On June 26, 2015, the United States Supreme Court issued its historic ruling in Obergefell v. Hodges, holding that the right to marry is a fundamental right inherent in the liberty protected by the Fourteenth Amendment. The opinion also mandates that states recognize a same-sex marriage that was lawfully licensed and performed out of state. Although same-sex marriage activists and supporters have reason to celebrate, the impact of Obergefell on businesses and employee benefits has yet to be fully understood. The administration of employee benefits will likely be simpler because the definitions of “marriage” and “spouse” no longer vary among the states, and, importantly, between state laws and federal laws. However, employers will need to conduct an in-depth review of all policies, forms, handbooks, and other such documents to ensure that they are consistent with these new, expanded definitions. This article provides a limited discussion of how Obergefell will impact Delaware businesses and their employee benefits plans by way of two examples.
Private Employer – Christiana Care
Christiana Care is one of the nation’s largest health care providers and is headquartered in Wilmington, Delaware. Christiana Care is also the largest private employer in the state with over 11,000 employees. The aspects of Christiana Care’s employee benefits package examined here are: (i) group health insurance; (ii) retirement plan; and (iii) Family Medical Leave Act.
Christiana Care has a group health insurance plan that covers an employee’s spouse. Christiana Care has an employer-sponsored health insurance plan, a benefit which is usually excludable from an employee’s gross income. This exemption also extends to the employee’s spouse.
After the Supreme Court’s ruling in United States v. Windsor, the IRS issued a Revenue Ruling finding that any reference in the United State Tax Code to any variation of “spouse,” “marriage,” and “husband and wife” are understood to apply to same-sex couples as well. Windsor also had an impact on the taxation of private employers, who, although not legally required to, provided welfare and health benefits to same-sex spouses. After the decision in Windsor, employers were not required to impute income to same-sex spouses for federal income tax reasons where a state recognized same-sex marriage, and an employee in a same-sex marriage enjoyed the increased health savings account contribution limits and the ability to use that account and a flexible spending account to pay expenses of the individual’s same-sex spouse. Now in a post-Obergefell world, employers who provide health and welfare benefits to homosexual spouses will not have to impute income for state income tax reasons.
Christiana Care’s employee retirement plan is a 403(b) Matching Contribution Program. A 403(b) plan is “a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers.” There are both non-spousal beneficiaries and spousal-beneficiaries of a retirement plan and non-spousal beneficiaries are subject to stricter guidelines, such as minimum distribution rules. Now under Obergefell, same-sex spouses are entitled to spousal benefits. Although plans that were updated pursuant to Windsor may not have to be changed, there will be an increase in the employees who are eligible for spousal benefits. Christiana Care should reconsider its spousal benefits plan if the term “spouse” is explicitly defined under the plan as referring to an opposite-sex spouse.
A February 2015 Department of Labor rule change made the Family Medical Leave Act (“FMLA”) consistent with Windsor before the Obergefell decision, which meant that same-sex spouses’ eligibility for FMLA protection was dependent on the law of the place of celebration. Christiana Care’s Residents/Fellows are eligible for FMLA protection. Its policy provides that eligible residents/fellows may take up to 12 weeks of unpaid leave during a 12-month period for various reasons, including among other things, caring for a spouse. After the 2015 rule change, the terms “marriage” and spouse” in Christiana Care’s FMLA policy were no longer limited to opposite-sex marriages for the purposes of federal law.
Public Employer – State of Delaware
The State of Delaware (the “State”) is Delaware’s largest employer with approximately 13,000 employees in 2013. The State offers a variety of employee benefits, which include a multi-faceted health insurance plan and various retirement plan options. All of the employee benefit documents the State provides include gender-neutral “spouse” terms (as in, “husband” and “wife” are not used).
Because the State also has group health insurance plan options, the implications of Obergefell are more predictable. The State is now required to interpret “spouse” to include same-sex spouses and if it had not offered coverage to same-sex spouses it now must do so.
Regarding its retirement plan options, the State offers 457(b) and 403(b) plans. A 457(b) plan is “to provide a vehicle through which all employees of the [State] may, on a voluntary basis, provide for additional retirement income security by deferring a portion of their current earnings into a tax-deferred investment/savings account.” Like in a 403(b) plan, spousal beneficiaries have less stringent requirements/guidelines than a non-spousal beneficiary. But now, in light of Obergefell, same-sex spouses have the same spousal beneficiary status.
The two companies discussed in this post are only limited snapshots of the impact Obergefell has on Delaware businesses. Though employers may find that administering employee benefits is simpler, there is still very little guidance from the legislature or courts about how Obergefell will affect them. Delaware employers should also be mindful that even though homosexual marriage is legal now, not every same-sex couple will choose to get married. Employers would be prudent to not quickly eliminate any employee benefits extending to domestic partnerships because Windsor and Obergefell do not extend to domestic partnerships.
Furthermore, the effect of Obergefell trickles into other areas of employment law as well even though it was not an employment case. For example, Title VII of the Civil Rights Act of 1964 still does not prohibit discrimination based on a person’s sexual orientation or gender identity; however, in a July 15, 2015 decision, the United States Equal Employment Opportunity Commission ruled on its own that Title VII prevents employment discrimination based on sexual orientation. Nevertheless, the Supreme Court has yet to rule on the issue. Although currently there is no federal law prohibiting sexual orientation discrimination, the Delaware Discrimination in Employment Act “protects individuals against employment discrimination on the basis of sexual orientation, . . . marital status, . . . [and] genetic information.
In conclusion, Delaware employers should do a full examination of all of their policies, forms, and handbooks to ensure that they and their vendors are in compliance. Employers should also look for additional direction from state and federal agencies, and also be mindful that the effects of Obergefell are not fully understood yet and it could possibly affect other employee benefits as well.
Elizabeth is a third-year student at Widener University Delaware Law School and is currently completing the Business Organizations Law Certificate. Along with serving as a Judicial Extern for the Honorable Mary Pat Thynge of the United States District Court for the District of Delaware, she is the Secretary of the Student Bar Association; President of OUTLaw, the LGBT-Straight alliance; and Treasurer of the Public Interest Law Alliance, as well as a member of the Moot Court Honor Society.
Suggested Citation: Elizabeth Miosi, The Impact of Obergefell on Employee Benefits in Delaware, Del. J. Corp. L (April 8, 2016), www.djcl.org/blog.