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Employers rethink benefits after gay marriage ruling

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The U.S. Supreme Court's ruling legalizing same-sex marriage nationwide figures to affect employers' benefit strategies for years to come.

For many employers, the June 26 ruling in James Obergefell et al. v. Richard Hodges et al., which invalidated state laws denying marriage rights to gay and lesbian couples, will reduce the administrative burden of providing health and retirement benefits to employees' same-sex spouses.

Additionally, experts said, the decision may compel employers offering spousal-equivalent benefits to same-sex domestic partners to eliminate that coverage now that full marriage rights are available in all states.

“It's truly a landmark decision from both the social and benefits perspectives, and I think it's going to have a dramatic impact on employers and how they approach their benefit plans going forward,” said Scott Cooper, a Philadelphia-based partner at law firm Blank Rome L.L.P.

As a result of Obergefell, employers that fully insure their group health care plans must offer married same-sex couples the same coverage as opposite-sex couples.

About 39% of U.S. employees were covered under fully insured health plans at the end of 2014, according to the Kaiser Family Foundation.

Employers that self-insure their health plans can elect not to cover employees' same-sex spouses even if they cover married opposite-sex couples.

However, experts said, such a strategy could be legally perilous, particularly in light of Obergefell as well as the Supreme Court's 2013 ruling in U.S. v. Edith Windsor et al., which recognized same-sex marriages under federal law.

“The Equal Employment Opportunity Commission has taken the position that sexual-orientation discrimination can constitute sex discrimination under Title VII (of the Civil Rights Act), so employers that continue to exclude same-sex spouses need to be mindful of the legal risk,” said Todd Solomon, a Chicago-based partner at McDermott Will & Emery L.L.P.

For most employers that offer equal spousal benefits to married couples regardless of sexual orientation, last month's ruling eliminates the need to impute taxes separately for benefits provided to same-sex couples in states that did not recognize their marriage.

“The advice we'll be giving to all of our clients is to very quickly figure out what they need to do and then communicate that out to their employees,” Mr. Cooper said. “There's a lot of explaining that's likely going to need to be done.”

With marriage rights now available to gay and lesbian couples in all 50 states, experts say employer-sponsored health coverage for same-sex domestic partners — offered by 46% of large and midsize companies before the Supreme Court's 5-4 ruling — could decrease in future years.

“The question for a lot of employers is going to be what kind of transition period they're looking at for phasing out domestic partner benefits,” said Steven Wojcik, vice president of public policy at the Washington-based National Business Group on Health. “You want to make sure that if you're going to phase out those benefits, you do it gradually and with significant communication, so your employees have time to plan and adjust.”

A key factor in many employers' decisions could be the extent to which they already cover opposite-sex domestic partners.

“If the employer also covers opposite-sex unmarried partners, it is unlikely to eliminate any coverage because it already covers a set of unmarried employees who have had the ability to marry,” Mr. Solomon said. “On the other hand, if the employer covers only same-sex unmarried partners, it might deem it most fair to require those employees to marry in order to retain their benefits.”

While eliminating domestic partner coverage might be a sound financial and administrative strategy, experts say employers should weigh the decision carefully, particularly given the lack of employment discrimination protections for gay and lesbian workers at the federal level and in 28 states.

If same-sex couples identify themselves by getting married and seeking spousal benefits, they could be exposed to workplace bias based on their sexual orientation, experts said.

“That's one of the issues that's going to have to play out over the coming weeks, months and perhaps even years,” Mr. Cooper said. “It's important to look at what the Supreme Court's decision was and what it was not, and what the ruling did not necessarily answer are questions regarding outright employment discrimination.”

Other questions include at what point state-level coverage requirements will take effect and whether employers will allow retroactive spousal coverage.

“I suspect that the timing and mechanics of the various state regulators rolling out those pieces of guidance will follow very closely to what we saw after Windsor,” where the first IRS guidance was issued about two months later, said Beth Alcalde, a managing partner at Akerman L.L.P. in West Palm Beach, Florida. “It might even come faster than it did after the Windsor decision, simply because it has been done before at the federal level and in certain states.”

Also unclear is the potential for conflicts between the Supreme Court's ruling in Obergefell and its June 2014 ruling in Hobby Lobby Stores Inc. et al. v. Sylvia Burwell, which exempted closely held, religiously inclined employers from having to provide employees with cost-free contraceptive coverage.

“What happens if you've got an employer that claims a religious objection to same-sex marriage?” asked Susan Hoffman, a Philadelphia-based shareholder at law firm Littler Mendelson P.C. “Without federal protection from discrimination based on sexual orientation, the question becomes whether a closely held employer with those objections can legally discriminate against same-sex couples.”