CRS Analyzes Limits of Retirement Benefits for Same-Sex Spouses

This report provides an overview of how the ban on recognition of same-sex marriage by the federal government potentially affects retirement income security of these couples. The legalization of same-sex marriage in five states and Washington, DC, may affect the eligibility for and payment of federal Social Security benefits, private pensions, and Individual Retirement Accounts (IRAs). Social Security benefits are currently paid to the spouses of disabled, retired, or deceased workers entitled to Social Security. However, under current law, same-sex spouses are not eligible for Social Security benefits because they are unable to meet the gender-based definitions of "wife" and "husband" in the Social Security Act and the gender-based definition of "marriage" established by the Defense of Marriage Act (DOMA; P.L. 104-199). Federal employee pensions and private-sector pensions regulated by the Employee Retirement Income Security Act (ERISA; P.L. 93-406) are required to provide certain benefits to the spouse of a participant in the event of the participant's death. Under DOMA, both federal pensions and private-sector pensions regulated by ERISA are required to define a spouse only as "a person of the opposite sex who is a husband or a wife." In addition, IRA benefits available to spouses are not available to same-sex spouses as IRAs are regulated by the Internal Revenue Code. Under DOMA, the IRS does not recognize same-sex marriages.

This report will be updated as legislative activity warrants.

                            Contents

The legalization of same-sex marriage in five states and Washington, DC, and the recognition in three states of same-sex marriages performed in other jurisdictions has caused some to question how the legalization of such marriages at the state level may affect the eligibility for federal Social Security benefits, private pensions, and Individual Retirement Accounts (IRAs).¹ Social Security benefits are currently paid to the spouses of disabled, retired, or deceased workers entitled to Social Security. However, under current law, same-sex spouses are not eligible for Social Security benefits because they are unable to meet the gender-based definitions of "wife" and "husband" in the Social Security Act and the gender-based definition of "marriage" established by the Defense of Marriage Act (DOMA; P.L. 104-199). Federal employee pensions and private-sector pensions regulated by the Employee Retirement Income Security Act (ERISA; P.L. 93-406) are required to provide certain benefits to the spouse of a participant in the event of the participant's death. IRAs are regulated by the Internal Revenue Code (IRC). The IRC allows individuals to make IRA contributions on behalf of a non-working spouse and also allows spouses to acquire the IRA of a deceased IRA owner. Under DOMA, federal pensions, private-sector pensions, and IRAs are required to define a spouse only as "a person of the opposite sex who is a husband or a wife."

Spousal Benefits in Social Security

Generally, Social Security benefits are payable to the spouses of retired, disabled, or deceased workers covered by Social Security. The spousal benefit is equal to 50% of the retired or disabled worker's benefit and 100% of the deceased worker's benefit.

The Social Security Act generally defers the determination of whether a marriage is valid for the purpose of qualifying for spousal or survivor benefits to the state of residence of the worker.² One might interpret this deferral to the state-level definition of marriage as permitting a same-sex spouse to be eligible for Social Security spousal benefits if such marriages are legal in that state. However, the definitions of "wife" and "husband" in the Social Security Act rely on gender-specific pronouns. The Social Security Act defines a person as the "wife" of an individual if she either (1) is the mother of his son or daughter; (2) is married to him for at least a year before filing for benefits; or (3) in the month prior to her marriage to him was entitled to (or if she had applied and been old enough would have been entitled to) Social Security benefits as a spouse, widow, parent, or disabled child.³ Similarly, the act defines a person as the "husband" of an individual if he either (1) is the father of her son or daughter; (2) is married to her for at least a year before filing for benefits; or (3) in the month prior to his marriage to her was entitled to Social Security benefits as a spouse, widow, parent or disabled child.⁴ The Social Security Administration (SSA) interprets this use of gender-specific pronouns as an indication that Congress did not intend same-sex spouses or survivors to be eligible for Social Security benefits.⁵

Regardless of the SSA position, DOMA established the legal definition of "marriage" as only a legal union between one man and one woman as husband and wife, and defined a "spouse" as only a person of the opposite sex who is a husband or wife when determining the meaning of any act of Congress, ruling, regulation, or interpretation by federal agencies. The SSA must use this federal definition of marriage when interpreting the Social Security Act. Therefore, the legalization of same-sex marriage at the state level has no effect in determining the validity of marriage for Social Security purposes.⁶ Apart from the definition of marriage, the Social Security benefits structure is gender neutral. Eligibility for, and the amount of, benefits are determined without reference to gender. For example, similarly placed widows and widowers are entitled to the same survivor benefits should the worker predecease the spouse.

States generally recognize as valid marriages contracted in other states even if not allowed in their own state. For example, some states allow common-law marriage while many do not. However, states that do not allow common-law marriage do recognize common-law marriages contracted in those states that permit them. In the debate over DOMA, Congress anticipated that states that might have to recognize same-sex marriages performed in other states.⁷ Section 2 of DOMA allows states to refuse to recognize same-sex marriages performed in other jurisdictions.

Federal Employee Pensions

Federal employees with permanent appointments are eligible for retirement and disability benefits under either the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). All federal employees initially hired into permanent federal employment on or after January 1, 1984, are covered by FERS. Employees hired before January 1, 1984, are covered by CSRS unless they chose to switch to FERS during open seasons held in 1987 and 1998. FERS consists of two benefits: (1) Basic Benefit, which is a defined benefit plan that provides a monthly annuity that is calculated based on an employee's length of service and highest three years of salary; and (2) the Thrift Saving Plan (TSP), which is a defined contribution plan in which employee contributions (and agency match up to a limit) accrue in a investment account to be used for retirement income. CSRS is a defined benefit plan. Workers covered by CSRS may also contribute to the TSP, although they do not receive an agency match.

Both FERS and CSRS provide survivor benefits for the spouse and dependent children of a deceased federal employee or retiree.⁸ Current or former spouses may be entitled to receive monthly survivor annuities. Title 5 of the U.S. Code, which governs benefits under CSRS and FERS, defines the term "spouse" without reference to the individual's gender. Title 5 does not define the word "marriage"; however, the Code of Federal Regulations defines "marriage" for purposes of determining eligibility for federal retirement benefits under Title 5 as "a marriage recognized in law or equity under the whole law of the jurisdiction with the most significant interest in the marital status of the employee, member, or retiree unless the law of that jurisdiction is contrary to the public policy of the United States."⁹

Because federal employee retirement benefits under both CSRS and FERS are subject to the statutory interpretation required by DOMA, in determining eligibility for survivor or dependant benefits under CSRS or FERS, "the word 'spouse' refers only to a person of the opposite sex who is a husband or a wife."¹⁰ A same-sex spouse is ineligible to receive a spousal or survivor annuity.

Although a federal employee cannot name a domestic partner as his or her surviving beneficiary under either FERS or CSRS, an employee who is applying for a non-disability retirement can elect an Insurable Interest Annuity (IIA), which is a survivor annuity to an individual who is financially dependant on the employee. Only one person may be named as the beneficiary of the IIA, and the election must be made at the time of retirement. The employee must establish, through one or more affidavits from other people, the reasons why the beneficiary might reasonably expect to suffer loss of financial support as a result of the employee's death. The cost of an IIA can range from a 10% reduction in the employee's retirement annuity if the beneficiary is 10 years younger than the employee to a 40% reduction if the beneficiary is 30 or more years younger.

Under both FERS and CSRS, an employee may designate anyone, including a domestic partner or same-sex spouse as his or her beneficiary for a lump-sum refund of retirement contributions to the retirement system. However, if anyone qualifies to receive survivor annuity benefits by law (such as a spouse or dependent child), retirement contributions cannot be refunded.

A federal employee also can name anyone, including a domestic partner or same-sex spouse, as the beneficiary under the TSP, and he or she can designate anyone as the beneficiary under the Federal Employee Group Life Insurance (FEGLI) program. If an employee does not designate one or more beneficiaries under FERS, CSRS, FEGLI, or the TSP, the funds will be distributed based on the order of precedence. The order of precedence awards the benefits in the following order: widow or widower; child or children equally, and to the descendants of deceased children; parents equally or surviving parent; appointed executor or administrator of estate; or next of kin who is entitled to your estate under the laws of the state in which the employee resided at the time of death. Thus, the funds from these accounts will bypass a same-sex spouse unless the federal employee actively designates the same-sex spouse as the beneficiary.

Private-Sector Pensions

Employers in the private sector are not required to offer pension benefits, but those that do must comply with the Employee Retirement Income Security Act (ERISA, P.L. 93-406). Section 514(a) of ERISA provides that the law preempts all state laws relating to employee benefits that are covered by ERISA.¹¹ Employer-sponsored pension plans also must comply with the relevant provisions of the Internal Revenue Code (IRC) in order to qualify for the preferential tax treatment granted to qualified pension plans.¹² Under the IRC, a tax-qualified defined-benefit pension must provide a married participant with a qualified pre-retirement survivor annuity (QPSA) while working and a qualified joint and survivor annuity (QJSA) at retirement.¹³ A married participant must obtain his or her spouse's written approval either to waive a QJSA or a QPSA or to use a pension benefit as security for a loan.¹⁴ Defined-contribution plans, such as § 401(k) plans, pay the account balance to the designated beneficiary if the participant dies. The employee's spouse is the automatic beneficiary of the employee's account upon his or her death unless the employee has designated another beneficiary. The spouse's consent is not required in order for a participant in a defined-contribution plan to designate another beneficiary or beneficiaries in the event of the participant's death.

In administering federal income taxes, the Internal Revenue Service (IRS) has historically maintained that an individual is considered to be a "spouse" if the applicable state law recognizes the relationship as a marriage. If, for example, state law recognizes common-law marriages as legal, an employer in that state will be required to recognize an employee's common-law spouse as his or her legal spouse and IRS will recognize the marriage as valid. The IRS has never recognized same-sex marriages for income tax purposes, and DOMA prohibits it from doing so, regardless of any state law. Moreover, while an employer may voluntarily extend benefits to the same-sex domestic partners of its employees, DOMA supersedes state or local laws that would require an employer to recognize a same-sex partner as an employee's spouse for purposes of administering employer-sponsored retirement plans.

As noted above, tax-qualified pension plans are required to provide a qualified joint-and-survivor annuity to a married participant and spouse, unless both spouses decline the QJSA in writing. Because DOMA prohibits employers from recognizing same-sex marriage for purposes of administering pension plans, a plan cannot require a participant with a same-sex partner to take a QJSA as the normal form of benefit, even if state law recognizes the same-sex partner as a spouse.¹⁵

DOMA provides that, in interpreting any federal statute, ruling, or regulation -- including, for example, ERISA and the Internal Revenue Code -- a spouse can only be a person of the opposite sex who is a husband or wife. Consequently, a pension plan cannot be required to recognize a same-sex spouse even if same-sex marriages are permitted under state law.¹⁶ Some benefits specialists have suggested that because Section 514(a) of ERISA preempts state laws that relate to employee benefits covered by ERISA, ERISA would therefore preempt any state law requiring the plan to recognize same-sex marriage for purposes of administering pension benefits. However, whether ERISA alone would preempt state laws recognizing same-sex marriage is irrelevant because DOMA prohibits recognition of same-sex spouses in the interpretation and application of federal law.

Individual Retirement Accounts

Individuals who have taxable income from work can establish Individual Retirement Accounts (IRAs).¹⁷ Some benefits are available only to a spouse of IRA owners: (1) a spouse of an IRA owner may be able to make contributions greater than would be allowed if not married and (2) a spouse may treat a deceased IRA owner's IRA as his or her own IRA.

Taxpayers may contribute the lesser of their taxable compensation or $5,000 ($6,000 if aged 50 or older). In general, individuals without taxable compensation may not make contributions to IRAs. An exception is that working individuals who are married and filing joint returns may make contributions to a non-working spouse's IRA. The contribution limit to the non-working spouse's IRA is the lesser of $5,000 ($6,000 if the spouse is aged 50 or older) or the household's adjusted gross income less any contributions to the working spouse's IRA. Thus, a married couple may potentially make total IRA contributions up to $10,000 (if both are under aged 50), $11,000 (if one is aged 50 or older), or $12,000 (if both are aged 50 or older). Because DOMA prohibits the IRS from recognizing same-sex spouses, contributions to a non-working, same-sex spouse's IRA are not allowed and could be considered "excess contributions" that would be subject to a 6% penalty tax if not withdrawn from the IRA before the spouse's tax return is due.

When an IRA owner dies, a spouse who is the sole beneficiary of the IRA may elect to (1) treat the IRA as his or her own IRA, (2) roll the IRA over into his or her own IRA or possibly into a qualified retirement plan, or (3) treat the IRA as a "beneficiary IRA." Only the spouse of deceased IRA owner may elect to treat the IRA as his or her own or roll the IRA over. A spouse that treats the IRA as his or her own may make contributions to the IRA, may not make withdrawals without penalty before the age of 59 1/2, and is subject to Required Minimum Distribution (RMD) rules beginning at age 70 1/2. The RMD is a required withdrawal in which a specified percentage of the IRA must be withdrawn each year. Owners of beneficiary IRAs cannot treat beneficiary IRAs as their own. Beneficiary IRAs cannot receive contributions or rollover any amounts into or out of the IRA. Beneficiary IRAs are subject to RMD rules beginning in the year in which the beneficiary IRA is received. However, amounts withdrawn from beneficiary IRAs are not subject to the additional 10% penalty for early withdrawals. Because DOMA prohibits the IRS from recognizing same-sex marriages, a same-sex spouse may not elect to treat the IRA as his or her or own or roll the IRA over. However, the owner of a IRA may designate anyone, including a same-sex spouse, as the beneficiary of the IRA.

Gill vs. Office of Personnel Management Challenge to DOMA

There have been several court challenges to DOMA.¹⁸ Several married couples in Massachusetts have challenged the constitutionality of Section 3 of DOMA, which defines marriage as a union between a man and a woman for the purpose of acts of Congress and the federal government. Among the plaintiffs are same-sex spouses who have been denied Social Security spousal benefits and the ability to make contributions to an IRA on behalf of a same-sex spouse. On July 8, 2010, the United States District Court in Massachusetts ruled that Section 3 of DOMA violates the Due Process Clause of the Fifth Amendment to the U.S. Constitution.¹⁹

Bills in the 111th Congress

Several bills were introduced in the 111th Congress to address same-sex marriage issues.

H.J.Res. 72, introduced by Representative Jason Chaffetz on January 26, 2010, would have expressed the House of Representative's disapproval of the legalization of same-sex marriage by the Washington, DC, City Council.

H.J.Res. 37, introduced by Representative Daniel Lungren on March 16, 2009, and H.J.Res. 50, introduced by Representative Paul Broun on May 7, 2009, were proposed constitutional amendments that would have defined marriage in the United States as a legal union of one man and one woman.

H.J.Res. 72, introduced by Representative Lamar Smith on August 10, 2010, would have expressed the House of Representative's disapproval of U.S. District Court Judge Vaughn R. Walker's decision to strike down California's Proposition 8. Proposition 8 amended the California constitution to prohibit same-sex marriage in the state.

H.R. 1269, the Marriage Protection Act of 2009, introduced by Representative Dan Burton on March 3, 2009, would have denied federal courts jurisdiction to hear or decide any question pertaining to DOMA.

H.R. 2517, the Partnership Benefits and Obligations Act of 2009, introduced by Representative Tammy Baldwin on May 20, 2009, and S. 1102, the Domestic Partnership Benefits and Obligations Act of 2009, introduced by Senator Joseph Lieberman on May 20, 2008, would have extended specified spousal benefits to registered domestic partners of federal employees.

H.R. 2608, introduced by Representative Jim Jordan on May 21, 2009, would have defined marriage in the District of Columbia as the union of one man and one woman.

H.R. 3567, the Respect for Marriage Act of 2009, introduced by Representative Jerald Nadler on September 15, 2009, would have (1) repealed DOMA and (2) required, for the purposes of federal law, that an individual be considered married if the marriage was valid in the state in which the marriage was entered.

H.R. 4434, the District of Columbia Referendum on Marriage Act of 2010, introduced by Representative Jason Chaffetz on January 13, 2010, and S. 2980, companion legislation introduced by Senator Robert Bennett on February 2, 2010, would have required the District of Columbia to hold a referendum before issuing marriage licenses to same-sex couples.

H.R. 6569, the Equity in Social Security Act of 2010, introduced by Representative Linda Sanchez on December 21, 2010, would have allowed for the treatment of permanent partnerships between individuals of the same gender as marriage in order to determine entitlement to Social Security benefits.

Author Contact Information

Laura Haltzel and Patrick Purcell were the original authors of this report.

² 42 U.S.C.416(h).

³ 42 U.S.C. 416(b).

⁴ 42 U.S.C. 416(f).

⁵ See Section GN 00305.005 of the SSA Program Operations Manual System, Paragraph B(5). This manual is used by SSA employees to administer federal law, regulations, and rulings.

⁶ Some have challenged the constitutionality of the Defense of Marriage Act. This legal question is beyond the scope of this report. Readers interested in this issue should refer to CRS Report RL31994, Same-Sex Marriages: Legal Issues, by Alison M. Smith.

⁷ See U.S. Congress, House Committee on Judiciary, Defense of Marriage Act, report to accompany H.R. 3396, 104th Cong., 2nd sess., H.Rept. 104-664, (Washington: GPO, 1996), p. 2.

⁸ See CRS Report RS21029, Survivor Benefits for Families of Civilian Federal Employees and Retirees, by Katelin P. Isaacs.

⁹ See 5 C.F.R. § 831.603 and 5 C.F.R. § 843.102.

¹⁰ 1 U.S.C. § 7.

¹¹ 29 U.S.C. § 1144(a).

¹² Employer contributions to a qualified plan are a tax-deductible expense for the employer and are not included in the income of the employee.

¹³ 26 U.S.C. § 401(a)(11) and § 401(a)(17).

¹⁴ 26 U.S.C. § 417(a) and Treasury Regulation § 1.401(a)-20, A-24, respectively.

¹⁵ Some analysts have suggested that because the IRC does not restrict who is considered to be a "survivor," a plan could require a same-sex partner's consent to name anyone else as the recipient of a death benefit or contingent annuity, even though the plan could not require a retiring participant with a same-sex partner to take a qualifying joint and survivor annuity instead of a single-life annuity. See Neal S. Schelberg and Carrie L. Mitnick, "Same-Sex Marriage: Implications for Employee Benefit Plans," Employee Benefits Journal, vol. 29, no. 2, June 2004.

¹⁶ For example, because DOMA prohibits recognition of same-sex marriage, an employer could not be required to comply with a qualified domestic relations order (QDRO) from a state court in which a spouse in a same-sex marriage was named as an alternate payee of a pension benefit.

¹⁷ For more information on eligibility for and contributions to IRAs see CRS Report RL34397, Traditional and Roth Individual Retirement Accounts (IRAs): A Primer, by John J. Topoleski.

¹⁸ For further discussion of challenges to DOMA see CRS Report RL31994, Same-Sex Marriages: Legal Issues, by Alison M. Smith.

¹⁹ See Gill vs. Office of Personnel Management, filed in United States District Court for the District of Massachusetts, case number 1:09-cv-10309-JLT. The July 8, 2010, decision is available at http://docs.justia.com/cases/federal/districtcourts/massachusetts/madce/1:2009cv10309/120672/70/.