In a matter of first impression, a pending case before the Eastern District of Pennsylvania will determine the application of the Defense of Marriage Act (“DOMA”) to a private profit-sharing plan governed by ERISA. What will this mean for employers and their benefits plans?
Regardless of the Court’s decision, this case emphasizes the need for clear communication between employers and employee plan participants.
Facts In This Case
Cozen O’Connor v. Tobits involves a dispute over whether the wife of a former female Cozen O’Connor partner is able to collect her partner’s profit-sharing plan benefits under federal law. Sarah Ellyn Farley was an attorney in the Cozen O’Connor Chicago office. On February 17, 2007, Ms. Farley married Jennifer Tobits in Toronto, Canada. The following month, Ms. Farley was diagnosed with cancer.
On September 12, 2010, while Ms. Farley was hospitalized, she allegedly signed a beneficiary designation form naming her parents, David and Joan Farley, as her beneficiaries to her firm’s Profit Sharing Plan. Ms. Tobits did not sign the spousal consent portion of the beneficiary designation form. Ms. Farley passed away the following day.
Cozen O’Connor filed an interpleader action, asking the court to determine whether the approximately $41,000 in benefits were payable to the Farleys or to Ms. Tobits. Under the firm’s plan, 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. The plan defines “spouse” as the person to whom the participant was married throughout the one (1) year period ending upon 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 benefit is paid to the participant’s children, or if none, to the participant’s surviving parents.
Mr. and Mrs. Farley have argued that they are the beneficiaries of Ms. Farley’s plan as the DOMA limits “spouse” to a person of the opposite sex. Furthermore, as Cozen O’Connor is a Pennsylvania-based firm, the Pennsylvania statute defining marriage as between a man and a woman would disqualify Ms. Tobits from receiving benefits payable to Ms. Farley’s spouse.
Conversely, Ms. Tobits has argued that that the DOMA is irrelevant to determining the payment of Ms. Farley’s profit-sharing benefits. In other words, while DOMA states same-sex marriages are illegal, it does not control the interpretation of a private profit-sharing plan.
On its face, DOMA does not expressly apply to private contracts, such as ERISA plans. The Court will have to determine whether the interpretation of the “spouse” in Cozen O’Connor’s plan to include both opposite and same-sex spouses violates ERISA, as interpreted in accordance with DOMA.
In recent years, several courts have held that DOMA does not permit federal entities to deny employee benefits to legally married same-sex couples; however, Cozen O’Connor v. Tobits will be the nation’s first court decision regarding a private employer’s ability to extend benefits to same-sex couples under plans governed by ERISA.
Bottom Line for Business Leaders
Importantly, the holding in Cozen O’Connor vs. Tobits may impact employers, plan administrators, participants and beneficiaries. For example, if the Court holds that private employers cannot define “spouse” in their benefit plans to include same-sex spouses, an employer that desires to provide those benefits will have to establish a separate, non-spouse category of beneficiaries and determine the gender of each beneficiary to determine eligibility.
Unfortunately, followers of this closely-watched case will have to wait indefinitely for a decision. On September 25, 2012, Cozen O’Connor vs. Tobits was placed on the suspense docket, pending the outcome of other relevant cases and additional research on the pending motions that have been filed in the case.
Regardless of the Court’s ultimate decision and when it is rendered, however, the Cozen O’Connor vs. Tobits case emphasizes the need for clear communication between employers and employee plan participants. Going forward, employers are well-advised to remember to communicate their plan descriptions and the availability of benefits; failure to do so could result in claims by potential beneficiaries against the employers for breach of fiduciary duties.
Should you have any questions about this case or other employment law matters, please contact your legal counsel or one of the Employment Law attorneys at KingSpry.
Employment Law News is a publication of the KingSpry Employment Law Practice Group. It is meant to be informational and does not constitute legal advice.
