Risk & Compliance

Companies May Rethink Same-Sex Benefits

The feds won't defend the Defense of Marriage Act section that defines marriage as being between a man and a woman.
John MartiniMarch 10, 2011

A recent decision by the Obama Administration means that many companies may want to rethink their stance on providing health benefits to an employee’s same-sex partner.

On February 23, Attorney General Eric Holder sent a letter to Congress announcing that the Obama Administration will no longer defend the constitutionality of a particular section of the Defense of Marriage Act. The decision could have a significant impact on employers that do not provide health benefits on the same terms for same-sex couples as they do for traditional married couples.

The Defense of Marriage Act prevents same-sex spouses from being considered married for purposes of federal law. Basically, the law does three things: it prohibits the federal government from extending marital benefits to same-sex couples, it allows states that ban same-sex marriage to refuse to recognize same-sex couples who were married in other states, and it defines marriage as a legal union between a man and a woman.

Martini 3-10-11

As a result of the Defense of Marriage Act, employers are generally not required to provide same-sex spouses with the same rights to benefits as traditional spouses. For example, an employer’s health plan that provides certain health benefits to the traditional spouses of executives will generally be required to provide those benefits to traditional spouses of less-highly compensated employees, but not to same-sex spouses of those employees. Also, where an employer chooses to provide health benefits to same-sex spouses, the Defense of Marriage Act essentially provides that the same-sex spouse of an employee is not entitled to the same beneficial tax treatment that is often available to traditional spouses of employees.

The Obama Administration believes that Section 3 of the Defense of Marriage Act, which defines “spouse” and “marriage” for purposes of all federal laws as requiring both a man and a woman, impermissibly prohibits federal recognition of marriage with respect to same-sex couples who are legally married under state law. Therefore, the Department of Justice has decided not to defend Section 3 in two current lawsuits challenging its constitutionality.

What Does This Mean?
According to Holder’s letter, until Congress repeals that section or the courts definitively rule it unconstitutional, the executive branch will continue to enforce it, and same-sex spouses will not be treated as married for purposes of federal law. Technically, that means the Internal Revenue Service will still not permit the tax benefits enjoyed by opposite-sex spouses to be available to same-sex spouses. And employers will still have a basis for denying access to most benefits to same-sex spouses.

However, without the federal government defending the constitutionality of the law, it is far more likely that employers who refuse to treat same-sex spouses in parity with traditional spouses will find themselves embroiled in an expensive and politically charged constitutional battle.

It could take several years for this issue to wind its way through the courts before a “definitive” decision is reached. In the interim, the outcome of the next federal election could result in a legislative change that could put employers on much more solid ground. My sense is, however, that many employers that don’t currently treat same-sex spouses in the same manner as traditional spouses will choose to do so before a legislative or judicial solution to this problem arises.

John Martini is chairman of the Tax, Benefits, and Wealth Planning Group at law firm Reed Smith. He is involved in all aspects of the firm’s employee-benefits practice, concentrating in complex executive-compensation design, qualified plan compliance, and benefits-related securities issues. John also counsels companies on equity compensation and health and welfare.