Activists urge caution in coming out by claiming benefits; TCDRS clarifies means of designating spouses

Tammye Nash  |  Managing Editor

Activists Rafael McDonnell and David Mack Henderson recently discovered rules issued by the IRS requiring even states that don’t legally recognize same-sex marriages to recognize same-sex spouses when it comes to federal tax issues.

That means, McDonnell and Henderson noted, that defined contribution and defined benefit plans — which includes 401(k) retirement plans, and 125 “cafeteria plans,” among others — must recognize a plan member’s legal same-sex spouse , as long as the couple was married in a jurisdiction that legally recognizes same-sex marriage.

But the activists are also warning that just because you can, doesn’t mean you should.

“You’re walking a tightrope here,” said McDonnell, the communications and advocacy manager for Dallas’ Resource Center. “There’s no state law in Texas that protects LGBT people from employment discrimination. So even if someone has the right to designate their same-sex spouse as their beneficiary, that doesn’t mean they couldn’t then be fired” for being gay.

Some governmental jurisdictions and agencies do have statutes and policies prohibiting anti-LGBT discrimination in employment. Cities like Dallas and Fort Worth have implemented such protections, as have some counties. But in Texas, those jurisdictions and agencies remain the exception and not the rule.

“People could really be opening themselves up to a lot of risk,” McDonnell said.

Henderson, a tax preparation specialist and president of Fairness of Fort Worth, agreed.

“It’s one thing for us as activists to say you have the right to do this. It’s quite another for somebody to step up and put themselves on the line like that,” Henderson said. “It just may not be a prudent decision. That’s part of the sad truth of inequality.”

Earlier in the month, McDonnell and Henderson pointed out that the board of the Dallas Police and Fire Pension System, which is a 401(a) retirement plan but is one of 12 systems in the state that are specifically enabled by state statute, recently “kicked the can down the road” by choosing to continue to study the option of offering benefits to same-sex spouses of employees, rather than putting those benefits in place as the Dallas City Council had ordered.

McDonnell said DPFP has no choice but to get policies in place to offer those benefits by the IRS’ Dec. 31 deadline. But the independent counsel consulted by the DPFP board says otherwise.

McDonnell said he had contacted Dallas City Councilman Lee Kleinman — who, with Councilmembers Phillip Kingston, Scott Griggs and Tennell Atkins, is a councilmember trustee for DPFP — regarding the pension plans failure to recognize same-sex spouses. Kleinman and Carolyn Davis are councilmember trustees on the Dallas Employee Retirement Fund and “have been working for benefits there as well,” Kleinman said.

Kleinman told McDonnell in an email that, according to DPFP’s attorney,  “your analysis is contingent on the requirement that these plans are subject to” the Employee Retirement Income Security Act, and therefore subject to the Supreme Court’s ruling on DOMA. DPFP is not subject to ERISA, he said, and therefore not required to comply with the ruling on DOMA.

Kleinman also stressed that he and other councilmembers have pushed consistently for both DPFP and DERF to offer benefits to same-sex spouses of employees.

McDonnell, however, noted that legal counsel in other jurisdictions had reached different conclusions, and suggested DPFP “should go ahead and make the change now. First of all, it’s just the right thing to do, and secondly, you don’t want the IRS coming after you.”

Retirement plans that do not comply with the IRS guidelines on recognizing same-sex spouses risk being disqualified for tax-deferred contributions, which means that contributions to those plans that had previously been pre-tax income would suddenly become immediately taxable.

“In my opinion,” McDonnell said, “failing to offer those benefits or delaying recognition ignores the fiduciary responsibility these plans have to their members. You ignore the IRS at your own peril. These people don’t play around.”

Designating your ‘spouse’

In initial reports, McDonnell and Henderson said that Dallas County human resources officials had indicated that the Texas County and District Retirement System — the retirement plan for Dallas County employees — complies with the IRS ruling on recognizing same-sex spouses, but that at present, LGBT employees could only designate their spouses as beneficiary “other than spouse.”

Because the IRS does not recognize domestic partnerships or civil unions, the “other than spouse” designation could cause problems down the line, the activists noted.

However, a public relations firm working with the TCDRS notified Dallas Voice that the retirement system makes no distinction between opposite-sex and same-sex spouses.

TCDRS officials said in a statement to Dallas Voice, “At the Texas County and District Retirement System, members can designate their legal spouse as their beneficiary regardless of gender. When designating via paper form or online, they would just select ‘spouse.’”

That, said Henderson, “is huge.”

He continued, “That is a very significant clarification, and it means that TCDRS is far more in 1line with the IRS guidances than we were told previously. That means a great deal, because legally spouses get preferential tax treatment in all sorts of situations.”

This article appeared in the Dallas Voice print edition December 12, 2014