1. www.mwe.com Boston Brussels Chicago Düsseldorf Frankfurt Houston London Los Angeles Miami Milan Munich New York Orange County Paris Rome Seoul Silicon Valley Washington, D.C. Strategic alliance with MWE China Law Offices (Shanghai) © 2013 McDermott Will & Emery. The following legal entities are collectively referred to as "McDermott Will & Emery," "McDermott" or "the Firm": McDermott Will & Emery LLP, McDermott Will & Emery AARPI, McDermott Will & Emery Belgium LLP, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, McDermott Will & Emery Studio Legale Associato and McDermott Will & Emery UK LLP. These entities coordinate their activities through service agreements. This communication may be considered attorney advertising. Previous results are not a guarantee of future outcome. Employee Benefits and Legal Advocacy for LGBT Diversity Post-DOMA Out & Equal Workplace Summit October 7, 2015 Brian J. Tiemann btiemann@mwe.com 312.984.3268

2. www.mwe.com2 Overview  Background  Retirement Plans  Health and Welfare Plans  Taxation of Benefits  Unmarried Partner Benefits  Transgender Benefits  Other Emerging Benefits  Global Coordination of Benefits  Future of Legal Advocacy  Your Questions

3. Federal Law  The federal Defense of Marriage Act (DOMA) was enacted in 1996. – Section 3 provided that, for purposes of federal law, “marriage” means only a legal union between one man and one woman as husband and wife, and “spouse” refers only to a person of the opposite sex. – Section 2 allows states to refuse to recognize other states’ same-sex marriages. www.mwe.com3

4. 4 United States v. Windsor  Edith Windsor and Thea Spyer had been together for over 40 years and were married in Toronto in 2007. The marriage was legally recognized in their home state of New York.  After Spyer died in 2009, Windsor was required to pay over $350,000 in federal estate taxes because Windsor and Spyer were not recognized as married under federal law.  Windsor filed a lawsuit challenging Section 3 of DOMA as an unconstitutional violation of the Equal Protection Clause of the Fifth Amendment of the U.S. Constitution.  In June 2012, the U.S. District Court for the Southern District of New York ruled that Section 3 of DOMA was unconstitutional because it lacked a rational basis to support the unequal treatment of opposite-sex and same-sex spouses.  In October 2012, the Second Circuit Court of Appeals affirmed the District Court ruling, finding that Section 3 of DOMA does not withstand “intermediate scrutiny” because it is not substantially related to an important government interest.  In July 2013, the U.S. Supreme Court ruled that Section 3 of DOMA was unconstitutional "as a deprivation of the liberty of the person protected by the Fifth Amendment.” Section 2 was untouched.

5. www.mwe.com5 Federal Recognition Post-Windsor  Section 2 of DOMA remained valid law. Section 2 of DOMA stipulated that no state shall be required to recognize a same-sex relationship that is considered a legal marriage in another state, or to recognize a right or claim arising from such a relationship.  Federal law generally defers to state law definitions of marriage. As a result of Windsor, same-sex spouses married in a jurisdiction where same-sex marriage is legal were recognized for purposes of federal law, even if their marriage was not recognized in the couple’s state of residence. This was referred to as a “state of celebration” approach.

6. www.mwe.com6 Obergefell v. Hodges  The ruling consolidated four cases challenging a state’s refusal to recognize same-sex marriages from other jurisdictions or a state’s refusal to license same-sex marriages. – Obergefell v. Hodges – a same-sex couple in which one partner was terminally ill challenged Ohio’s refusal to recognize their marriage validly entered into in Maryland. – Tanco v. Haslam - four same-sex couples challenged Tennessee's refusal to recognize their marriages validly entered into in California and New York. – Bourke v. Beshear – four same-sex couples and their children challenged Kentucky’s refusal to recognize their marriages validly entered into in California, Connecticut, Iowa and Canada. – DeBoer v. Snyder – a same-sex couple and their children challenged Michigan’s ban on same-sex marriage which prevented the couple from being able to legally adopt their children.  On June 26, 2015, the U.S. Supreme Court ruled that state laws banning same-sex couples from exercising the fundamental right to marry and prohibiting the recognition of marriages validly entered into in other jurisdictions violate the due process and equal protection guarantees of the Fourteenth Amendment of the U.S. Constitution.

7. www.mwe.com7 Federal and State Recognition Post-Obergefell  The ruling requires all states to (1) permit same-sex couples to marry and (2) recognize same-sex marriages validly performed in other jurisdictions.  Prior to Obergefell, same-sex marriage was legal in 37 states and the District of Columbia. The ruling legalized same-sex marriage in the remaining 13 states.  The ruling did not create federal recognition of unmarried partners. Same-sex or opposite- sex partners in a civil union or domestic partnership will not be recognized under federal law and therefore are not afforded federal spousal benefits or protections.

8. www.mwe.com8 Impact on Retirement Plans  Defined Contribution Plans – Participants typically can name any party as beneficiary However, a spouse must consent to the designation of any beneficiary. A beneficiary designation without the spouse’s consent is invalid. A participant’s same-sex spouse will be the default beneficiary in the event the participant dies without having named a beneficiary. – A participant will be able to obtain a hardship withdrawal for IRS-recognized expenses related to a same-sex spouse if the plan permits optional hardship withdrawals. Pension Protection Act of 2006 (PL 109-280) provided hardship withdrawal rights for domestic partners and same-sex spouses who are named beneficiaries under the plan. The hardship withdrawal provision is optional and only takes effect if the plan sponsor chooses to implement it. – A same-sex spouse may need to consent to plan loans if the plan offers optional loans and requires spousal consent.

9. www.mwe.com9 Impact on Retirement Plans (cont.)  Defined Benefit Plans – Generally must offer married participants payment in the form of a qualified joint and survivor annuity (QJSA) with pre-retirement spousal death benefit (QPSA) coverage. A same-sex spouse must consent to payment in a form other than the QJSA with the same-sex spouse as the annuitant. An election without the spouse’s consent is invalid. A same-sex spouse must be offered a QPSA if the participant dies prior to benefit commencement. – Defined benefit plans may offer distribution forms with a Social Security offset so that the total retirement benefit is approximately equal for participants retiring prior to Social Security benefit eligibility. The offset may need to be recalculated because the Social Security benefit may vary if the participant is married which may alter the amount of the plan benefit payable before and after Social Security eligibility. – The addition of same-sex spouses may impact the plan’s funding requirements if there are employer-subsidized benefits. Plan sponsors should consult with their actuaries.

10. www.mwe.com10 Impact on Retirement Plans (cont.)  All Retirement Plans – Retroactive Benefit Claims Plan sponsors are receiving retroactive benefit claims from participants with a same-sex spouse who was not recognized at the time payments began or from surviving same-sex spouses. – QDROs Same-sex spouses who divorce may enter into a qualified domestic relations order (QDRO) to divide retirement plan assets. QDROs are generally not available to unmarried same-sex partners. – Rollovers Same-sex spouses will have the right to directly roll over eligible rollover distributions and must be notified of their rollover rights. The Pension Protection Act of 2006 (PL 109-280) provided rollover rights to an inherited IRA effective in 2010 for domestic partners and same-sex spouses who are named beneficiaries under the plan. – Required Minimum Distributions Required minimum distributions may need to be recalculated now that the participant has a legal spouse and can be delayed for a surviving same-sex spouse.

11. www.mwe.com11 Impact on Retirement Plans (cont.)  Retirement Plan Amendments – Amendments were required for plans that define “marriage” by reference to DOMA or “spouse” as an individual of the opposite-sex. Plans also must be amended if same-sex spouses will be recognized for plan purposes prior to June 26, 2013. – Amendments were not required for plans that define “marriage” or “spouse” in a manner that is not inconsistent with Windsor. But an amendment may be desirable depending on how retroactive claims will be handled. – All Windsor amendments generally must have been adopted by December 31, 2014.

12. www.mwe.com12 Impact on Health and Welfare Plans  Insured Plans – Same-sex spouses must be extended spousal benefit coverage under insured medical, dental or vision plans. – State law benefit mandates may require coverage to be extended to unmarried same- sex partners.  Self-Insured Plans – Same-sex spouses technically are not required to be extended spousal benefit coverage under self-insured plans because federal law does not require spousal welfare benefit coverage and state insurance law mandates do not apply. – Employers that continue to provide coverage only to opposite-sex spouses face significant risk of legal challenges under federal discrimination law.

13. www.mwe.com13 Impact on Health and Welfare Plans (cont.)  Change in Coverage – Employees who marry are recognized as having a “change in status” event for purposes of adding coverage for a same-sex spouse outside of the annual open enrollment period. Any coverage changes must be made within 30 days of the date of the marriage. – Employees who were married prior to the Obergefell ruling likely will not be recognized as having a “change in status” event as a result of the ruling because the marriage was already recognized under federal law. These employees may make changes only during annual enrollment or if they otherwise experience an event that constitutes a change in status.  COBRA Continuation Coverage – Same-sex spouses have COBRA continuation coverage rights.

14. www.mwe.com14 Federal and State Tax Issues  Federal Taxation Post-Windsor – Employees no longer pay federal income and employment tax for income imputed on the fair market value of employer-provided benefit coverage for a same-sex spouse. – Employees can pay for same-sex spouse’s coverage using pre-tax contributions under a Section 125 cafeteria plan. – Employees can take tax-free reimbursements for same-sex spouse’s expenses from flexible spending accounts (FSAs), health reimbursement accounts (HRAs) and health savings accounts (HSAs). – Favorable federal tax treatment will not extend to unmarried same-sex partners unless the partner meets the Tax Code definition of “dependent.” – Some employers providing gross-ups to cover the employee portion of federal (and possibly state) income and employment taxes on benefits for same-sex spouses and partners eliminated gross ups now that the tax inequality is eliminated for same-sex spouses.

15. www.mwe.com15 Federal and State Tax Issues (cont.)  State Taxation Pre-Obergefell – DOMA states: In states that did not recognize same-sex relationships, employees were required to pay for a same-sex spouse or partner’s coverage using after-tax (for state purposes) dollars. Employers were required to impute income for state tax purposes for the fair market value of a same-sex spouse or partner’s coverage. – Other states: In states that recognized same-sex marriages or that had special laws favoring same-sex couples, employees were permitted to pay for a same-sex spouse or partner’s coverage using pre-tax (federal and state) dollars. Employees in these states did not pay state income tax on the fair market value of a same-sex spouse or partner’s coverage. – States without a state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington and Wyoming.

16. www.mwe.com16 Federal and State Tax Issues (cont.)  State Taxation Post-Obergefell – Employees in all states will no longer pay state income tax for income imputed on the fair market value of employer-provided benefit coverage for a same-sex spouse. – Employees in all states may pay for a same-sex spouse’s benefit coverage using pre- tax (for state purposes) dollars. – Employers must stop imputing income for the value of benefit coverage for same-sex spouses in the states where they were required to impute income prior to the ruling. – Income required to be imputed for state tax purposes in 2015 prior to the Obergefell ruling must be reversed before 2015 Form W-2s are issued in January 2016. – Employees may elect to file amended state tax returns to claim refunds on state income taxes paid on same-sex spousal benefits in prior open tax years (usually three years). – Benefit coverage for an unmarried partner will continue to be subject to state taxation unless the state has special laws exempting such coverage from taxation.

17. Unmarried Partner Benefits  State law benefit mandates may require coverage under insured plans to be extended to unmarried same-sex partners. – California – domestic partnerships – Colorado – civil unions – District of Columbia – domestic partnerships – Hawaii – civil unions – Illinois – civil unions – Nevada – domestic partnerships – New Jersey – civil unions and domestic partnerships – Oregon – domestic partnerships – Washington – domestic partnerships www.mwe.com17

18. Unmarried Partner Benefits (cont.)  Domestic partner benefit plans that have covered only same-sex unmarried couples may be phased out. – With no legal barriers to same-sex marriage, employers may eliminate benefits for unmarried partners, which are complex to administer due to tax and other administrative reasons, such as the proof process. – Many of these plans only exist because same-sex couples traditionally have been denied the right to marry (and even when they have had the right to marry, those marriages have not been recognized everywhere). – In the event employers eliminate such benefits, a key consideration is timing. For example, many employers will want to give a grace period during which an employee can get married before having his or her partner dropped from the employer's benefits. www.mwe.com18

19. Unmarried Partner Benefits (cont.) – Elimination of domestic partner benefits is likely to be viewed as a takeaway in many circles, particularly among long-time partners who have no desire to marry after years of being denied access to the institution of marriage. – Retaining same-sex couple only plans after the Supreme Court decision raises a “reverse” discrimination issue of potential sex discrimination against unmarried opposite-sex couples who are denied benefits in the future. – Some employers provided gross-ups to cover the employee portion of federal (and possibly state) income and employment taxes on benefits for same-sex partners. Employers that continue to provide benefits to unmarried same-sex partners are unlikely to continue providing gross-ups (if they have not eliminated gross-ups already). www.mwe.com19

20. Unmarried Partner Benefits (cont.)  Domestic partner benefit plans that have covered both same-sex and opposite- sex unmarried couples may be less likely to be phased out. – Many employers do not feel comfortable "legislating" marriage to their employees and may want to continue providing coverage to all unmarried partners, regardless of the right to marry. – On the other hand, even though a majority of domestic partner benefit plans cover opposite-sex partners as well as same-sex partners, the fact is that many plans did so as a way to "de-politicize" the issue and to find a way to add domestic partners benefits in a way that was not obviously taking a stance on gay and lesbian issues. – Domestic partner benefit plans can be complex to administer. – Some employers may use this opportunity to eliminate unmarried partner benefits for all employees, which may be viewed as a takeaway by opposite-sex couples who have had no change in legal rights but experienced a loss in coverage. www.mwe.com20

21. 21 Transgender Benefit Coverage  More and more employers are adding or considering this benefit.  Human Rights Campaign Foundation’s 2012 Corporate Equality Index requires health coverage to include transgender-specific treatments (mitigating “medically necessary” and “cosmetic” exclusions) in order for the employer to receive a 100% rating.  It can be difficult to work with insurers/providers to add this benefit.  Some complicated considerations (e.g., whether to cover “medically necessary” cosmetic procedures).

22. 22 Transgender Benefit Coverage (cont.)  Taxation of Transgender Benefits – Medical care related to diagnosis, treatment or prevention of diseases or for treatment related to any part or function of the body is generally exempt from employer payroll and individual income tax purposes. – Expenses related to cosmetic surgery are generally extended favorable tax treatment only if the procedures are medically necessary to treat a physical deformity existing at birth or arising by accident or disease. – Taxation of medical care related to treatment of gender identity disorder (GID) is confusing since many of the treatments are cosmetic in nature. – 2010 U.S. Tax Court held hormone therapy and gender reassignment surgery were deductible medical expenses because they are "well-recognized and accepted treatments for severe GID.” Breast augmentation surgery was not deductible because there was insufficient evidence that surgery was medically necessary for individual involved in case. Ruling was based on specific facts and circumstances involved and leaves open the possibility that breast augmentation could be medically necessary for another individual with GID.

23. 23 Transgender Benefit Coverage (cont.)  Windsor and Obergefell resolved some issues that previously existed regarding the legal validity of marriages involving a transgender individual. – Federal DOMA recognized only opposite-sex spouses for benefit plan purposes. – Employers needed to be able to determine whether a marriage involving a transgender person was a valid opposite-sex marriage recognized under federal law. Determination was based on laws of state where couple resided since federal law was silent on determining an individual’s legal sex. – Most states permit a transgender person to legally change his or her sex following gender reassignment surgery. In these states, the validity of the marriage was based on whether the transgender person is of the opposite-sex as his or her spouse after transitioning. – Some states do not permit an individual to legally change his or her sex following gender reassignment surgery. The validity of a marriage involving a transgender individual in these states was determined by reference to gender at birth. – Led to the unusual result of a transgender couple being denied a spousal retirement benefit under the more liberal approach of allowing a transgender person to legally change his or her sex following gender reassignment surgery. A transgender couple would be extended a spousal retirement benefit under the more conservative approach of determining legal sex based on a person’s sex at birth.

24. Other Emerging Benefits  Adoption Assistance  Fertility Benefits  Surrogacy Benefits  Maternity and Paternity Leave www.mwe.com24

25. www.mwe.com25 Global Coordination of Benefits  Same-sex marriage is legal in 17 countries and is being considered in several other countries. Many other countries prohibit recognition of same-sex marriage.  Goal of many multinational employers to implement consistent employment policies and benefits globally. – Easier to implement consistent employment policies such as internal nondiscrimination policies. – Difficult to design employee benefit plans to cover same-sex spouses and partners globally because of restrictions under the laws of many countries. – Many countries have statutory pension schemes which do not provide survivor benefits to same-sex spouses or permit survivor benefits to be offered to same-sex spouses. – Many countries prohibit same-sex spouses and their children to be covered under employer-sponsored medical plans.

26. www.mwe.com26 The Future of Legal Advocacy  Non-Discrimination Protections – No federal law explicitly prohibits discrimination against LGBT individuals. 19 states prohibit discrimination based on sexual orientation and gender identity. – In 2012, the Equal Employment Opportunity Commission (EEOC) ruled that discrimination against a transgender person violates Title VII of the Civil Rights Act. Ruling was against the federal government, but established that the EEOC will investigate complaints of transgender discrimination by public and private employers. – In 2014, President Obama signed an executive order prohibiting federal contractors from discriminating against employees on the basis of sexual orientation or gender identity. – Federal courts have increasingly recognized discrimination based on sexual orientation or gender identity as a form of sex discrimination prohibited by Title VII. – Employment Non-Discrimination Act (ENDA) has been proposed in Congress almost every year since 1994. Advocacy groups have withdrawn support for recent version because it includes significant religious exemptions.

27. www.mwe.com27 The Future of Legal Advocacy (cont.)  Non-Discrimination Protections (cont.) – The Equality Act proposed in 2015 to add sexual orientation and gender identity to existing federal law protections on the base of race, color, religion, sex, and national origin. If passed, it would prohibit discrimination in matters of employment, housing, access to public places, federal funding, credit, education and jury service.  Access to comprehensive healthcare for transgender individuals. – Employers are increasingly offering comprehensive benefits for transgender individuals. However, transgender people continue to experience challenges in utilizing the benefits.

28. www.mwe.com28 The Future of Legal Advocacy (cont.)  Reform of state laws restricting changes to name and gender designations on identity documents. – Passport. The Department of State allows changes to the sex designation on a U.S. passport. Evidence can include a certified copy of the individual's birth certificate that has been amended to change the sex designation or a medical certification of gender transition signed by a licensed physician. Sex reassignment surgery is not required. – Social Security Card. The Social Security Administration (SSA) allows changes to the sex designation on Social Security documentation. Evidence can include an amended birth certificate, passport, court order, or a medical certification. Beginning in 2013, the SSA no longer requires proof of sex reassignment surgery. – Court-Ordered Name Change. Most courts will permit an individual to obtain a court- ordered name change. The reason for the name change is irrelevant, as long as the change is not intended to commit fraud or avoid financial obligations. Proof of sex reassignment surgery is not required.

29. www.mwe.com29 The Future of Legal Advocacy (cont.)  Reform of state laws restricting changes to name and gender designations on identity documents. – Driver’s License. Some states allow changes to the sex designation on a driver’s license. Other states will not change the sex designation from the individual's sex designation determined at birth, regardless reassignment surgery. – Birth Certificate. Some states allow changes to the sex designation on a state birth certificate. Other states will not change the sex designation from the individual's sex designation determined at birth, regardless reassignment surgery.

30. www.mwe.com30 Employee Benefits and Legal Advocacy for LGBT Diversity Post-DOMA Your Questions