Effect of Colorado Civil Union Act and Windsor Decision on Colorado Retirement Plans

Significant changes in laws affecting same sex couples result from the Colorado Civil Union Act (CRS 14-15-101 et seq.), which took effect May 1, 2013, and the U.S. Supreme Court’s June 26, 2013 decision in United States v. Windsor.  

The new Colorado law grants individuals in a civil union “the rights, benefits …and other incidents under law as are granted to spouses, whether those rights are derived from statute, administrative or court rule, policy, common law or any other source of law.” The Act addresses retirement plans only once, stating that the spousal rights it creates include “survivor benefits under local government firefighter and police pensions.” (CRS 14-15-118)

The U.S. Supreme Court decision in Windsor requires federal law to follow state law in defining “marriage” and “spouse.”   

These developments raise the following preliminary questions and possible answers: 

• Are parties to a Colorado civil union entitled to benefits that a Colorado governmental retirement plan provides to a “spouse”?

Preliminary answer is: “yes” for retirement plans sponsored by Colorado governmental employers, if the retirement plan is a “law.” The Civil Union Act defines a “law” to include a “policy…or any other source of law.” It is possible that a retirement plan meets this definition of “law” even if it is not enacted into an ordinance or statute, if the retirement plan is a “policy” adopted by a Colorado governmental entity.

• Do federal tax law definitions of “spouse” include parties to a Colorado civil union, with the result that all tax law benefits for a “spouse” apply to parties to a civil union?

Preliminary answer:  The IRS is expected to issue guidance soon. If the IRS determines that a “spouse” includes parties to a Colorado civil union, ERISA retirement plans (sponsored by nongovernmental employers) will be required to offer parties to Colorado civil unions the same spousal protections as the plan offers to married spouses, e.g., surviving spouse benefit protections.

Retirement plan sponsors should keep informed of pending legal developments in this area.

Political Gridlock and Pension Law

The Presidential campaigns rarely mention pension issues, but pension law is shaped by politics. What do current political trends mean for the future of pension law? A recent book by two prominent congressional scholars tells us that the political gridlock in Washington is Even Worse Than It Looks. The authors, Thomas E. Mann and Norman J. Ornstein, explain that the causes for this include:

•  Political parties that are polarized and “vehemently oppositional”;  

•  The “checks and balances” in the U.S. constitutional system, which present “more structural impediments to action than any other major democracy”;

•  Redistricting that allows politicians to run in “safe” districts, not requiring them to respond to diverse political views;

•  Splintered media sources that narrow their ideology to viewers’ preferences, promoting extremism rather than centrism; and

•  Campaign finance laws that allow huge sums of money to buy negative, polarizing ads.

What does this portend for tax simplification proposals that would affect pension laws? It suggests that no comprehensive changes are imminent. In some ways, this is good. It delays the possible disruption that could be caused by major “simplification” of the kind proposed by the Bush administration, which would consolidate various retirement plans (457, 403(b), 401(k)) into a single form called an Employer Retirement Savings Plan. The American Society of Pension Professionals and Actuaries has stated that such reforms would “not be simplification” and “would disrupt saving, and force state and local government and nonprofits to modify their retirement savings plans and procedures.” Gridlock would also forestall proposals to reduce retirement plan tax benefits in order to raise revenue, such as the “20/20” proposal of the National Commission on Fiscal Responsibility and Reform that would limit annual contributions to the lesser of $20,000 or 20% of compensation.

The good news is that vast complexities of pension law could be simplified by administrative action and piecemeal legislation. Progress on simplifying pension law is possible despite a political situation that may remain Even Worse Than It Looks.