When is a Spouse not a Spouse? Court to Consider Applicability of DOMA to Spousal Benefits Under ERISA Plan
In the last two years, several courts have found that the Defense of Marriage Act ("DOMA")1 does not authorize federal entities to deny employee benefits to legally married same-sex couples.2 But no court has yet considered the scope of a private employer's ability to extend benefits to same-sex spouses under plans governed by ERISA - or more accurately, whether a plan's use of the word "spouse" is necessarily limited to opposite-sex spouses by the operation of DOMA. That is the issue before the Eastern District of Pennsylvania in Cozen O'Connor, P.C. v. Tobits and Farley (No. 11-00045-CDJ). The outcome of this case may have broad implications for employers, participants, and beneficiaries.3
The facts of the case are tragic. Sarah Ellyn Farley was an attorney in Cozen O'Connor's Chicago office. She was single when she began working at Cozen, and did not provide a beneficiary designation form when she began participating in the firm's Profit Sharing Plan. On February 17, 2006, Ms. Farley married Jennifer Tobits in Toronto, Canada. The next month, Ms. Farley was diagnosed with cancer, which later spread to her liver. On September 12, 2010, while Ms. Farley was hospitalized and allegedly under the undue influence of her parents, Joan and David Farley, she allegedly signed a beneficiary designation form naming the Farleys as her beneficiaries. Ms. Tobits did not sign the spousal consent section of the form, and the form was notarized next to a blank signature block. Ms. Farley died the next day.
Cozen O'Connor subsequently filed an interpleader action, asking the court to determine whether the death benefits were payable under the Plan to the Farleys or to Ms. Tobits. The Plan provides that a participant's surviving spouse is entitled to a death benefit unless the participant designates another beneficiary and the spouse waives the right to be the participant's beneficiary. "Spouse" is defined as the person to whom the participant was married throughout the one-year period ending on the earlier of the participant's benefit start date or the participant's death. If the participant has not designated a beneficiary and has no surviving spouse, the death benefit is paid to the participant's children or, if there are none, the participant's surviving parents.
Cozen admits that Ms. Tobits and Ms. Farley were married and that there is no valid beneficiary designation. No provision of the Plan excludes same-sex spouses as "spouses" within the meaning of the Plan. However, Cozen asserts, because the Plan provides that it "shall be construed and enforced according to" ERISA, the term "spouse" must be construed to exclude same-sex spouses, unless DOMA is unconstitutional.
There are several issues in the case (apart from state-law claims for undue influence, duress, and constraints against the Farleys). First, does DOMA mean that a private employer benefit plan cannot use the term "spouse" to encompass both same-sex and opposite-sex spouses? Second, is DOMA unconstitutional on its face and/or as applied to such a plan?4 Finally, if there is any doubt about whether a plan covers same-sex spouses, do the plan's fiduciaries have an obligation to inform participants - in the summary plan description or otherwise - of this fact?
DOMA states in relevant part that, with respect to any act of Congress or federal administrative agency action, the terms "spouse" and "marriage" must encompass only opposite-sex spouses and opposite-sex marriages. Thus, assuming arguendo that DOMA is constitutional, the protections given to "spouses" by ERISA apply only to opposite-sex spouses.5 But it does not follow that a private employer is therefore barred from providing benefits to same-sex spouses as such in an ERISA-governed plan. DOMA does not by its terms apply to private contracts, such as ERISA plans.6 The question, then, is whether interpreting the term "spouse" as used in a plan to include both same-sex and opposite-sex spouses would violate some provision of ERISA (as interpreted in accordance with DOMA).
In the Cozen case, Cozen and the Farleys argue that including same-sex spouses within the ambit of the term "spouse" in the Plan would violate ERISA § 205, 29 U.S.C. § 1055. Section 205 mandates that certain pension plans provide a death benefit to a spouse. Ms. Tobits argues that this simply means, in light of DOMA, that such plans must provide a death benefit to an opposite-sex spouse if one exists - but if there is no opposite-sex spouse, providing a death benefit to the same-sex spouse does not violate § 205. Put another way, while ERISA requires plan sponsors to provide certain protections to employees in opposite-sex marriages, neither ERISA nor DOMA preclude employers from voluntarily providing these protections to employees who are married to a same-sex spouse.
How the court decides this question is of importance to any employer that uses the word "spouse" in a benefit plan without specifying inclusion or exclusion of same-sex spouses. If the Cozen court finds that the term cannot be defined in a plan to include same-sex spouses, an employer that wishes to provide benefits to employees in same-sex marriages would have to establish a separate "non-spouse" category of beneficiaries and ascertain the sex of every spousal beneficiary in order to determine eligibility.7 Further, the Farleys' position could call into question the tax qualification of plans that use the word "spouse" to include same-sex spouses.
Regardless of what the Cozen court decides about the ability of private employers to use the term "spouse" when providing benefits to same-sex spouses, the case highlights the importance of clear communications with plan participants. Had Cozen told Sarah Ellyn Farley that her wife might not be considered a "spouse" under the Plan, or that whether she would be considered a spouse would turn on a court's determination of the applicability and/or constitutionality of DOMA, Ms. Farley would have submitted a valid beneficiary designation when she and Ms. Tobits got married (or so Ms. Tobits alleges). Ms. Tobits asserts that this failure to communicate rises to the level of a breach of fiduciary duty.
With six states and the District of Columbia issuing marriage licenses to same-sex couples - and other states giving same-sex domestic partners or civil union partners all the rights and obligations of spouses under state law - there is a reasonable probability that any given employer will have benefit plan participants legally married to a person of the same sex. These participants need and deserve to know whether their spouses are covered by their benefit plans.
It remains to be seen how long DOMA will remain on the books - the Department of Justice is no longer defending its constitutionality - but for the time being, employers would be wise to head off possible breach of fiduciary claims by first deciding what benefits their plans provide to same-sex spouses and then reviewing their plans and plan communications, including summary plan descriptions, to ensure that this decision is clearly and accurately communicated.
By: Nina Wasow, Lewis, Feinberg, Lee, Renaker & Jackson, Oakland, California, email@example.com, 510-839-6824
1 PL 104-199, 110 Stat. 2419 (1996).
2 See Gill v. Office of Personnel Management, 699 F. Supp. 2d 374 (D. Mass. 2010); In re Levenson, 560 F.3d 1145 (9th Cir. 2009); In re Golinski, 587 F.3d 956 (9th Cir. 2009).
3 Full disclosure: my firm, along with the National Center for Lesbian Rights and Jerner & Palmer, P.C., represents Ms. Tobits
4 The constitutional issue is examined in Gill, supra, and is beyond the scope of this article.
5 ERISA does not define the term "spouse."
6 Baldwin v. University of Pittsburgh Medical Center, 636 F.3d 69, 75 (3d Cir. 2011); In re Unisys Corp. Long-Term Disability Plan ERISA Litig., 97 F.3d 710, 715 (3d Cir. 1996).
7 This reading of DOMA would seem to contradict federal policy in favor of minimizing burdens on private-employer plans in order to encourage the provision of benefits. See Egelhoff v. Egelhoff, 532 U.S. 141, 147-48 (2001) (noting "core ERISA concern" to avoid interference with fiduciary administration of plans in accordance with their governing documents, and holding state law preempted where it would "bind ERISA plan administrators to a particular choice of rules for determining beneficiary status").