On June 26, 2013, the United States Supreme Court issued its opinion in United States v. Windsor and held that the definition of marriage in the federal Defense of Marriage Act is unconstitutional because it deprives same-sex spouses the equal protection of federal laws. This article provides a background on the federal Defense of Marriage Act, discusses the issues before the Court, explains the Court’s decision, identifies potential ramifications for employers, particularly with respect to employee benefit plans, and sets forth a general list of “action items.”

Background: The Defense of Marriage Act

The United States Congress enacted the Defense of Marriage Act (“DOMA”) on September 21, 2006. Prior to the enactment of DOMA, the determination of marital status was left to the laws of individual states. If a state’s law recognized a couple’s marriage as legal in that state, the marriage would also be considered valid for the administration of federal laws, including those governing taxation and employee benefits.

In 1993, the Supreme Court of Hawaii ruled in Baehr v. Miike that the state needed to show a compelling interest to prohibit same-sex marriage. Although no state had yet legalized same-sex marriage, Congress was concerned that if a single state (such as Hawaii) did, all other states would be compelled to recognize those marriages under the Full Faith and Credit Clause of the United States Constitution. DOMA was enacted to alleviate this concern by preempting state action and ensuring that state definitions of marriage would not have an effect on federal laws. DOMA has two operative sections:

  • Section 2 gives states the right to refuse to recognize same-sex marriages that have been legally sanctioned in another state, as well as any right that arises from that marriage.
  • Section 3 defines “marriage” and “spouse” for purposes of all federal laws. “Marriage” is defined as “a legal union between one man and one woman as husband and wife,” and “spouse” is limited to “a person of the opposite sex who is a husband or a wife.”

Currently, the District of Columbia and twelve states legally recognize same-sex marriage. These states include Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington. After the Court’s decision in Hollingsworth v. Perry, California no longer affirmatively prohibits same-sex marriages. Prior to the Supreme Court’s ruling, DOMA’s definition of “marriage” and “spouse” controlled over 1,000 federal statutes and regulations. As a result, federal tax law did not recognize same-sex marriages even for the twelve states above.

Lawsuit: United States v. Windsor

Edith Windsor and her partner Thea Spyer entered into a domestic partnership under New York law in 1993 and married in Ontario, Canada in 2007. The couple immediately returned to their home in New York, where they lived until Spyer died in 2009. Upon her death, Spyer left her entire estate to Windsor. Although New York recognizes same-sex marriages, Section 3 of DOMA prevented Windsor from taking advantage of the “surviving spouse” marital deduction under the Internal Revenue Code of 1986, as amended (26 U.S.C. § 2056(a)), which would have enabled Windsor to inherit Spyer’s estate tax-free. Instead, Windsor was only eligible for the limited federal tax deduction for non-spouses, resulting in a federal estate tax bill of $363,053.

Windsor filed suit in November 2010 in the United States District Court for the Southern District of New York, seeking a refund of the federal estate tax she paid on Spyer’s estate and a declaration that Section 3 of DOMA violates the Due Process Clause of the Fifth Amendment of to the United States Constitution. The Fourteenth Amendment declares that no state may “deny to any person within its jurisdiction the equal protection of the laws.” Although this clause only explicitly applies to state governments, it has been read to apply to the federal government through the Fifth Amendment’s Due Process Clause.

While Windsor’s tax refund suit was pending, United States Attorney General Eric Holder, speaking on behalf of President Obama, announced that the Department of Justice would no longer defend the constitutionality of Section 3 of DOMA. Attorney General Holder argued to Congress that the United States Supreme Court should subject DOMA, which classifies on the basis of sexual orientation, to a heightened level of scrutiny when evaluating its constitutionality. Although President Obama voiced the belief that Section 3 of DOMA was unconstitutional, he nevertheless continued to enforce the law in order to “recognize the judiciary as the final arbiter of the constitutional claims raised.” After Attorney General Holder released this announcement, the Bipartisan Legal Advisory Group (“BLAG”) of the U.S. House of Representatives intervened to defend the constitutionality of the law.

In December 2012, the United States Supreme Court granted certiorari to review the holdings of the lower courts. Oral arguments were heard on March 27, 2013, and the decision was released on June 26, 2013.

Issues Before the United States Supreme Court

The Supreme Court considered two separate questions. The first question before the Court was whether it had jurisdiction to hear the case. After hearing lengthy arguments on each side, the Court determined it did have proper jurisdiction.

The second and ultimate issue before the Court was whether Section 3 of DOMA was constitutional under the Due Process Clause of the Fifth Amendment and the equal protection principles embodied therein.

Opinion of the United States Supreme Court

In a sharply worded 5-4 decision, the Supreme Court held Section 3 of DOMA unconstitutional as a violation of the basic due process and equal protection principles applicable to the federal government. Writing for the majority, Justice Anthony Kennedy discussed both the jurisdictional and substantive issues of the case.

The Supreme Court first determined it had jurisdiction to hear the case. First, the Court reiterated that Windsor suffered a “concrete, persisting, and unredressed” injury when she was required to pay estate tax that would not have been due absent Section 3 of DOMA. There was a live controversy even though the government agreed with Windsor’s legal position because the government nevertheless refused to refund the taxes Windsor paid. Second, the majority found that the United States retained a stake sufficient to support Article III standing because the United States would suffer an economic injury if it were forced to pay the tax refund Windsor sought. The majority reasoned that the attorneys for BLAG had presented a capable defense of the constitutionality of Section 3 of DOMA, and that this issue was “of immediate importance to the Federal Government and to hundreds of thousands of persons.”

Because the Supreme Court decided it had jurisdiction to hear the case, the Court reached the ultimate question of whether Section 3 of DOMA was unconstitutional under either the Due Process or the Equal Protection Clause of the United States Constitution. Justice Kennedy, writing the majority opinion of the Court, asserted that the definition of marriage had historically been treated as a matter to be decided by the states, rather than the federal government. While the federal government can pass laws which regulate the meaning of marriage to further federal policy, DOMA had a far greater reach because it enacted a definition of marriage for purposes of over 1,000 federal statutes and all federal regulations. In doing so, DOMA departed from the history and tradition of relying on state law to define marriage and created “two contradictory marriage regimes within the same State . . . DOMA forces same-sex couples to live as married for the purpose of state law but unmarried for the purpose of federal law, thus diminishing the stability and predictability of basic personal relations the State has found it proper to acknowledge and protect.”

The majority opinion noted that because DOMA seeks to injure the same-sex couples protected by state same-sex marriage laws, it violated the basic due process and equal protection principles applicable to the federal government. Justice Kennedy wrote that the “avowed purpose and practical effect of the law here in question is to impose a disadvantage, a separate status, and so a stigma upon all who enter into same-sex marriages made lawful by the unquestioned authority of the States.” By preventing same-sex couples from obtaining government healthcare benefits, raising the cost of health care for families by taxing health benefits provided by employers to their workers’ same sex spouse, and numerous other implications, the majority stated that DOMA “writ[es] inequality into the entire United States Code.”

Justice Kennedy was joined in the majority opinion by Justices Ginsberg, Breyer, Sotomayor, and Kagan.

Potential Ramifications

The United State Supreme Court’s decision that Section 3 of DOMA is unconstitutional has significant ramifications for thousands of federal laws, including employee benefit laws and tax laws. The definition of “spouse” and “marriage” contained in Section 3 of DOMA is typically applied under the Internal Revenue Code of 1986, as amended, the Employee Retirement and Income Security Act of 1975, as amended (“ERISA”), the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), the Family Medical Leave Act (“FMLA”), and the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”).

The general effect of the Court’s holding is that there is no longer any basis under federal law for distinguishing between same-sex spouses and opposite-sex spouses. The definition of “marriage” and “spouse” for purposes of federal laws will thus be determined based on the law of the state in which the spouse resides. For example, if same-sex spouses reside in a state recognizing same-sex marriages, then an employee benefit plan subject to ERISA (such as a nongovernmental pension plan, 401(k) plan, or health benefit plan) would be administered in a manner recognizing them as spouses. Similarly, same-sex spouses residing and working in a state recognizing same-sex marriages may take leaves of absence under the FMLA for a serious health conditions of their same-sex spouses, so long as they meet the other requirements of the FMLA. However, the same-sex couple would not be recognized as spouses for purposes of federal law if they have not been lawfully married in a state that has legalized same-sex marriage. There is ambiguity as to how this ruling affects employees commuting between a state that does recognize same-sex marriage and a state that does not.

Because qualified retirement plans, health benefit plans, cafeteria plans, flexible spending arrangements, and other employee benefit plans typically apply the DOMA definition of “spouse,” plan sponsors should review the definition of “spouse” in each of their employee benefit plans and consider whether the definition should be amended. For example, based on the Court’s ruling, same-sex spouses residing in states recognizing same-sex marriage will likely be able to receive the same benefits from qualified retirement plans as opposite-sex couples, such as qualified joint and survivor annuities (“QJSA”) and rights to consent to another beneficiary. In addition, the Court’s ruling means that employers who wish to provide benefits for same-sex spouses may no longer need to distinguish between income provided for same-sex and opposite-sex partners in payroll functions. Employers with employees in states that recognize same-sex marriages no longer need to provide tax “gross-ups,” because the benefit contributions of same-sex partners are not taxable under federal law.

Federal COBRA benefits did not previously extend to same-sex couples because the federal COBRA statutes used the DOMA definition of “spouse.” Prior to the Windsor decision, employers could elect to offer analogous continuing benefits to same-sex spouses and domestic partners at their discretion. With the Court’s ruling, however, same-sex spouses in states recognizing same-sex marriages will be entitled to elect federal COBRA coverage if they desire. Expansion of coverage will also likely apply to HIPAA special enrollment rights.

Other employee benefit, tax, and health care-related laws may also be implicated by the Windsordecision. For example, domestic relations orders and qualified domestic relations orders (“QDROs”), qualified pre-retirement survivor annuities (“QPSAs”), and spousal rollover provisions may be affected. The Windsor decision could also affect the application of and compliance with HIPAA and the Patient Protection and Affordable Care Act, as amended (the federal health care reform law enacted in 2010).

Action Items

To begin complying with the Windsor holding, employers, plan sponsors, and plan administrators should:

  • identify all employee benefit plans (and any related trusts) that may reference “spouse” or “marriage.”
  • review employee benefit plan documents (and any related trusts) to determine whether the documents need to be amended in light of the Windsor holding to provide benefits to a same-sex spouse whose marriage is recognized by applicable state laws;
  • prepare and adopt amendments to employee benefit plan documents (and any related trusts);
  • review and revise summary plan descriptions (“SPDs”) and issue summaries of material modifications (“SMMs”) if changes are made to employee benefit plan documents;
  • review and revise administrative policies, practices, and procedures, including payroll processes, COBRA notice procedures, HIPAA special enrollment right procedures, FMLA policies and procedures, domestic relations order review procedures, policies and procedures for hardship withdrawals and plan loans, and income and employment tax withholding;
  • review and revise employee handbooks; and,
  • prepare and distribute appropriate employee communications.

Fraser Stryker is prepared to meet with clients to discuss the implications of the Windsor decision and steps clients should consider taking.

Fraser Stryker is a leader in tax, employee benefits, and labor and employment law. Attorneys in the Firm’s Taxation and Employee Benefits & ERISA Practice Groups advise individuals, business entities, governments, and nonprofit/tax-exempt organizations on a wide variety of tax and employee benefits matters and transactions. Fraser Stryker works with employers to implement and maintain employee benefit plans that help attract and retain top talent. Attorneys in the Firm’s Labor & Employment Practice Group regularly advise employers on FMLA compliance and draft and review employee handbooks and other employee communications. For more information, please contact an attorney in the Employee Benefits & ERISA Practice Group, or Nicole R. Konen, or an attorney in the Labor & Employment Practice Group, Pat Barrett, Kate Dittrick, or Sarah (Sally) McGill.

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