Same-Sex Marriage Complicating Retirement

By Cyril Tuohy

InsuranceNewsNet

Corporate benefits managers and their advisors who thought they deserved a break this July 4 before ramping up for health care reform under the Affordable Care Act got no such respite, courtesy of the U.S. Supreme Court and its decision to strike down a key section of the federal Defense of Marriage Act (DOMA).

The high court’s recent decision simplifies the handling of retirement benefits for same-sex spouses in 12 states and the District of Columbia, where same-sex marriage is legal, but complicates matters in the 37 other states that don’t recognize same-sex marriages, according to legal experts.

Before the ruling, for the purposes of allocating retirement benefits, employers had to draw a distinction between same-sex and opposite-sex marriages in states that approved same-sex marriages, according to experts.

But now, a new wrinkle has emerged and employers have to wonder whether they have to distinguish between couples married in a state that approves same-sex marriage, but living in a state that does not, Valerie Grace, a partner in the Washington Resource Group of health and benefits consultant Mercer, said.

“The thorniest issue is where couples are married now,” Grace said in an interview with InsuranceNewsNet. “Do plans look to where the marriage license was issued, or where people actually reside?”

In U.S. vs. Windsor, the Supreme Court struck down Section 3 of DOMA, which barred federal recognition of same-sex marriage.

The decision means that same-sex couples recognized as legally wed under state law must now be treated as spouses under Internal Revenue Service rules and the Employment Retirement Income Security Act (ERISA).

Come August, same-sex marriages will be legal in Connecticut, Delaware, the District of Columbia, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington. Same-sex marriages have resumed in a 13th state, California, after the high court lifted a stay order.

While Section 3 of DOMA was struck down last week in the 5-4 decision, the Supreme Court let stand Section 2, which allows states to refuse to recognize same-sex marriages authorized in other states. Other issues surrounding whether a same-sex couple is still married if the couple moves from a state that recognizes same-sex marriage to one that does not are “not even close to being litigated,” J.D. Piro, senior vice president and national practice leader for the health care law group at AonHewitt, said.

Pension plans that define “spouse” as an opposite-sex partner are going to have to amend plan language so that “same-sex spouses legally wed under state laws” benefit from ERISA’s protections, according to Grace and her colleagues Paul Strella and Scott Tucker, also of Mercer’s Washington Resource Group, in a brief to clients.

The question with regard to a plan participant married to a same-sex spouse living in Georgia, which doesn’t recognize same sex marriages, is: Does the Georgia-based employer’s retirement plan have to offer qualified joined and survivor annuities (QJSA) spousal protection benefits?

“The question is: if you have a same-sex marriage does that rule apply? Or are you treated as unmarried?” Grace said.

Among the issues still unaddressed, the Mercer experts also said, is whether the Supreme Court ruling is retroactive to 1996 when DOMA was signed into law, and whether the ruling applies to plans from the moment the court issued its decision on June 26.

Adding another wrinkle to the same-sex protections, rule-makers are going to have to grapple with this twister: Does federal recognition apply to a foreign same-sex marriage of a U.S. citizen from a state that recognizes same-sex marriage but now living in a state that doesn’t recognize same-sex marriage? That, too, is an open question.

One point often overlooked from the perspective of the employer isn’t so much whether the employer should pay or deny the benefit, Grace said. The more salient question is to whom the benefit should go: the same-sex spouse or to the child of a same-sex couple.

For example, take the case of two men legally married to each other in Iowa and now living in Nebraska, which does not recognize same-sex marriage. One of the men names his daughter as the beneficiary of his 401(k) account without his spouse’s consent.

Does the 401(k) plan administrator honor the beneficiary designee as long as her father resides in Nebraska? Or is the designation null and void if the couple moves to another state that recognizes the same-sex marriage?

“The employer is going to pay somebody, the question is whom do you pay?” Grace said.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at Cyril.Tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.