When the Supreme Court decided United States v. Windsor, 133 S. Ct. 2675 (2013), finding Section 3 of the Defense of Marriage Act (DOMA) unconstitutional for precluding recognition of same-sex marriage under federal law, the Court did not address the extent to which the decision would apply retroactively. More federal guidance may emerge, however, with Schuett v. FedEx, No. 15-cv-189 (N.D. Cal. 2015), the outcome of which could potentially impact numerous employers who relied on DOMA to deny employee or spousal benefits.
On January 14, 2015, Ms. Stacy Schuett filed suit in the Northern District of California against FedEx Corporation (FedEx), claiming the company improperly refused to pay a mandatory survivor benefit to her as the surviving spouse of a pension plan participant, Ms. Taboada-Hall. Under the Employee Retirement Income Security Act of 1974 (ERISA), the plan is required to provide a qualified pre-retirement survivor annuity to all married participants. The plan does not, however, provide any survivor benefits when an unmarried participant dies before retiring.
Ms. Schuett and Ms. Taboada-Hall were legally married in California on June 19, 2013. One day later, Ms. Taboada-Hall passed away. On November 26, 2013, Ms. Schuett submitted a claim for benefits under the plan, including a qualified preretirement survivor annuity worth $400,000. However, FedEx denied her claim, asserting that the plan only provides a pre-retirement death benefit to a "spouse" as defined by the plan. The plan defined spouse by reference to Section 3 of DOMA, and at the time of Ms. Taboada-Hall’s death, Section 3 of DOMA had not been overturned, meaning that the plan did not recognize Ms. Taboada-Hall's marriage. Ms. Schuett claims that FedEx may not rely on the now unconstitutional provision but must instead apply the current law, regardless of the date of death (the qualifying event). After all, Ms. Schuett did not file her claim for benefits until after Windsor had been decided. According to Ms. Schuett, then, because the plan would now recognize all spouses, including same-sex spouses, she is entitled to ERISA's mandatory survivor benefit.
In Windsor, the surviving same-sex spouse was able to recover a tax refund with interest because she had been denied the federal estate tax exemption for surviving spouses on the basis of an unconstitutional law, Section 3 of DOMA. The Court did not address whether the decision would apply retroactively,1 and particularly, whether it would apply retroactively in other areas, such as employee benefits. The IRS has stated its position. In Notice 2014-19, the IRS stated that retirement plans are not required to recognize same-sex spouses prior to June 26, 2013, the date of the Windsor decision.2 However, the IRS permits employers to amend their plans to reflect the outcome of Windsor prior to June 26. In other words, employers can provide retroactive benefits, but they are not required to do so.
It seems unlikely that the California district court, and perhaps ultimately the Supreme Court, would take a position different from the IRS. Nonetheless, employers should keep a close eye on the outcome of the decision. If the court finds that Windsor should be applied retroactively to employee benefits, it is possible that many other suits may be filed, and those suits may not be limited to surviving spouse benefits. For instance, an employee could also assert Family and Medical Leave Act (FMLA) claims where the employer denied him or her FMLA leave on the grounds that his or her same-sex spouse did not qualify as a spouse under the FMLA.
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1 In the tax context, there are timing rules for seeking tax refunds that would limit potential retroactive impact anyway.
2 "A retirement plan will not be treated as failing to meet the requirements of section 401(a) merely because it did not recognize the same-sex spouse of a participant as a spouse before June 26, 2013." IRS Notice 2014-19.