On Tuesday, May 14, 2013, Governor Dayton signed into law a bill legalizing same-sex marriage in Minnesota (H.F. 1054 and S.F. 925), effective August 1, 2013. Under the new law, Minnesota statutes will no longer include the definition of “marriage” as “a civil contract between a man and a woman,” and instead will define “civil marriage” as a “civil contract between two persons.” Minn. Stat. § 517.01. Accordingly, terms referencing marriage throughout the Minnesota statutes will reference and include same-sex marriage. This change will affect Minnesota employers, primarily in the area of employee benefits.
Employers need first to determine whether they must begin to offer benefits to same-sex spouses, and then examine their benefits plans accordingly, paying special attention to how the term “spouse” is used and how benefits to employees and spouses/partners are taxed (both from a state and federal perspective) to ensure they will be in compliance with the new law.
Must employers offer benefits to same-sex spouses? The federal Defense of Marriage Act (DOMA) defines marriage as the union of one man and one woman for federal law purposes, including federal tax and benefits law. For non-insured benefits governed by ERISA, this means that state laws that recognize same-sex marriages are preempted. Therefore, employers with self-funded ERISA health and welfare plans are not required to cover same-sex spouses because DOMA preempts state law. Although for some benefits (e.g., health plan benefits) an employer could choose to recognize same-sex partners, for other federal benefits (e.g., qualified domestic relations orders (QDROs) dividing pension or 401(k) benefits) an employer is not permitted to treat a same-sex spouse under state law as a spouse under the plan. ERISA does not preempt state insurance laws. Therefore, insured plans and non-ERISA plans would be covered by Minnesota law and will need to offer benefits to same-sex spouses. Flexible spending accounts, health reimbursement arrangements and health savings account are governed by federal law (the Internal Revenue Code) so benefits may only be offered to tax dependents unless the federal law changes.
Use of the term “spouse.” Employers should closely analyze the use and definition of the term “spouse” throughout all benefit plans to ensure that it is used in the intended manner, depending on whether or not the employer plans to extend or is required to extend certain coverages to same-sex spouses. In particular, employers should consider whether benefit plans reference Minn. Stat. § 517.01, because, as noted above, the definition of marriage will change on August 1, 2013. Employers should also check with their carriers regarding the meaning of “spouse” in any insured benefit plans. While it is likely that Minnesota insurance carriers will be required to define “spouse” in a manner consistent with state law, that change may come on renewal of the policy, rather than on August 1, 2013. Employers would not want to change the definition mid-year without understanding the carrier’s position regarding the interpretation of the insurance contract.
Beneficiary designations. Employers should also pay close attention to beneficiary designation language in retirement and life insurance plans. If the plans are governed by Minnesota law (insured plans and non-ERISA plans), same-sex spouses may be the default spousal beneficiary if no primary beneficiary is listed. As mentioned earlier, retirement plans governed by ERISA will generally not be affected unless the plan language defines the term spouse to include a same-sex spouse.
Taxation of benefits. If health plans offer benefits to same-sex spouses, the spousal benefits will most likely not be taxable in Minnesota, but will still be subject to federal income tax as long as the federal DOMA remains in place. If plans offer coverage to unmarried domestic partners, the partner’s benefits will most likely continue to be subject to both Minnesota and federal taxes. We hope to see additional tax guidance from the Minnesota Department of Revenue confirming these assumptions.
The Minnesota Human Rights Act (MHRA) prohibits employment discrimination based on marital status, which will now include discrimination based on status with respect to same-sex marriage. However, because the MHRA currently protects employees and applicants from discrimination based on sexual orientation, the new law is unlikely to materially affect most employers’ policies. Leave entitlements under the Family and Medical Leave Act (“FMLA”) will not be extended to same-sex spouses. Although the FMLA defines “spouse” by reference to state law, DOMA applies to the FMLA. Therefore, despite Minnesota’s recognition of same-sex marriage, FMLA leave may only be taken to care for a spouse of the opposite sex. However, employers should ensure that any policies not governed by federal law that may use the terms “spouse,” “husband” or “wife,” such as bereavement or military leave policies, are clear.
Note that both the new law and the MHRA include religious exemptions. The new law specifies that religious organizations maintain exclusive control over who may marry under the doctrine and beliefs of that faith. Religious associations and corporations (and their employees) will not be required to provide goods or services in connection with a same-sex marriage solemnization or celebration, if doing so would violate sincerely held religious beliefs. The new law also does not affect the manner in which nonprofit private religious associations or corporations provide adoption, foster care or social services. Under the MHRA, nonprofit religious associations, corporations and educational institutions are generally not prohibited from taking action based on sexual orientation, including making employment decisions. Minn. Stat. § 363A.26. However, the religious exemption does not apply to secular business activities engaged in by the religious entity, if unrelated to religious and educational purposes for which the entity is organized.
Constitutionality of DOMA
The Obama administration has determined that it can no longer defend DOMA against constitutional challenges in the lawsuits that have been filed over the past years raising that issue. However, the administration intends to continue to enforce the law until it is either repealed or held unconstitutional in a final court decision. Congress has chosen to defend the law in some of the suits that have been filed. In the meantime, a number of federal courts have held that DOMA is unconstitutional. Currently, a challenge to the constitutionality of DOMA, as well as a challenge of the constitutionality of California’s Proposition 8 abrogating same sex marriage in that state, are pending before the U.S. Supreme Court, with a decision expected by the end of June.
If DOMA is ultimately declared unconstitutional, employers will be obligated to recognize same-sex spouses as spouses for purposes of federal law, including the FMLA and benefit plans where spouses are given rights under federal law. These would include QDROs (as mentioned above), rights to death benefits, including qualified joint and survivor annuities in retirement plans, and COBRA and special enrollment rights under health plans, among others. These rights would not extend to unmarried domestic partners.