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So Long DOMA, Hello Compliance Changes

Posted on: July 19th, 2013 | Category: Government Regulatory & Compliance Issues, Human Resources, Our Blog, Payroll/Benefits, Tax Issues

Image via Rainbow Deserts

Image via Rainbow Deserts

When the Supreme Court struck down the Defense of Marriage Act (DOMA) last month, it was all over the news, and pundits on all sides of the issue of same-sex marriage were voicing their opinions. That’s understandable, as it was a landmark case for the highest court of the land. Businesses are now left to the task of figuring out what this means for them in terms of compliance to various government laws and regulations.

Although only 12 states currently recognize gay marriage, the ruling striking down DOMA will have a long-term effect on many employers and human resources departments all over the country. The ruling now immediately applies only to workers in the 12 states (and the District of Columbia) that recognize gay marriage. Organizations in those states will need to review their employee-benefit packages to make sure they don’t discriminate against gay spouses, and that they fully comply with the law. Companies that already offer the partners of gay employees benefits on par with heterosexual partner benefits will probably see little change post-DOMA, although all companies should be ready to field inquires about the ruling. From a recent blog post by the Society of Human Resource Management:

“Employers should expect that employees will immediately start asking questions about their rights with regard to various employee benefits, and employers will need to consider carefully the scope of the decision and various issues relating to the implementation and effective date of the decision with regard to these issues,” [Roberta] Chevlowe [New York-Based Senior Counsel in the Labor & Employment Law Department at Proskauer Rose LLP] said.

What if your business operates in several different states? According to a recent Wall Street Journal article online, (WSJ.com) things can get quite complicated for HR departments. The ruling did not address what happens when a gay worker legally weds in one state that recognizes gay marriage, then moves to a state that doesn’t. Companies are left, for now, to figure out how to make benefits consistent in such cases. Adopting a domestic-partnership program will most likely continue to be a national trend. Just about two-thirds of the Fortune 500 firms, in fact, offer health benefits for domestic partners, according to a recent analysis.

Benefits to Think About

There are several key areas where the DOMA ruling will have an affect on benefits. From the WSJ.com article:

One of the biggest changes for married gay couples will be equal tax treatment of health-insurance premiums. Prior to the ruling, the value of a gay spouse’s benefits coverage was treated as taxable income because he or she wasn’t considered a spouse or dependent under federal law. By contrast, heterosexual couples paid for spousal benefits from pretax earnings. Now, in affected states, gay workers will enjoy the same tax status, potentially saving them thousands of dollars a year.

The ruling also affects benefits such as 401(k) retirement plans and pensions. Heterosexual spouses are automatically considered beneficiaries of such accounts under federal law, unless the couple agrees otherwise. Now, gay spouses will have the same privilege, reducing the likelihood of legal battles and financial distress should a same-sex partner die without naming a beneficiary, said J.D. Piro, leader of the health and benefits legal practice at benefits consultant Aon Hewitt.

The changes could both simplify and complicate employers’ benefit programs. Deeming same-sex unions equal to heterosexual ones will make benefits more consistent and will reduce paperwork, said Bruce Elliot, compensation and benefits manager at the Society of Human Resource Management. But companies also will have to alter tax calculations for same-sex partners to bring them into line with those for heterosexual couples, among other changes.

For a great summary by SHRM of the ruling and its affect on businesses that includes information on expanded obligations, retroactive benefits, deferring to state laws and more, click here.

HR issues have you stumped?

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This article is part of our “Look at These Laws!” series, where we highlight some major legal and compliance issues facing businesses right now, and we strongly encourage you to check back weekly (or sign up for our new blog article email alerts) to keep yourself abreast of this important information.

 

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