Benefits Blog

Guest blog by Mark W. Major, J.D. (of the Law Office of Mark W. Major P.C.) on "Colorado Same-Sex Marriage Developments: Impact for Employee Benefits"

Given the issuance of marriage licenses to same-sex couples in certain Colorado counties in the wake of the federal court rulings impacting employers in this state, employers may have questions
regarding their obligations, particularly under employee benefit plans.

Following the U. S. Supreme Court’s Windsor decision last summer recognizing same-sex marriages as valid for federal law purposes, the country continues to experience a tide of court cases involving the validity under the U.S. Constitution of state laws prohibiting same-sex marriages.  As relates to Colorado employers, the U.S. Court of Appeals for Tenth Circuit (the decisions of which are controlling in Colorado, Utah, Oklahoma and other neighboring states), recently held in the Utah case of Kitchen v. Herbert  that Utah’s ban against same-sex marriage is unconstitutional.  As a result, the County of Boulder and certain other Colorado counties began issuing marriage licenses to same-sex couples.  What followed was series of legal skirmishes primarily involving the Colorado State Attorney General and various same-sex couples raising issues regarding the validity of the licenses and Colorado’s state constitutional and statutory ban on same-sex marriage.

Reports of the various actions initiated in Colorado in both state and federal court may leave an employer somewhat confused with regard to handling day-to-day decisions, such as whether to recognize as “spouses” for a variety of employee benefit purposes a same-sex couple with a Colorado marriage license.  For example, Windsor requires a same-sex spouse to be given COBRA rights if covered under a health plan with the other spouse.  Other benefit-related rights can also be involved such as those under FMLA and spousal rights under retirement plans.  Spousal status can even impact critical issues such as nondiscrimination testing and determining whether two businesses must be treated as one employer under Affordable Care Act rules because one spouse’s ownership might be attributed to the other spouse.  (See “Key Benefit Plan Impacts Under Windsor” list at end of article for additional areas of impact.)

For now, it appears that employers in Colorado need not feel compelled to make any changes in current employee benefit practices (assuming those practices have already been updated for the Windsor decision).  This is based on the July 23, 2014, Order entered by Judge Raymond P. Moore of the U.S. District Court in Colorado in Burns v. Hickenlooper (as accessed on July 24, 2014 at http://docs.justia.com/cases/federal/district-courts/colorado/codce/1:2014cv01817/149408/45/0.pdf ).  In Burns, Judge Moore ordered that the defendants, most notably the Governor of Colorado and Colorado State Attorney General, are prohibited from enforcing Colorado’s same-sex marriage ban “as a basis to deny marriage to same-sex couples or to deny recognition of otherwise valid same-sex marriages entered in other states.”  However, the Judge temporarily “stayed” this prohibition (that is, delayed its effective date) until Monday, August 25, 2014, in order to allow the Colorado State Attorney General time to seek relief from a higher court, and, indeed, the Attorney General has since filed an appeal with the Tenth Circuit Court of Appeals.  On August 21, 2014, the Tenth Circuit Court of Appeals extended the stay of the Burns v. Hickenlooper decision to last beyond August 25^th so that nothing will change until Judge Moore’s decision can be thoroughly reviewed on appeal by the Tenth Circuit Court of Appeals or, more likely, until a superseding decision is issued by the U.S. Supreme Court.[1]

What exactly does this mean for an employer?  Basically, the Colorado same-sex marriage ban will likely remain in place until the U.S. Supreme Court decides (hopefully in its next term beginning in October of this year) whether state laws can prohibit same-sex marriages.  Although individual employers or their benefit plans might be made parties to litigation involving the status of same-sex spouses in the meantime, it would appear highly unlikely that a decision in any other court in Colorado would become effective until the U.S. Supreme Court rules on the constitutionality of these state prohibitions generally.

Nevertheless, given Windsor and the current trend of decisions in lower courts declaring state law prohibition of same-sex marriage unconstitutional, employers would be wise to begin planning for an eventual requirement that spouses in same-sex marriages celebrated in Colorado and all other states must be treated the same as opposite sex spouses for all purposes.  To some extent, individuals who have been recognized as civil union partners in Colorado have already received such treatment under various Colorado laws, including the laws governing insurance coverage.  However, differences still remain with regard to employee benefits and other rights not governed by Colorado law.  

One of the most important implications to be considered is the potential retroactive effect of the recognition of same-sex marriage under Colorado law.  A number of such retroactive issues arose as a result of the Windsor decision.  However, with same-sex marriage licenses only recently being issued in Colorado (with some question as to their effectiveness), the extent of potential retroactive exposures should be minimal. Still, employers should be prepared to address the various issues that can arise should an employee claim a Colorado same-sex spouse for employee benefit purposes.

As previously described the exposure faced by employer sponsors of qualified retirement plans arising from the Windsor decision.  The example, below, may help in understanding how employers should have already dealt with Windsor compliance (as delineated by IRS Notice 2014-19).  The example also describes the additional potential impact of Burns v. Hickenlooper.

Example: 

ABC Christian Ministry, which has a personnel policy of not hiring any employee engaged in a same-sex relationship, maintains a qualified Money Purchase retirement plan.  John, who works for ABC Christian Ministry, unbeknownst to his employer, was married to Steve in New Jersey before he terminated employment at ABC Christian Ministry on December 1, 2013 (after the September 16, 2013, compliance date under IRS Notice 2014-19 for recognizing the “state of celebration rule” for same-sex marriage).   When John terminated employment, he received a $100,000 lump sum distribution from the plan without Steve’s written spousal consent, as required by federal law.  

This retirement plan has violated the terms of federal law and upon investigation could become disqualified by the IRS.  Steve could initiate a claim against the qualified plan and enforce such an action with the assistance of the Department of Labor and IRS.  If the plan is unable to recover its lump sum distribution from John, it may need to purchase a Joint and Survivor Annuity with Steve as the spousal, surviving beneficiary.

Burns v. Hickenlooper impact:   If the marriage ceremony for John and Steve had taken place in Colorado instead of New Jersey in this example, no violation of federal retirement plan law would have occurred because Colorado’s ban on same-sex marriages would have prevented the legal recognition of the marriage for federal law purposes under the “state of celebration” rule.  However, under Burns v. Hickenlooper, same-sex marriages originating in Colorado would have arguably begun to be recognized as of July 23, 2014, except that the effect of the court’s order has been delayed by the stay imposed by Judge Moore and extended by the Tenth Circuit Court of Appeals.

The delay in giving effect to Judge Moore’s decision that same-sex marriages entered into in Colorado must be recognized under the law means that employers are still not required to recognize a same-sex marriage entered into in Colorado for either federal or state law purposes.^[2]  It’s not likely that such recognition will be required until the U.S. Supreme Court decides whether state laws can prohibit same-sex marriages.

Assuming, as most analysts appear to suggest, that the U.S. Supreme Court eventually decides that states may not prohibit same-sex marriages, a number of issues will likely need to be addressed in Colorado as well as other states regarding the implementation of that decision.  For example, would same-sex marriages entered into in Colorado need to be recognized for any purpose prior to the July 23, 2014, decision in Burns v. Hickenlooper, or prior to the date of the decision by the U.S. Supreme Court?  How much time will employers have to adjust health, welfare and retirement plans, as well as other policies, as a result of such a decision?  The intent of the stay on the Burns v. Hickenlooper order of Judge Moore appears to be that recognition will not be required until after a Supreme Court decision.  In addition, based on the approach by federal regulators after Windsor, employers should be able to make adjustments prospectively after a U.S. Supreme Court decision.  Nevertheless, with the significant trend of decisions striking down state laws prohibiting recognition of same-sex marriages, it would be prudent for employers to begin discussing with their advisors the potential changes in benefit plans, as well as human resources policies in general, that may be required in that event. 

Key Benefit Plan Impacts Under Windsor:

Retirement Plans

• Beneficiary notices and designations

• All spousal consents for

• Distributions

• Participant loans

• Qualified Joint & Survivor consents

• Qualified Domestic Relations Orders

• Determination of Highly Compensated employees

• Determination of stock ownership, stock attribution, and controlled group status

COBRA & HIPAA

• Same-sex spouse must be given COBRA general notice and Qualifying Event notices

• Same-sex spouses must be given special enrollment rights under HIPAA

Flexible Spending Account

• Same-sex Spouse’s medical and daycare expenses are eligible for reimbursement

• Same-sex spouse is an eligible beneficiary of the FSA

• Same-sex spouse has FSA COBRA rights

HSA

• Same-sex spouse’s medical expenses are eligible for reimbursement

• Same-sex spouse is an eligible beneficiary of the HSA

• Restriction on spousal contributions applies to same-sex spouses