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Federal regulators give employers much-needed clarity on same-sex benefits

IRS guidance grants tax equality


Federal regulators have given employers much-needed clarity regarding changes to their group benefits plans made necessary by the U.S. Supreme Court's recent partial overturn of the Defense of Marriage Act.

Late last month, the U.S. Department of the Treasury and Internal Revenue Service issued rules that all legally married same-sex couples will be entitled to the same rights and benefits as opposite-sex couples under the U.S. Tax Code, regardless of the state in which they live.

Prior to the Supreme Court's historic June ruling striking down Section 3 of DOMA, marriage was defined strictly as the union between a man and a woman for all federal purposes.

After two months of deliberation, IRS and Treasury officials said that federal tax regulations will recognize any same-sex marriage legally sanctioned by a state, U.S. territory or foreign country — even if a couple's state of residence neither permits same-sex couples to marry nor recognizes marriages performed in other jurisdictions.

The guidance should be considerable relief for employers already offering or planning to offer beneficiary coverage to same-sex spouses, particularly given the fractured nature of state-level regulations governing marital issues.

Fifty-five percent of employers in a recent survey by the International Foundation of Employee Benefit Plans indicated they have an office in at least one of the 13 states and the District of Columbia that permit same-sex marriage and one office in a jurisdiction that does not.

“They've eased the administrative burden quite a bit here, in that employers aren't going to have to track employees moving in and out of the nonrecognition states,” said J .D. Piro, a senior vice president with Aon Hewitt in Norwalk, Conn.


With married same-sex and opposite-sex couples on equal tax footing, employers no longer will be required to pay federal payroll taxes for medical, dental and vision coverage provided to same-sex spouses, nor will employees be barred from making pretax contributions for their same-sex spouse's coverage.

“That's a big change for plan sponsors and their employees, and it's probably very welcome news on both sides,” said Todd Solomon, a Chicago-based partner at McDermott Will & Emery L.L.P.

According to the Treasury's guidance, employers and employees will be able to seek refunds for taxes paid as long as three years ago on health care coverage they provided to same-sex spouses.

Additionally, the guidance confirmed same-sex spouses are eligible for the same rights and benefits afforded to opposite-sex married couples under Employee Retirement Income Security Act-qualified pension and 401(k) retirement plans, including annuity payments and other survivor benefits.

That provision of guidance is “certainly good news for employees. For employers, it may increase costs a little bit on the pension side,” Mr. Solomon said.

Though the reception of the Treasury's guidance has been generally positive, experts said, certain eligibility and taxation issues remain unresolved for employers and employees.

Specifically, it is still unclear to what extent employees' same-sex spouses will be able to retroactively collect benefits under an employer-sponsored health or retirement plan.

Also, the federal government has not yet directly addressed the exact circumstances under which an employer currently covering opposite-sex spouses in its group health plan could be compelled to offer matching coverage to same-sex spouses, or else discontinue spousal coverage altogether.

“The Treasury Department went out of its way in that first ruling to say that they were not yet addressing the issue of retroactive eligibility for employee benefit plans,” said Kathryn Ricard, senior vice president of retirement policy at the ERISA Industry Committee in Washington. “From my perspective, that's the No. 1 issue we are now awaiting.''