Supreme Court Obergefell Decision Impacts Employer Welfare Benefit Plans

Today’s Supreme Court decision in Obergefell v. Hodges, requiring all 50 States to license same sex marriages, has two immediate implications for employer-sponsored welfare benefit plans:

1. Do your welfare benefit plan documents define “Spouse”, and if so, how?

If all of your operations are in a state that recognized same sex marriage before today’s ruling, then your welfare benefit plans probably already either do not contain a definition of “Spouse”, or they define “Spouse” by reference to state law. If that is true for you, then you probably do not need to amend your plan documents. You will automatically extend benefits to legally married same sex spouses, just as you have already done, since you operate in a state that recognized same sex marriage before today’s ruling.

However, if you operate in a state that did not recognize same sex marriage before today’s ruling, then your welfare benefit plans might define “Spouse” by reference to one man and one woman. If that is how your plan defines “Spouse”, you ought to discuss with ERISA counsel whether to change that definition.

In addition, even if you maintained an opposite sex definition of “Spouse” for your welfare benefit plans in states that previously recognized same sex marriage, you should revisit this issue in light of today’s ruling.

While welfare benefit plans are not required to offer spousal coverage, and therefore in concept could extend coverage only to a subset of Spouses (opposite sex spouses), this practice is more risky today than it was yesterday. Given the Obergefell holding – that same sex marriage is a fundamental right protected by the 14th Amendment, there are now significant risks associated with offering spousal coverage that is limited to opposite sex people.

Public sector employers cannot maintain such policies because they would be subject to a direct claim of employment discrimination based on the 14th amendment fundamental rights holding in Obergefell. A direct claim such as this in the private employment market would have significant weaknesses, at least in jurisdictions that do not prohibit discrimination on the basis of sexual orientation or preference. The reason? The 14th Amendment does not apply to private actors. However, additional circumstances, such as a disparate impact of such a provision on one sex or the other, could make such a claim viable.

Moreover, employers that maintain the opposite sex definition of “Spouse” will increasingly be out of the mainstream. This may be a good or a bad thing, depending on your market.

The point is, check your plan documents and talk to counsel about the implications of leaving them unchanged vs. changing them.

2. Do you offer Domestic Partner Coverage? If so is it limited to same sex domestic partners? Is it limited to domestic partners in states that did not recognize same sex marriage before today’s ruling?

In recent years many employers offered welfare benefits to same sex domestic partners, but may not have done so for opposite sex domestic partners, on the theory that same sex domestic partners could not get married. Other employers may have limited domestic partner coverage to states that did not recognize same sex marriage, again on the theory that this was only an issue on those states. This rationale has been breaking down as more states recognized same sex marriage, and it is now gone entirely.

You should revisit your decisions regarding domestic partner coverage in light of today’s ruling. Employers that limit domestic partner coverage in one of these ways need to decide whether to :

(a) continue offering coverage only to same sex domestic partners,

(b) extend coverage to all domestic partners (both same sex and opposite sex), or

(c) eliminate domestic partner coverage.

There are serious risks associated with option (a) (continue offering coverage only to same sex domestic partners), for many of the same reasons discussed above, except that now, opposite sex unmarried domestic partners who do not get a benefit offered to same sex domestic partners might challenge those provisions.

Option (b) (extend coverage to all domestic partners) is a legally safer course, though it may have significant financial implications for employers. Extending benefits to same sex unmarried domestic partners was not very costly because not many people took up the offer. Extending those benefits to opposite sex unmarried domestic partners could be attractive to a much larger pool of your employees.

Option (c) (eliminate domestic partner coverage) might make logical sense, and may be the best alternative to (b). Bloomberg reports that this may in fact be a significant result of the ruling:

“A survey of large corporations released earlier this month showed that far fewer of them offer health coverage to unmarried heterosexual couples — 62 percent — than to same-sex domestic partners, at 93 percent.

That gap suggests less of a willingness to cover unmarried couples when legal marriage is an option. More powerfully, 22 percent of the companies said they plan to drop coverage of domestic partners as a response to a ruling that makes gay marriage a viable option nationwide.”

But there are both legal and practical risks associated with taking a benefit away from a group of employees.

Again, think about these issues, discuss them with counsel and make deliberate and informed decisions about how to deal with them, given your unique situation.

Author: Erwin Kratz

Erwin Kratz practices exclusively in the areas of ERISA and employee benefits law, focusing on tax and regulatory matters relating to qualified and nonqualified deferred compensation and welfare benefits.