Same-Sex Marriage Legalized in New York: Implications for Employee Benefit Plans

July 12, 2011 — 2,000 views  
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Employers may soon experience an increase in requests for spousal benefit coverage from employees who have legally married their same-sex partners now that same-sex marriage has been legalized in New York.  The new law takes effect on July 24, 2011.

New York became the sixth state to legalize same-sex marriage after Governor Andrew Cuomo signed the "Marriage Equality Act" into law on June 24, 2011.  Same-sex marriage is already legal in Connecticut, Iowa, Massachusetts, New Hampshire and Vermont, as well as in Washington D.C.  In addition, California continues to recognize same-sex marriages performed between June 16 and November 4, 2008, the period during which same-sex marriage was legal in California.

The law provides that "a marriage that is otherwise valid shall be valid regardless of whether the parties to the marriage are of the same or different sex."  Same-sex marriages performed in other states where same-sex marriage has been legalized will continue to be recognized in New York.  Such unions were already recognized there pursuant to a February 2008 appellate court order mandating such and an October 2008 directive from former Governor David Paterson to state agencies calling for same-sex spouses to receive equal rights, benefits and responsibilities as opposite-sex spouses under state law.

The law requires that "[n]o government treatment or legal status, effect, right, benefit, privilege, protection or responsibility relating to marriage, whether deriving from statute, administrative or court rule, public policy, common law or any other source of law, shall differ based on the parties to the marriage being or having been of the same-sex rather than a different sex."

What Employers Should Do Now

Employers may want to review their employee benefit plans in preparation for requests for benefits coverage from employees who marry their same-sex partner once the New York law takes effect on July 24, 2011.  Even employers located outside of New York are likely to see an increase in such requests from employees who travel to New York or one of the other states where same-sex marriage is legal in order to marry a same-sex partner.  The most common requests for benefits for a same-sex spouse are likely to be coverage under an employer's medical, dental and vision plans, and survivor annuity coverage under defined benefit pension plans.

If an employee resides in New York or another state where same-sex marriage is legal, the employer may have to recognize a same-sex marriage for health plan eligibility purposes, depending upon whether the plan is self-insured or fully insured.  Self-insured plans (i.e. plans that pay for benefits out of a company's general assets) are governed only by federal laws and have flexibility on whether to recognize other valid same-sex marriages.  Insured plans may be subject to state law benefit mandates and may have to recognize same-sex marriages depending on where the policy is issued.  If the employee lives in a state that restricts marriage to opposite-sex couples, the employer does not have to recognize same-sex marriage for plan eligibility purposes.  If eligibility is extended to same-sex spouses, it is considered an optional benefit akin to a domestic partner benefit program.

Employers that extend certain welfare benefits to same-sex spouses and partners need to be aware of the corresponding tax implications of doing so.  Because marriage is defined by the federal Defense of Marriage Act ("DOMA") as a union between one man and one woman for all purposes of federal law, employers must impute income to the employee for federal income tax purposes equal to the fair market value of the health care coverage given an employee's same-sex spouse, unless the same-sex spouse otherwise qualifies as a "dependent" of the employee spouse.  In addition, the employee may not make pre-tax contributions to a section 125 cafeteria plan on behalf of the same-sex spouse (i.e. contributions for the spouse must be after tax) and may not receive reimbursement for expenses of the same-sex spouse from flexible spending accounts (FSAs), health reimbursement accounts (HRAs) or health savings accounts (HSAs).  States have adopted conflicting approaches to the treatment of domestic partner benefits for state income tax purposes.  Employers that offer domestic partner benefits therefore need to confirm whether income will similarly need to be imputed for state income tax purposes.

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