DOMA-Related Rulings Continue to Shape Benefits Decisions

For a significant number of benefit plan sponsors and participants, the successful effort to strike down the Defense of Marriage Act is still having an impact.

Results from Lincoln Financial Group’s most recent “M.O.O.D. of America Study” show only about a third of Americans who identify as LGBT have made changes to their benefit plan elections since the Supreme Court moved to strike down the Defense of Marriage Act (DOMA).

By way of background, Eric Reisenwitz, senior vice president and head of group benefits product and operations for Lincoln Financial, explains that under a series of recent court rulings, same-sex couples in states that recognized their marriage obtained marriage-based federal rights and benefits under employee benefit plans. However, the courts did not fully address DOMA provisions that gave individual states the right to recognize, or not recognize, same-sex marriages of other states. Thus, regulatory guidance was required about employee benefits for same-sex spouses in states that did not recognize same-sex marriage. 

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Following the SCOTUS decision in Obergefell v. Hodges (June 26, 2015), The Internal Revenue Service (IRS) and Department of Labor (DOL) issued guidance in the form of several rulings and releases stating that if a same-sex marriage was validly entered into in a state whose laws authorize same-sex marriages, it would be recognized under the Employee Retirement Income Security Act (ERISA) and the tax laws even if the couple resided in a state not recognizing the validity of their marriage.

The series of court decisions and regulatory decrees completely changed the benefits ballgame for a large slice of American society, Reisenwitz says. SCOTUS, DOL and IRS effectively ruled the federal DOMA statute was “invalid, for no legitimate purpose overcomes the purpose and effect to disparage and injure those whom the State, by its marriage laws, sought to protect in personhood and dignity.”

A little more than a year since this new paradigm was fully established, the Lincoln research finds major change underway for LGBT workers, as well as plan sponsors in charge of maintaining compliant benefit offerings. Interestingly, many are still assessing the new opportunities and challenges that come along with expanded benefit plan access, with relatively few people already having made changes to their benefits elections.

“Our research shows still only about a third of those in the LGBT community have taken the time to actively reassess or change their benefits selections, which is about what we would expect around this point, given how complex many of these decisions are going to be,” Reisenwitz says. “We were happy to see that many companies are doing a lot to promote awareness of new benefit opportunities coming out of the ruling.”

The M.O.O.D. survey further shows that roughly 50% of LGBT employees “are still unsure of the impact the Obergefell ruling will have in the workplace,” so there is still opportunity and a need to educate, Reisenwitz says. “These are very complex decisions and the employer should step up and make sure their employees are taking full advantage of the programs they are offering. It’s a big opportunity for employers to provide targeted education and advice, leading to stronger benefit programs and more financially fit employees. Looking at the impact the ruling has on retirement benefits and health benefits, this is something a skilled adviser should be able to support.”

The Lincoln research concludes that, just like any other demographic group participating in benefit plans, LGBT workers can be targeting with “concise, actionable communication that explains in simple terms what has changed and why there are new opportunities.”

“If you are able to sit down and clearly explain the new opportunities, workers will have much more of an interest and ability to make these decisions,” Reisenwitz concludes. “Of course, the LGBT group, just like the wider population, they are very diverse in terms of financial knowledge and financial wellness, so there is a need for nuance.”

Advisers Sound Optimistic Note in Fiduciary Survey

Most advisers feel they are making good progress on addressing the Department of Labor fiduciary rule, according to a Nationwide Retirement Institute survey.

A new Nationwide Retirement Institute survey finds the Department of Labor (DOL) fiduciary rule has most advisers expecting some changes to their business model, but the complete picture is still coming together.

According to the research, advisers understand they cannot respond unilaterally to the rulemaking, slated to roll into effect through 2017 and 2018, and so most indicate they are waiting to see their firms’ final compliance procedures before making their own adjustments.

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“This is about where we thought it would be,” notes Kevin McGarry, director of the Nationwide Retirement Institute. “Firms are taking this seriously, but still have a lot to work through. As we move through the next 18 months, we anticipate shifts in product mix and levels of understanding and concern.” 

Nationwide polled 622 financial advisers for the survey, finding the vast majority (87%) expect near-term changes to how they do business. While advisers provided varied perspectives regarding how they plan to change their mix of products sold, the research shows 43% “may plan to expand services offered to more holistic planning and 26% may plan to focus on non-qualified accounts.”

“The survey insights show that advisers are considering a shift from a transaction-based business model to more of a service-oriented model,” McGarry said.

 NEXT: Advisers are eager to take action

According to Nationwide, just 42% of advisers say they are aware of their firm’s timeline for implementation or what training or support the firm will provide, while only one-third are already aware of their firm’s new compliance procedures.

“The Best Interest Contract Exemption (BICE) continues to be an area of great concern for firms and advisers,” researchers note. “Only 23% of advisers are aware of their firms’ plans with respect to adoption of the BICE to sell variable compensation products. At the same time, 78% identified the BICE as one of the greatest areas of impact to their business.”

“This data affirms what we’re seeing across the country,” McGarry concludes. “Firms are busy working through the new rule, figuring out what it means for their specific situation, and developing their game plan to implement by next spring.”

Additional survey findings show advisers consider themselves “at least somewhat knowledgeable about” the new fiduciary requirements (82%); products subject to fiduciary standards (76%); fee and compensation disclosure requirements (76%); the BICE (73%); what is considered advice versus education (69%); grandfathering provisions or conditions (64%); and levelized compensation requirements (64%).

For more information, visit www.nationwide.com

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