What’s the impact for employers? Basically, you need to think about all the areas of your business that involve potential spousal rights to an employee’s benefits offerings. You might need to update forms, policy manuals, plan documents or organizational procedures in light of the Court’s new definition of “spouse.”
Below, we’ve listed some benefits and other aspects of conducting your business that involve spousal rights.
Health insurance, voluntary life insurance and other benefits – If the terms of your plan provide benefits to spouses, the Court’s ruling now means the benefits should be offered to same-sex spouses.
COBRA – A spouse who is covered by an employee’s health insurance is entitled to COBRA in the event of the participant’s termination of employment, or the couple’s divorce or legal separation. Additionally, a spouse who loses coverage under his or her own employer’s plan might be entitled to immediate spousal coverage, notwithstanding normal rules regarding when health coverage can be elected.
FMLA – The Family and Medical Leave Act now applies to same-sex married couples, so you should review your policies and practices to ensure you are administering your FMLA program in the same way you have for heterosexual married couples.
Pensions and plan distribution options – Qualified pension plans are required to provide qualified joint and survivor annuities as the normal form of retirement benefits in the case of married employees. This distribution form can be waived only if both the employee and the spouse consent. If the employee dies before retirement, the plan must generally provide for a qualified preretirement survivor annuity unless the plan is a governmental or church plan.
401(k), profit-sharing, and other non-pension retirement plan spousal distribution options – Plan sponsors must either provide the qualified joint and survivor annuities and qualified preretirement annuities discussed above, or provide that 100% of a participant’s remaining account balance at death must be paid to his or her spouse. Again this does not apply to governmental or church plans.
Retirement plan rollover beneficiary options – Plans must provide that if a participant or beneficiary is entitled to roll over a distribution to another retirement plan or individual retirement account, the plan will directly roll over such distribution to the other plan or IRA at the participant or beneficiary’s direction. A non-spousal beneficiary can elect to roll over only to an inherited IRA. A spouse has a special opportunity to elect to roll over to his or her own employer plan or IRA.
Domestic relations orders – ERISA plans must comply with a qualified domestic relations order that result from divorce or other court proceedings.
Required minimum distributions – Rules allow more flexibility for spouses than non-spousal beneficiaries.
Distribution forms – A distributee of a retirement plan who has a spouse must be permitted to elect “married” status for purposes of federal and state income tax withholding.
These are just a few examples of the impact of the Obergefell decision on employers. For more information on plan compliance, please contact your WK advisor for assistance.