In yesterday’s post, we began a discussion of how New York’s Marriage Equality Act may impact employee benefit plans. We continue the discussion here with Part II.
How Does the Legislation Affect Self-Insured Health Plans and Other Self-Insured Welfare Benefit Plans?
Self-insured health plans and other self-insured welfare benefit plans that are subject to ERISA will not be subject to the new requirements imposed by the Legislation. ERISA preempts the Legislation insofar as it applies to self-insured ERISA plans (ERISA’s preemption provisions, however, generally do not apply to insured plans, which is why the Legislation will affect insured plans differently than self-insured ERISA plans). If no changes are desired in how a self-insured ERISA plan operates, an employer should still review any definition of spouse that appears in that plan in order to make sure it does not need to be revised. ERISA plans are required to be administered in accordance with their written terms, and employers will want to make sure any definition of spouse conforms to how each such plan is operated.
Even though a self-insured ERISA plan is not subject to the requirements of the Legislation, an employer with such a plan can voluntarily decide to provide comparable benefits to same-sex spouses. The tax status of such benefits generally will not be identical to the tax status of the benefits provided to opposite-sex spouses under such a plan, because the Code provides favorable tax treatment for eligible opposite-sex spouses but not for same-sex spouses (an exception applies if the same-sex spouse satisfies the Code requirements for being a dependent of the participating employee, but that exception can be difficult to satisfy). If an employer does decide to provide comparable benefits to same-sex spouses, the language of the applicable plan should be revised accordingly.
Certain governmental and church self-insured plans are exempt from ERISA. Such plans will not be covered by ERISA’s preemption provisions and, therefore, will have to comply with the Legislation (subject to a possible exception for plans maintained by Religious Organizations). Such plans should, therefore, be reviewed to determine whether the definition of spouse may need to be amended to include same-sex spouses who are married in New York State.
What Impact Does the Legislation Have on Other Benefit-Related Rights That Arise Out of Federal Law?
Under DOMA, any other benefit-related right that arises out of federal law generally will not be subject to the requirements of the Legislation, as long as the applicable federal law does not incorporate the definition of spouse used under state law. This would mean, for example, that the COBRA health continuation coverage rights for spouses generally will apply to eligible opposite-sex spouses rather than same-sex spouses. An exception to the preceding sentence could apply if an employer voluntarily decides to provide similar rights to the extent permitted by COBRA.
How Does the Legislation Affect Other Benefits That Are Exempt From ERISA?
- If a benefit is exempt from ERISA, it generally will have to comply with the new requirements imposed by the Legislation (subject to any requirement in the Code or other federal statute that provides otherwise). Examples include, but are not limited to:
- certain governmental and church plans that are exempt from ERISA (subject to a possible exception for plans maintained by Religious Organizations);
- plans without any employees (e.g., a plan that only covers a sole proprietor and his or her spouse, or that only covers partners and their spouses);
- certain voluntary group or group-type insurance plans that are paid for solely by participating employees;
- unfunded educational benefit programs (e.g., unfunded tuition reduction programs at universities and colleges that cover spouses, and other unfunded educational benefit programs that benefit spouses);
- employee discount programs that provide benefits for spouses;
- on-premise recreation or dining facilities;
- expense reimbursement programs that cover certain spousal expenses; and
- remembrance funds.
Such benefit plans and programs should, therefore, be reviewed to determine whether the definition of spouse may need to be amended to include same-sex spouses who are married in New York State.
Will the Legislation Change How Benefits For Same-Sex Spouses Are Taxed?
Under DOMA, a same-sex spouse will not be treated as a spouse for Code purposes. Therefore, even if a same-sex spouse becomes eligible for benefits as a result of the Legislation, he or she generally will not be eligible for any favorable tax treatment that applies to spouses under the Code (an exception will apply if the same-sex spouse qualifies as a “dependent” of the participating employee under the Code). Guidance is still pending on the extent to which the tax status of same-sex spouses under New York’s tax laws will change as a result of the Legislation. Section 607(b) of the New York State Tax Law currently provides that a taxpayer’s marital status for New York State tax purposes will be the same as the taxpayer’s marital status “for purposes of establishing the applicable federal income tax rates.” As a result of this statute, same-sex spouses generally are treated the same for New York State income tax purposes as they are treated for federal income tax purposes under the Code. However, Section 2 of the Legislation provides that “[t]he legislature intends that all provisions of law which utilize gender-specific terms in reference to the parties to a marriage, or which in any other way may be inconsistent with this act, be construed in a gender-neutral manner or in any way necessary to effectuate the intent of this act.” It is anticipated that the New York State Department of Taxation and Finance will be issuing guidance on how same-sex spouses should be treated for New York State Tax Law purposes, and employers should wait until that guidance is issued before changing how same-sex spouses are taxed for New York State tax purposes.