resided in New York, which recognized the marriage. However, under the federal Defense of Marriage Act (DOMA), Ms. Windsor did not qualify as a “surviving spouse” and she was required to pay estate taxes.

Practitioners will recall that the Windsor court invalidated Section 3 of DOMA, which had prohibited the federal government from acknowledging same-sex marriages and spouses even where those marriages had been solemnized in states that recognized them as legal and valid. But the Court did not invalidate Section 2 of DOMA, and thus it did not require states to recognize same-sex marriage. The question that immediately followed that decision centered on what rights same-sex spouses have regarding their spousal employment benefits, estates, and family leave requirements. Answers are beginning to roll in as noted below.

Federal Employee Benefits

The Office of Personnel Management (OPM) announced on June 28 that under Windsor, same-sex spouses of federal employees and annuitants are eligible for coverage under the federal government’s benefits programs. OPM promised to ensure “swift and seamless implementation” of the Court’s ruling. This includes extending federal health benefits to spouses and children of same-sex marriages, recognizing spouses and children of same-sex marriages as eligible family members to federal life insurance coverage, use of Flexible Spending Accounts for claimed medical expenses for their spouses and children, and eligibility for federal long term care insurance.

Additional Benefits Impacts

As noted above, other benefits programs that are affected by federal law are likely to have an impact on private employers, as well as those employed by the federal government. That is, the federal laws governing employee benefit plans will require companies to treat employees’ same-sex spouses equally as opposite-sex spouses.

For instance, health benefits under programs such as the Consolidated Omnibus Budget Reconciliation Act (COBRA) will now afford the same rights and benefits to married same-sex couples as have been traditionally afforded to opposite-sex married couples. Additionally, even as to private employers, reimbursement under a flexible spending account (FSA), health reimbursement account (HRA) or health savings account (HSA) may be made for covered expenses of same-sex spouses and their children on a tax-free basis for federal tax purposes to the same extent as available to opposite-sex spouses. Moreover, same-sex spouses are eligible for special enrollment rights under the Health Insurance Portability and Accountability Act (HIPAA) and applicable change-in-status events under Internal Revenue Code Section 125.

Family and Medical Leave Act

On Aug. 9, 2013, Labor Secretary Thomas Perez issued a staff memo advising that the Department of Labor (DOL) had updated its guidance documents to affirm the availability of spousal leave based on same-sex marriages under FMLA. Perez noted that “this is one of many steps the Department will be taking over the coming months to implement the Supreme Court’s decision” and that the Department will “look for every opportunity to ensure that we are implementing this decision in a way that provides the maximum protection for workers and their families.”

“State of Celebration” Decisions

As discussed above, because Windsor does not force any state to adopt same-sex marriages (currently, 13 states and the District of Columbia recognize them), questions immediately arose as to when a marriage would be valid and a spouse recognized for purposes of benefits where the union was validly formed in one state that recognizes such marriages (“state of celebration”) but the couple resides in a state that does not. Two federal courts have thus far examined the issue.

First, the federal district court in Pennsylvania determined who had rights to a same-sex spouse’s death benefits: one’s parents, or the surviving same-sex spouse. In Cozen O’Connor v. Tobits, the parents of a deceased Cozen O’Connor employee, Sarah Farley, argued that DOMA prevented the law firm’s Profit Sharing Plan (Plan) from recognizing and providing benefits to Ms. Farley’s same-sex spouse (Jean Tobits), despite the fact that the couple legally married in Toronto, Canada, in 2006. The Plan defined “Spouse” as “the person to whom the Participant has been married throughout the one-year period ending on the earlier of (1) the Participant’s annuity starting date or (2) the date of the Participant’s death.” Ms. Farley’s parents argued that they, and not Ms. Tobits, were entitled to the death benefits under the Plan as Ms. Tobits was not a “spouse” per Pennsylvania law.

In this matter, at the time of Ms. Farley’s death, the couple actually resided in Illinois, where same-sex unions are recognized, but the Profit Sharing Plan in question originated and was administered in Pennsylvania, which does not. The court found that Pennsylvania law was preempted under the Employee Retirement Income Security Act (ERISA), which promotes the principle of maintaining national uniformity among benefit plans. The court determined to apply the law of Illinois and to award the death benefit to Ms. Tobit.

In the second matter, the federal district court in Ohio even more directly looked to the “state of celebration” as the appropriate approach to determine the validity of a same-sex spouse claim. In Obergefell v. Kasich, a same-sex couple had lived together for 20 years in Ohio, which does not recognize same-sex marriage even if the couple has married in another state. The couple had traveled to Maryland to marry, a state that does recognize same-sex marriage. One of the spouses, Mr. John Arthur, was in hospice care for the final stages of life, and he did not wish to be identified as

“unmarried” in state documents, specifically, a death certificate. Mr. Arthur also wished his spouse to be recorded as a “surviving spouse.”

Ohio does recognize certain opposite-sex marriages that are not lawful in Ohio but which have been lawfully performed in other states, such as marriages of first cousins or minors. The Ohio court held that treating opposite-sex out-of-state marriages differently from same-sex out-of-state marriage violates the U.S. Constitution’s guarantee of equal protection. Thus, the court ordered the Ohio Registrar not to accept any death certificate that identified the deceased spouse as “unmarried.”

Whether the approach of these two courts marks a trend or merely the beginning of a circuit split that will require Supreme Court resolution remains to be seen. It is unclear how legally married same-sex couples who reside in a state where same-sex marriage is not recognized should be treated for purposes of federal law, including spousal benefits under pension plans and the taxation of medical, dental and vision benefits.

Public Business Decisions

On Aug. 27, the nation’s largest private employer, Wal-Mart (the largest employer being the federal government), quietly announced its decision to provide benefits to same-sex couples in all states, not just states that recognize same-sex marriage. This expansion embraces not only recognized marriages, but also domestic partnerships. Wal-Mart cited the need for a consistent policy throughout the United States, not one that applied in only a few select states. Although extending health care or other benefits to same-sex unions has grown dramatically in the last decade, this decision may well trigger the domino effect in other hold-out employers.

Final Watch Words

Employers that do not clearly define “spouse” and “dependent” under their retirement and welfare plans are vulnerable to challenges by same-sex spouses and partners if the employer denies benefits to such spouses and partners. Family law practitioners should also take heed and review the use of the term “spouse” in each of their client’s benefit programs to determine whether they intend or are required to cover same-sex spouses and partners, regardless of whether the couple resides in a state that recognizes same-sex marriage.

About the Author

Ms. Kalzer practices employment and education law with an emphasis on defending complex litigation for communities of faith, non-profits, schools and private employers.

Helsell Fetterman