Governor Dayton yesterday signed the legislation legalizing same-sex marriage in Minnesota (the “Act”, Chapter 74--H.F. No. 1054 and S.F. 925) effective August 1, 2013. Employers should review their benefit plans to determine how the Act will impact the plans and be prepared to review their withholding and reporting of compensation once the Minnesota Department of Revenue issues guidance on how the Act will affect Minnesota taxes.Health Plans
Must a Minnesota Employer Cover Same-Sex Spouses?
An employer providing coverage to its employees under a self-funded ERISA group health plan is not required to offer coverage to same-sex spouses and the Act does not change this. If an employer intends to exclude same-sex spouses from coverage though, it should review its plan’s definition of spouse in light of the Act. For example, some plans sponsored by Minnesota employers define spouse by reference to the Minnesota Statute section 517.01, which the Act amended. If this definition is not revised, then the plan will be required to cover same-sex spouses.
An employer who provides coverage to spouses of employees under an insured ERISA group health plan or under a non-ERISA plan will likely be required to offer coverage to same-sex spouses.
Do Minnesota Employers Need to Cover Domestic Partners Anymore?
Many Minnesota employers offer coverage to same-sex domestic partners. Because Minnesota has now joined the ranks of states which permit same-sex marriage, some employers may consider dispensing with domestic partner coverage in favor of coverage for same- and opposite-sex spouses. This eligibility may be easier to administer, but employers with a significant workforce outside of Minnesota may feel that such a change would be premature, since many states do not yet sanction same-sex marriage.
What Happens to the Tax Treatment of Health Benefits?
Because of the Act, the cost of employer-provided health plan coverage provided to a same-sex spouse likely will not be subject to Minnesota taxes, but it will continue to be subject to Federal taxes because of the Defense of Marriage Act (DOMA).
Coverage provided to same-sex domestic partners who are not married will generally be subject to Minnesota and Federal taxes.
We anticipate that the Minnesota Department of Revenue will provide guidance on how the Act impacts Minnesota taxes.
Life Insurance Plans
Does the Act Impact Life Insurance Plans?
An employer who provides coverage under an insured life insurance plan will likely find that spouse is defined to include a same-sex spouse so that same sex spouses will likely be eligible for spousal life insurance coverage and will be considered default beneficiaries.
An employer who provides coverage under a self-insured ERISA life insurance plan (which is rare) should not be affected by the Act (unless the plan defines spouse by reference to the Minnesota Statute section 517.01).
Flexible Spending Accounts and Health Savings Accounts
Health care and dependent care flexible spending accounts and health savings accounts (HSAs) are largely a function of the Internal Revenue Code. Until Federal law changes (perhaps with the repeal of DOMA), it likely does not make sense for employers to expand eligibility for these benefits to same sex spouses.
Does the Act Impact Retirement Plans?
A retirement plan subject to ERISA is not likely to be impacted. However, see the discussion regarding beneficiary designations below.
A retirement plan not subject to ERISA (a governmental plan or a non-electing church plan) should be reviewed.
Does the Act Impact Beneficiary Designations?
A retirement plan subject to ERISA should not be affected by the Act based on ERISA preemption, but whether it is affected depends on the plan’s terms. For example, if a plan subject to ERISA clearly states the DOMA definition of spouse applies for all plan purposes (including default beneficiary designation rules), then the plan should not be affected by the Act. A challenge to such a DOMA definition in a plan (based on a claim of discrimination under Minnesota law) would likely be preempted by ERISA. If an ERISA plan does not contain clear language, then the employer could use its discretionary authority to interpret the term “spouse.” However, the employer is at greater risk of a challenge to its interpretation (especially if the plan states that Minnesota law governs to the extent Federal law does not apply). Thus, to avoid unnecessary claims and litigation over ambiguous terms, plan language should be clear as to whether or not the term spouse includes a same-sex spouse.
A retirement plan not subject to ERISA (e.g., a pension plan for a Minnesota governmental entity or a stock incentive plan) will likely be impacted by the Act. Without the benefit of ERISA preemption, a non-ERISA plan that follows DOMA for default beneficiary designation rules may now run afoul of Minnesota law.
What Happens to the Tax Treatment of Retirement Plan Benefits?
There is likely to be no change.
At the state level, Minnesota is the 12th state that has legalized same-sex marriage. Delaware and Rhode Island also recently enacted legislation approving same-sex marriage. In addition, Illinois (which already allows civil unions) is also considering legislation approving same-sex marriage (the Illinois Senate has approved a bill and the Illinois House is considering it).
At the Federal level, the U.S. Supreme Court’s review of DOMA means even further developments regarding same-sex marriage and domestic partners are likely this summer. The Court is likely to release its decision at some point on or before June 30, 2013.
If you wish to discuss the Act, please contact the attorney or tax professional at Dorsey with whom you work.