Retroactive Application of the Supreme Court's Same–Sex Marriage Ruling In Windsor

Ever since the issuance of the 2013 decision by the Supreme Court in U.S. v. Windsor (in that case, the Court ruled that Section 3 of the Defense of Marriage Act (“DOMA”) was unconstitutional), the question of the potential retroactive applicant of the Windsor decision has been lurking. The question has been whether tax-qualified retirement plans (including 401(k) plans) could be obligated to recognize same-sex spouses for spousal benefit right purposes on a retroactive basis. Such a ruling could create significant administrative headaches and even the possibility of double payment liabilities. The IRS tried to resolve that question and avoid those consequences in Notice 2014-19, when it provided that plans must treat same-sex spouses the same as other spouses effective only as of the date of the Windsor decision in 2013 (although the IRS noted that plans would be permitted to recognize the benefit rights of same-sex spouses earlier than that if they so desired).

Perhaps the inevitable has happened. A California federal district court decision issued in January, 2016 seems to take a different view on the issue of retroactivity. In this case, Schuett v. FedEx Corporation, the court denied the defendant’s motion for judgment on the pleadings on a claim brought by a deceased employee’s same-sex spouse. The claim was based on an allegation of entitlement by that spouse for the payment to her of a qualified preretirement survivor annuity (“QPSA”) under FedEx’s pension plan (note that while this case deals with a defined benefit pension plan, the logic of the analysis seems equally applicable to defined contribution plans, such as 401(k) plans).

Under the facts of the case, FedEx denied the same-sex spouse’s claim for a QPSA benefit because the plan did not recognize same–sex persons as spouses. The same-sex spouse filed a lawsuit challenging that decision. One of the causes of action in that lawsuit is an allegation of a breach of fiduciary duty for failure to administer the Plan in accordance with applicable law. In this recent decision, the court denied the defendants’ motion for judgment on the pleadings with respect to this cause of action and allowed this case to go on to consider the claim for breach of fiduciary duty for failure to administer the plan in accordance with applicable law. While not ruling on the merits of the claim of benefit entitlement by the same–sex spouse, the court seems to have tipped its hand by observing that the Windsor decision effectively invalidated the DOMA standard retroactively. It thus seems reasonable to expect the court to support the benefit entitlement claim of the same-sex spouse when the merits of this claim are adjudicated, and so this case is a case to watch carefully (which we will be doing).