The Second Circuit recently held that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional.  That section prohibits recognizing same sex marriages under federal law.  The court’s decision in Windsor v. United States is the second by a U.S. Circuit Court to find that this portion of DOMA violates the Constitution’s Equal Protection Clause.  In May, the First Circuit also found DOMA to be unconstitutional in Massachusetts v. U.S. Dep’t of HHS.  The question of whether DOMA is constitutional could have a significant impact on employee benefit plans.

The two Circuit Court cases differ in one key respect:  the Second Circuit applied “intermediate scrutiny” while the First Circuit reviewed DOMA under an enhanced rational basis standard, under which the court “scrutinize[d] with care” and applied “closer than usual scrutiny.”  Notably, the Justice Department is seeking Supreme Court review of the Second Circuit’s decision.  Even before the Second Circuit ruled, the Justice Department had filed a petition for a “writ of certiorari before judgment filed.”  Following the Second Circuit’s decision, the Justice Department filed a supplemental brief urging the Court to grant its petition in that case and hold the petition in the First Circuit decision.  Earlier this week, the Supreme Court scheduled petitions for certiorari in the First Circuit and Second Circuit cases (and several other same-sex marriage cases) to be considered during a conference on November 20, 2012.

If DOMA is ultimately found to be unconstitutional, employers who operate in states where same-sex marriage is legal may be required to offer additional health and welfare benefits to same-sex partners, including FMLA leave to care for the employee’s same-sex spouse and COBRA benefits for the same-sex spouse.  Pre-tax health coverage would also be available for healthcare coverage of same-sex spouses.  Retirement plan administration would also be affected.  Tax-qualified plans subject to qualified joint and survivor rules would need to offer qualified joint and survivor annuities to same-sex couples and seek consent from a same-sex spouse in order for a participant to elect a different option.  Currently, pre-retirement death benefits cannot be offered on the same terms to the survivor of a same-sex spouse; if DOMA is overturned, pre-retirement death benefits would be required to be offered in the same manner as offered to opposite-sex spouses.  These are only a few of the issues that employers will need to address if DOMA is found unconstitutional.

While the Supreme Court considers whether to review any or all of the pending DOMA cases, the IRS continues to enforce DOMA.  The IRS has set forth in frequently asked questions (FAQs) its position with respect to certain issues relating to same-sex couples.  The FAQs generally maintain that, for purposes of federal tax rules, a spouse must be of the opposite sex.  However, the FAQ defers to state law to determine whether a child is a stepchild; if a same-sex partner is the stepparent of his or her partner’s child under state law, then the same-sex partner is considered the stepparent for federal tax purposes.  Accordingly, under the IRS approach in the FAQs, the child would be permitted to receive tax-free health coverage until age 27 under the stepparent’s employer-provided health plan.

Currently, same-sex marriage is permitted in Connecticut, the District of Columbia, Iowa, Massachusetts, New Hampshire, New York, and Vermont.  The election next week includes same-sex marriage ballot initiatives in Maine, Maryland, Minnesota, and Washington.