Redefining the 'Spouse'

After the Defense of Marriage Act was struck down, it created elation in some circles and consternation in others. While the ruling may ease some administrative burdens, it also creates some new HR challenges and yet-to-be answered questions.

Thursday, January 2, 2014
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At the end of November, the Department of Labor announced that its wage and hour division would be proposing a rule in March to revise the FMLA's definition of "spouse" in response to the Supreme Court's United States v. Windsor case in July 2013, which struck down the Defense of Marriage Act's exclusion of state-sanctioned, same-sex marriages.

In addition to the impending impact to the Federal Mandatory Leave Act, the Windsor decision also impacts HR professionals from a benefit-administration perspective, with many scrambling to get compliant with their health-and-wellness and retirement-benefit programs.

Experts say that even organizations that have already provided benefits to same-sex partners may need to modify plan documents and administration to address the legal implications of a "spouse," which is impacted on the state level through the variation in states where same-sex marriages are, or are not currently legal.

Many see the events as a bit of a "double-whammy" at the end of a year in which much of the focus has been on the Affordable Care Act and its implications. "Many of my clients are scrambling," says Angie Marie Hubbell, an attorney in the employee benefits and executive compensation group at Quarles & Brady in Chicago.

One company that is not scrambling to play catch-up is Day & Zimmerman, an engineering and construction, staffing and defense firm with 150 worldwide locations and in Philadelphia.

When she joined the firm more than four years ago, it was already providing domestic partners with "a whole suite of benefit offerings that they might not find at other places," says Jan Curran, the company's vice president of compensation and benefits.

And the company's recognition of diversity pays off with its employees, says Anne Hoban, the company's director of benefits.

"By recognizing the diversity," she says, "we actually gain their engagement and we probably have more of their respect because we're respecting their lifestyle."

But Hubbell says the coming changes can be complex -- even for companies that were already providing benefits for domestic partnerships of the same or opposite sex, such as Day & Zimmerman. Much of the complexity lies in relation to varying state laws that may or may not recognize marriage between same-sex partners.

Still, says Hubbell, while acknowledging that she has some clients that are "fighting this tooth and nail," for the most part "it's something that most HR people that I've dealt with have wanted all along."

From a health-insurance standpoint, the biggest issue is the taxation of health coverage, says Todd Solomon, an employee benefits partner at McDermott Will & Emery in Chicago.

"Health coverage for same-sex spouses is no longer taxable from a federal-benefits-plan perspective; that's a huge change," he says. It may still be taxable at the state level, though, so HR professionals need to recognize state variations that may impact them. But, Solomon adds that "this only applies to same-sex spouses -- it doesn't apply to civil union partners and other unmarried partners."

So, to the extent that [employers] don't know which of their same-sex partners are actually married, they need to solicit that information, he says.

The best way to handle this would be to ask for verification of marital status from all employees -- opposite sex as well as same sex, he says, as asking for certificates only from same-sex couples may raise issues of discrimination.

This change took effect September 16, says Solomon, and tax implications must be reflected in the W-2 statements that companies will be issuing in January.

Hubbell says that she believes most companies have already dealt with the healthcare implications, in part because of the attention the Affordable Care Act already received. "The retirement-plan side is sort of trailing thereafter, because healthcare reform got so much of people's time."

From a plan-document standpoint, amendments are not likely to be widely needed, says Ronald J. Triche, assistant general counsel and director of government affairs for the American Society of Pension Professionals and Actuaries in Arlington, Va.

Most of these plans usually don't include a definition of spouse, he says, unless they were individually designed plans, in which case, he says, "I did see some definitions of spouse to clarify whether it was a DOMA spouse or a non-DOMA spouse that had benefits being provided."

The biggest change in regard to retirement plans is related to beneficiary rights for 401(k) plans, says Solomon. "Instead of just opposite-sex spouses being the automatic beneficiary under a 401(k) plan, now a same-sex spouse will automatically be the default beneficiary," he says.

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That's fine if that was the intent, but for those who may have listed someone other than their same-sex partner as a beneficiary, they now need to either change the beneficiary to their spouse or get written and notarized spousal consent.

"That's a big change, and that's been a big employee communication issue," says Solomon. "Employers have had to go out to people and say, if you're married to a same-sex spouse, here are the new rules for a beneficiary and here's what you may need to do."

Pension plans are also impacted as a result of Windsor. "There are significant rights now for same-sex spouses that require updates to the forms," says Solomon. That's because pension plans are typically paid in the form of a qualified joint survivor annuity and have pre-retirement survivor annuity rights. "The consent forms and the election forms under pension plans need to be updated now."

Recently, ASPPA recommended simplified guidance around the topic to the Employee Benefits Security Administration, as well as submitted a comment letter to the DOL and the Internal Revenue Service, and both organizations are expected to be coming out with additional guidance soon.

What's taking so long? Triche points to the government shutdown as a likely factor. "The shutdown slowed everything down," he says. In addition, he notes, "there are several different layers of revision and several different people working on things." He expects comments to be forthcoming by the end of the year.

When this guidance is issued, he says, plan amendments aren't likely to be required immediately - the focus will be on ensuring that plans are administered in accordance with the new rule. "So, from an administrative point of view," he says, "HR departments should be treating everybody as married if they're married."

In both of these areas, the risks to employers that fail to appropriately make the changes required generally revolve around lawsuits related to any benefits that were denied, or public opinion, says Hubbell, noting the controversy and outcry over Chick-Fil-A's public statements against same-sex marriage in 2012.Bad press isn't something that can be ignored, and it's not without implications from a recruitment standpoint, she says. "It could have wide-ranging implications in terms of losing the applicant pool if you're in an industry that is trying to attract talent and something comes out that you are not treating same-sex couples the same as others. In today's world that's a detraction."

Solomon urges employers and their HR advisors to not just handle these matters behind the scenes, but to communicate with employees about what they're doing and why, and assuring them they are being compliant. "I think going tout to employees and explaining that the employer is aware that things have happened and aware that the law has changed and notifying participants of what the changes are is a good best practice, and I've seen a number of companies doing that," he says.

For Day & Zimmerman, communication has been handled through existing channels, including an LGBT employee resource group. Curran says that a member of the group came forward as soon as they heard about the ruling to ask if someone from HR would present the implications to the ERG.

"Right away, within two to four weeks of the ruling, a member of my team was making a presentation to this employee resource group," says Curran.

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