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On December 1, 2016, Parker Hannifin Corporation and CLARCOR Inc. announced that the companies have entered into a definitive agreement under which Parker will acquire CLARCOR for approximately $4.3 billion in cash, including the assumption of net debt. The transaction has been unanimously approved by the board of directors of each company. Upon closing of the transaction, expected to be completed by or during the first quarter of Parker’s fiscal year 2018, CLARCOR will be combined with Parker’s Filtration Group to form a leading and diverse global filtration business. Bass, Berry & Sims has served CLARCOR as primary corporate and securities counsel for 10 years and served as lead counsel on this transaction. Read more here.

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Recent IRS and DOL Guidance on Same-Sex Marriage Affects Employee Benefit Plans

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October 2, 2013

In United States v. Windsor, the Supreme Court of the United States struck down Section 3 of the Defense of Marriage Act ("DOMA"), which limited federal recognition of marriage to legal unions between one man and one woman (see our July alert). On August 29, the Internal Revenue Service ("IRS") released Revenue Ruling 2013-17 (followed by FAQs and Notice 2013-61) with respect to certain federal tax implications of the Windsor decision. Subsequently, on September 18, the Department of Labor ("DOL") issued Technical Release 2013-4 to provide guidance for employee benefit plans, sponsors, fiduciaries, participants, and beneficiaries, in particular.

Questions Answered by the Revenue Ruling and Technical Release

The Revenue Ruling and Technical Release addressed the following questions raised in our July alert:

How should an employer treat a same-sex couple who was legally married in a state that permits same-sex marriage, but resides or is employed in a state that does not recognize same-sex marriage?

The Revenue Ruling and Technical Release provide that, for purposes of enforcing the Internal Revenue Code (the "Code") and Employee Retirement Income Security Act ("ERISA"), both the IRS and DOL, respectively, will recognize a same-sex marriage that is valid in the state1 where it was celebrated, regardless of where either spouse is later domiciled or employed.2

Health and Welfare Plans
Employers that choose to provide same-sex spousal coverage under their health and welfare plans should review the provisions of those plans defining "marriage," "spouse," or any related terms to determine whether plan amendments are necessary to comply with the guidance. Summary plan descriptions, other benefit summaries, and administrative forms (e.g., enrollment forms and COBRA3 notices and forms) also may need to be revised. Health and welfare plans should adhere to any federal employee benefit or tax rules governing spouses, such as special enrollment and COBRA rights, and should not impose any additional burdens on employees with same-sex spouses, such as requiring them, but not employees with opposite-sex spouses, to provide a copy of their marriage certificate to receive spousal benefits.

Qualified Retirement Plans
Qualified retirement plans must treat a same-sex spouse as a spouse to comply with the Code and ERISA (e.g., spousal consent provisions). Both the DOL and the IRS intend to issue further guidance, with the IRS promising instruction on plan amendments required (including the timing thereof) and corrections related to operations for periods before such guidance is issued.

Can an employer with an insured health plan in a state that does not require coverage for same-sex spouses or a self-insured plan choose to provide coverage only to opposite-sex spouses?

It does not appear that either the Code or ERISA require employers to extend health and welfare benefits offered to opposite-sex spouses to same-sex spouses. The Technical Release is silent as to the issue. The Revenue Ruling is similarly quiet, though the IRS’s deputy associate chief counsel has remarked, unofficially, "[t]here's never any obligation for any employer to provide health-care coverage, and," subject to applicable anti-discrimination laws "they can carve in and out anyone." It is unclear whether or when reliable guidance from either agency regarding this question will come, but employers should expect litigation on the issue. Regardless, employers should note that choosing not to extend coverage may still expose them to discrimination claims4 and negative media attention.

Does the Windsor decision only have a prospective effect, or does it also have a retroactive effect (and if so, how far back)? If the decision has a retroactive effect, should claims be filed for refunds of FICA taxes paid by employers and employees on imputed income with respect to health and welfare plans?

Windsor has both prospective and retroactive effect. The Revenue Ruling applying Windsor became effective prospectively on September 16, 2013, and the Technical Release was effective as of September 18, 2013, its date of issuance.

Health and Welfare Plans
With respect to Windsor’s retroactive effect on health and welfare plans, the Technical Release is silent. The Revenue Ruling and FAQs, however, advise that past overpayments may be corrected as follows: 

  1. For tax years for which the applicable limitations period has not expired (generally 2010, 2011, and 2012), an employee with a same-sex spouse may file amended federal tax returns to claim a refund of any tax that was imposed on (a) the value of employer-provided health and welfare coverage that would have been excludable from income (commonly referred to as "imputed income") and (b) premiums that the employee paid on an after-tax basis for the health coverage of the employee’s same-sex spouse if the premiums would have been payable on a pre-tax basis under the employer’s cafeteria plan. 
  2. For tax years for which the applicable limitations period has not expired (generally 2010, 2011, and 2012), employers may claim a refund of any Social Security and Medicare taxes paid on benefits provided to a same-sex spouse. For 2013, employers may make an adjustment for federal income tax withholding that was over-withheld from employees' paychecks with respect to benefits for a same-sex spouse, but only if the employer has refunded the employees for the withholding prior to the end of 2013. Employers may not claim a refund for income tax withholding for prior years. IRS Notice 2013-61 establishes two special administrative procedures and forms for employers to file such claims.

Qualified Retirement Plans
With respect to Windsor's retroactive effect on qualified retirement plans, neither the Technical Release nor the Revenue Ruling addresses its application prior to their effective dates. Additional guidance, however, is expected. Notably, a federal district court in Pennsylvania has issued a decision (Cozen O'Connor v. Tobits) that applies the Windsor decision retroactively with respect to a qualified retirement plan. Specifically, the court in Tobits held that the same-sex spouse of a profit sharing plan participant who died in 2010 was the surviving spouse of the participant and, as such, was entitled to spousal death benefits under the plan. It is unclear whether the IRS or DOL will take the same approach with respect to retroactive application.

Unanswered Questions

How does Windsor affect beneficiary designations or distributions already made that would have required consent from a same-sex spouse?

IRS guidance is forthcoming.

How will states that have a state law equivalent to DOMA or incorporate DOMA into state law by reference react to the decision?

The Revenue Ruling and Technical Release apply only with respect to federal law. The state law implications of the Windsor decision are still unclear. The decision does not consider or affect Section 2 of DOMA (the "full faith and credit" provision), which provides that a state is not required to recognize same-sex marriages performed in another state. However, at least one federal district court (Obergefell v. Kasich in Ohio) has applied the Windsor analysis to undermine a state law prohibiting recognition of same-sex marriages performed in another state.

Further complicating the matter is the fact that several states, including some that recognize same-sex marriages and some that do not, follow federal tax law for purposes of state income tax filing marital status. State constitutions, state DOMA laws, and provisions linking state conformity with the Code only as of a certain date ultimately inform the overall consequences of these provisions, so employers should closely monitor state legislation or regulations on this issue.

If you have any questions about the content of this alert, please contact a member of our Employee Benefits team.
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1 "State" refers any state of the United States, the District of Columbia, any territory or possession of the United States, or any foreign jurisdiction with the legal authority to sanction marriages.
2 Neither the Revenue Ruling nor the Technical Release extend this recognition to registered domestic partnerships, civil unions, or other formal legal unions that do not rise to the status of marriage under state law.
3 Consolidated Omnibus Budget Reconciliation Act.
4 It is very much untested whether and to what extent any state anti-discrimination laws could apply under these circumstances. In addition, Congress is expected to vote on the proposed Employment Non-Discrimination Act, which would create a federal prohibition on employment discrimination based on sexual orientation, in the near future.


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