Obergefell Effect: Applying SCOTUS Decision to Qualified Retirement and Health and Welfare Plans
On December 9, 2015, the IRS issued Notice 2015-87 [link below], which provides guidance on the application of the recent United States Supreme Court (“SCOTUS”) decision in Obergefell v. Hodges [link below] to qualified retirement and health and welfare plans.
Prior to the 2013 SCOTUS decision in United States v. Windsor [link below], Section 3 of the federal Defense of Marriage Act (DOMA) prohibited recognition of same-sex spouses for federal tax law purposes. In Windsor, SCOTUS found Section 3 of DOMA to be unconstitutional. As a result of that decision (along with certain other guidance [links below] issued by the IRS), marriages of same-sex spouses that were valid in the state where they were entered into were required to be recognized for federal tax purposes. SCOTUS took it a step further in 2015 with the Obergefell decision, holding that the Fourteenth Amendment to the U.S. Constitution requires a state’s civil marriage laws to apply to same-sex couples “on the same terms and conditions as opposite-sex couples,” and prohibits a state from refusing to recognize a lawful same-sex marriage performed in another state.
Notice 2015-87 recognizes that, because the Windsor decision and its accompanying guidance already meant that same-sex marriages were recognized for federal tax purposes, the IRS does not expect the Obergefell decision to have a major impact on the application of federal tax law to employee benefit plans. For example, the Notice states that qualified retirement plans should not require any additional changes based on Obergefell, assuming of course that plan sponsors amended their plans to comply with Windsor by December 31, 2014. Plan sponsors may still choose to make discretionary amendments to provide new rights or benefits with respect to participants with same sex-spouses, however, such as recognizing the marriages of same-sex couples on a retroactive basis as of a date prior to June 26, 2013 (the date of the Windsor decision). The Notice confirms that such amendments will not cause a plan to lose its qualified status. The deadline to adopt such a discretionary amendment is generally the end of the plan year in which the amendment is operationally effective.
Obergefell similarly does not require changes to the terms of health or welfare plans—i.e., nothing in federal tax law, or Obergefell, requires a plan to offer any specific coverage to the spouse of a participant. Obergefell could, however, require changes to the operation of a plan. For example, if the terms of a health or welfare plan provide that coverage is offered to the spouse of a participant as defined under applicable state law, and the plan administrator determines that applicable state law has expanded to include same-sex spouses as a result of Obergefell, then same-sex spouses would be eligible for coverage under the plan as of the date of the change in applicable state law.
The Notice also makes clear that a cafeteria plan that allows participants to make mid-year election changes due to a significant improvement in coverage may permit a participant to revoke an existing election and submit a new election if same-sex spouses first become eligible for coverage under the terms of the plan mid-plan year for any reason, including but not limited to an amendment to the terms of the plan; a change in applicable state law (to the extent the terms of the plan refer to state law); or a change in the interpretation of the existing terms of the plan. If a plan does not currently allow mid-year election changes due to a significant improvement in coverage, it may be amended to do so. Such an amendment may be retroactive, but must be adopted no later than the last day of the plan year including the later of (i) the date same-sex spouses first became eligible for coverage under the plan, or (ii) December 9, 2015.
Plan administrators are encouraged to take a second look at all plan documents to ensure that the required Windsor amendments have been made, and to consider whether any further changes (for example, to a plan’s definition of “spouse,” if such definition refers to state law) might be advisable in light of Obergefell.
Notice 2015-87 – https://www.irs.gov/pub/irs-drop/n-15-86.pdf
Obergefell v. Hodges – http://www.supremecourt.gov/opinions/14pdf/14-556_3204.pdf
United States v. Windsor – http://www.supremecourt.gov/opinions/12pdf/12-307_6j37.pdf
Guidance– https://www.irs.gov/pub/irs-drop/n-13-17.pdf; https://www.irs.gov/pub/irs-drop/n-14-19.pdf; https://www.irs.gov/pub/irs-drop/n-14-37.pdf; https://www.irs.gov/pub/irs-drop/n-13-17.pdf; https://www.irs.gov/irb/2014-2_IRB/ar13.html