The Post-DOMA Benefits World

1. The Post-DOMA Benefits World Carrie Byrnes Sarah Sise Carrie Bechtold

2. Discussion Roadmap • Brief DOMA Background • Initial Regulatory Response • Plan Specific Guidance • Employer Action Items

3. Brief DOMA Background • Section 3 - For purposes of all Federal laws, “’marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex” • Supreme Court • U.S. v. Windsor – Section 3 unconstitutional • 5-4 Opinion authored by Justice Kennedy • "The federal statute is invalid, for no legitimate purpose overcomes the purpose and effect to disparage and to injure those whom the State, by its marriage laws, sought to protect in personhood and dignity. By seeking to displace this protection and treating those persons as living in marriages less respected than others, the federal statute is in violation of the Fifth Amendment." • Hollingsworth v. Perry – Jointly Considered with Windsor • Questions presented include whether the Equal Protection Clause of the Fourteenth Amendment prohibits California from defining marriage as the union of a man and woman • Case dismissed on procedural grounds; the constitutionality of CA’s Proposition 8 not decided

4. Brief DOMA Background(continued) • Open Issues • Is Section 2 of DOMA (full faith and credit) unconstitutional? • I.e., Are states permitted to decline to recognize same-sex marriages which were validly performed in other states? • Do discriminatory laws, such as mini-DOMAs or provisions in state constitutions, violate the equal protection clause of the 14th Amendment to the U.S. Constitution?

5. Same-Sex Marriage U.S. Jurisdictions • California • Connecticut • Delaware • Hawaii • Illinois (Effective 6/1/14; 2/21/14 in Cook County) • Iowa • Maine • Maryland • Massachusetts • Minnesota • New Hampshire • New Jersey • New Mexico • New York • Rhode Island • Vermont • Washington • Washington D.C. • Utah (marriages performed 12/20/13-1/6/14)

6. Same-Sex Marriage Foreign Jurisdictions • Argentina • Belguim • Brazil • Canada • Denmark • England/Wales • France • Iceland • Mexico City and Mexico’s southern state of Quintana Roo (governed by state law) • Netherlands • Norway • Portugal • Spain • South Africa • Sweden • Uruguay • New Zealand

7. Initial Regulatory Response • “State of Celebration” Rule • Effective September 16, 2013 - A marriage which is valid where celebrated will be considered valid for all purposes under the Internal Revenue Code for purposes of determining whether someone is a spouse and is married • The Department of Labor followed suit to say that the same rule applies for all purposes of ERISA • Federal Income and Employment Taxes • Guidance issued in October 2013; refunds are available for open tax years to both employees and employers • Improper taxation of employer-provided health coverage or fringe benefits to a same-sex spouse resulted in excess income tax withholding and payment of FICA (employee and employer portion) on value of the benefits • Employers may refund the employee’s share of withheld taxes and file refund for both the employee and employer portions for open tax years

8. Initial Regulatory Response(continued) • “State of Residence” Rule • FMLA is the outlier • After the IRS and ERISA guidance was released, the DOL updated Fact Sheet #28F: Qualifying Reasons for Leave under the FMLA posted on its website to confirm that a spouse includes a same-sex spouse if the marriage is recognized under the laws of the state in which the employee resides • FMLA leave need not be made available to a same-sex spouse who resides in a state that has its own DOMA law or does not recognize same-sex marriage • State Income Tax • Treatment varies by state

9. Initial Regulatory Response(continued) Uniformity in Treatment for Most Benefits Disparity in FMLA and state tax laws

10. Guidance for Cafeteria Plans, FSAs & HSAs December 2013 Guidance from the IRS – too little and really too late – but confirmed key issues: • A participant may pay for same-sex spouse’s health coverage on a pre-tax basis under a cafeteria plan • Flexible Spending Accounts - Expenses of a same-sex spouse reimbursable under a health FSA; a same-sex spouse must be taken into account for purposes of the $5,000 limit under a dependent care FSA • Health Savings Accounts – Married contribution limit applies to same-sex spouses; coverage of a same-sex spouse affects eligibility to make contributions • Amendments – Seem to be required by 12/31/14 for calendar year plans

11. Guidance for Retirement Plans Effective no later than June 26, 2013, any required plan provision which grants a right to a spouse must apply to a same-sex spouse Example 1: A participant in a defined benefit pension plan may not waive a spousal survivor benefit unless his or her same-sex spouse consents. Example 2: A participant in a 401(k) plan may not designate a child as his beneficiary without the consent of his same-sex spouse. Plan Amendments: If spouse defined by reference to DOMA or is inconsistent with Windsor, must be amended no later than 12/31/14

12. Guidance for Retirement Plans (continued) Administrative Issues • How was the plan administered between 6/26/13 and 9/16/13? • If a participant in a same-sex marriage commenced benefits during that time, required spousal consent may not have been obtained by the plan • Consider sending notices to “single” participants who commenced during this window • If plan will be amended to implement these rules prior to 6/26/13, how will compliance with the effective date be ensured? • Participants should be notified of the state of the law and the impact on the plans • Consider a summary of material modifications or other type of notice even if the plan does not have to be amended

13. Employer Action Items Adopt policy regarding spousal benefits to same-sex spouses – minimum required by law or consistent treatment across all benefits? • ERISA does not require that spousal health coverage be provided; if opposite-sex spousal coverage provided, consider legal and PR risks associated with not offering same-sex spousal coverage • Other plans, such as retirement plans, must recognize same-sex spouses for death benefit and consent requirements

14. Employer Action Items(continued) Health Plans • No Federal imputed income for employer-provided spousal health coverage • If same-sex spouses covered, treat as spouses for purposes of COBRA, HIPAA and other Federal laws that apply to the benefits • Consider whether applicable state laws follow Federal law for income tax purposes or otherwise mandating imputation of income Retirement Plans • Review plans and determine if plan amendments are needed • As discussed above, determine if any corrective action is needed for 2013 • Distribute SMM or notice to participants to explain spousal rights of same-sex spouses • Update enrollment, beneficiary designations, and distribution forms • Consider a beneficiary designation update campaign

15. Employer Action Items(continued) Cafeteria Plans • Premiums for same-sex spouses should be paid on a pre-tax basis • Claims for reimbursements of medical care expenses may be permitted under the health FSA • Recognize same-sex spouses when applying dependent care FSA reimbursements • Review plan to determine if an amendment is needed by the end of 2014 Health Savings Account • Recognize same-sex spouse to determine eligibility and maximum contribution permitted

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17. IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein