The Supreme Court’s recent invalidation of portions of the Defense of Marriage Act created a huge buzz in political and legal circles, but will the decision significantly impact how small employers manage their workforces?

The answer is probably not, but the case could affect many issues related to benefits eligibility and administration.

In United States v. Windsor, the Supreme Court held that Section 3 of DOMA, which was enacted in 1996 and defined “marriage” and “spouse” for federal law purposes as being between one man and one woman, violates the Fifth Amendment to the Constitution because it deprives persons of their personal liberties protected by the Constitution.

Thus, same-sex couples who are lawfully married under state law must be afforded the same federal rights and protections as lawfully married opposite-sex couples.

While the June decision does not create a new federally protected class for discrimination/harassment purposes (which numerous state and municipal laws already cover), it does affect the design and administration of employer-sponsored benefit plans and related employment policies and practices.

New Questions

Prior to Windsor, employers could rely on federal law in extending coverage and benefits to spouses of employees and in reporting and withholding taxes on such coverage. They did not have to consider the patchwork of state laws that were contrary to DOMA unless they voluntarily chose to extend benefits to same-sex spouses or domestic partners.

For employers already extending benefits to same-sex spouses, Windsor may simplify plan administration. For others, Windsor likely has brought additional complexities.

The following is an inexhaustive list of some of the benefits issues raised by the Supreme Court’s decision that will need to be considered by employers and plan sponsors:

• Group health and other benefit programs that provide spousal coverage may have to extend coverage to couples lawfully married in a state that recognizes same-sex marriage.
• For employers that voluntarily extended coverage to same-sex spouses, payroll and tax reporting systems will need to be revised to end the attribution of income to the covered employee for such coverage.
• The definition of “child” may need to be revised to include children of a same-sex spouse for benefit program purposes.
• Plan sponsors will need to evaluate how COBRA, HIPAA and flex-plan reimbursements will be affected.
• Pension and retirement plan provisions and administrative processes will need to be reviewed and revised to ensure that the spousal protections required by the Internal Revenue Code and the Employee Retirement Income Security Act, or ERISA, are extended to same-sex married spouses. This includes qualified joint and survivor annuity requirements, beneficiary designation rules, minimum required distribution and qualified domestic relations orders.
• Plan sponsors may wish to review their policies as they relate to coverage for domestic partners and partners in civil unions.
• Employers must consider the potential impact on Family Medical Leave Act and other employment policies.

Waiting for Answers

It is expected that regulators, including the Internal Revenue Service, the Department of Labor and possibly state agencies, will issue guidance very soon in response to many key issues the Windsor decision did not address. This will help plan sponsors understand how their employee benefit plans must adapt without the traditional definitions of spouse and marriage.

However, plan sponsors and administrators should take some proactive steps while waiting for additional guidance by taking inventory of their benefit plans and programs that are potentially affected by the Windsor ruling, by considering whether plans should be amended either to expand or contract the definitions of “marriage” and “spouse,” and by researching the marriage laws in each state in which covered employees work and reside.

It is also advisable to revisit the tax reporting impact of Windsor on benefits provided to same-sex spouses and their children and identify systems changes that may be required.