The U.S. Supreme Court declared the federal Defense of Marriage Act of 1996 (DOMA) unconstitutional on June 26, 2013. On the same day, the Court determined that challenges of the California Supreme Court’s decision on California’s Proposition 8 did not have standing. This leaves the California Supreme Court’s ruling that Proposition 8’s declaration that marriage can only occur between a man and a woman as unconstitutional intact. While it will take time to determine the full consequences of these rulings, they will have an impact on the tax treatment of benefits paid by SDCERS to members of same-sex marriages.
Defense of Marriage Act of 1996
For purposes of the Supreme Court's decision, DOMA established a federal definition for who is a spouse and what is a marriage. As a result, DOMA denied federal tax benefits to same-sex couples, even if the couple were legally married in states that recognize same-sex marriages. The Supreme Court’s decision specifically ruled that the federal definitions of "spouse" and "marriage" are unconstitutional. Therefore, same-sex spouses now are entitled to the same federal tax benefits as opposite sex spouses, including tax benefits related to retirement benefits, in all states that recognize same-sex marriage.
Generally speaking, SDCERS follows the provisions of California state law. To maintain its tax qualified status, however, SDCERS must also follow the requirements of federal law. If there is a conflict between state and federal tax qualification laws, SDCERS must comply with federal law.
It is important to note, the Supreme Court did not address the status of couples in a Registered Domestic Partnership (RDP) where state law, like California’s state law, treats an RDP as the equivalent of a marriage. Also, in the wake of the Supreme Court's decision, the IRS has not yet clarified the federal tax treatment for California RDPs; and until the IRS makes such a determination, SDCERS will continue to maintain the status quo for RDPs. This means that while same-sex marriages will be treated no differently than opposite-sex marriages, people in an RDP are not entitled to the same favorable federal tax treatment as persons who are married. For example, federal tax law allows a surviving spouse to delay taking a distribution from the plan until the member would have reached age 70 ½ whereas a non-spouse must take the distribution within no more than five years of the member’s death.
Proposition 8
In addition to its decision regarding the constitutionality of DOMA, the U.S. Supreme Court let stand the California Supreme Court’s decision striking down Proposition 8 as unconstitutional. Proposition 8 required that California should only recognize marriage between a man and a woman. As a result, the U.S. Supreme Court’s decision allowed same-sex marriages to resume in California.
While Proposition 8 was in effect, same-sex marriages were not recognized by California. Therefore,the member’s same-sex spouse was not eligible for the surviving spouse benefit, but would have been eligible if the couple had entered into an RDP.
Prospectively, an SDCERS member’s spouse in a same-sex marriage will be treated as a surviving spouse and will be eligible for the same federal tax treatment as if the couple were in an opposite sex marriage.
SDCERS’ legal staff, in coordination with outside tax and fiduciary legal counsel, is reviewing the Supreme Court ruling and will provide additional guidance on the impacts of these recent U.S. Supreme Court rulings related to your SDCERS benefits including what, if any, retroactive impact the decisions may have when the review is complete.