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To remain competitive and develop employee goodwill, many employers implement benefits programs for domestic partners. There are several reasons HR professionals may want to consider this benefit. Inherently, a basic sense of fairness is at play. In addition, employers often find that offering domestic partner benefits is in line with their internal nondiscrimination policies. From a strategic point of view, employers need to consider whether offering domestic partner benefits can be used as a recruiting and retention tool and makes sense for them in their particular market.
Some states require equivalent benefits for domestic partners. Other states are in the process of implementing similar laws, so before offering domestic partner benefits, you should consult your legal counsel for the most recent update to your state regulations.
What follows is a basic outline of how to put together domestic partner benefits and some points for further exploration. For purposes of this guide, domestic partners are unmarried couples, including same-sex couples , living together in long-term relationships that may be entitled to some of the same benefits as married people.
Will the definition of “domestic partner” include civil unions, not only for same-sex partners but also for employees of the opposite sex living together but not married? Some employers that offer domestic partner benefits exclude coverage for unmarried heterosexual couples on the grounds that they have a legal right to get married. This exclusion continues to be challenged in the courts and should be discussed with your legal counsel before including such language in your plan. Defining “domestic partner” in the plan document is critical to the plan’s administration. The benefits plan should reflect the same language from laws of states that recognize same-sex marriages.
Domestic partners are unmarried couples, including same-sex couples, living together in long-term relationships that may be entitled to some of the same benefits as married people, such as employer-provided health coverage. Employers may consider including a “verification clause” that requires the employee and his or her domestic partner to sign an “affidavit of domestic partnership” to obtain coverage. However, employers located in cities or states with equal benefits laws should keep in mind that most of these laws prohibit employers from requiring any more proof of a domestic partnership than that required for spousal relationships.
Employers have discretion to word the affidavit as they choose, but many require domestic partners to demonstrate that they have lived together for a specified period (generally, at least six months). In addition to the affidavit, an employer may require proof of financial interdependence or common residence. Employers can also require that domestic partners:
Children of domestic partners and adult dependents
Eligibility rules must clearly define, among other things, whether coverage will be extended to the children of domestic partners. Federal law limits the coverage requirement to an employee’s children. If a worker does not have a legal parent-child relationship with the domestic partner’s child under federal law, the employer is not required to offer coverage to that child.
The Patient Protection and Affordable Care Act (PPACA) does not require employers to cover eligible adult children of an employee’s domestic partner, but some state laws might require such coverage. However, in most cases, the Employment Retirement Security Income Act (ERISA) will pre-empt state insurance laws. Therefore, an ERISA plan could refuse to provide coverage to children of domestic partners. Plans must have a clear definition of “spouse” and “child to achieve such a result.
This area of the law is evolving and changing rapidly. Employers should consult their legal counsel before making decisions on this matter.
When the relationship ends
Just as when any other employee wants to drop his or her spouse from coverage because of a divorce or death, the employer must establish a policy or procedure for terminating the coverage for domestic partners. The employer may require the employee to sign another affidavit to certify the end of the relationship.
Employers may provide the same benefits to domestic partners that are provided to a spouse or a dependent, or the benefits may be limited to specific benefits, such as health insurance or bereavement benefits. If your state or municipality recognizes the relationship, then other rights may be granted by law, so carefully consider the impact on your plan design. Below are some additional considerations.
Health insurance coverage
Check with your insurance carrier to make sure domestic partners are covered under the health insurance plan. Occasionally, an insurer or HMO will not cover domestic partners in an employer’s health plan. Employers considering implementing health insurance benefits will need to investigate before offering health care coverage to domestic partners.
Given that a domestic partner would not generally be a qualified beneficiary under COBRA, an employer is not required to provide continuation coverage. However, many employers choose to provide it. An employer choosing to provide continuation of health benefits should check with its insurance carrier to see if the plan provides for it or if it can be amended. Taking this approach requires some additional forethought. For example, does the employer intend to offer COBRA-like coverage to the former partner of an employee whose domestic partner relationship has ended? If so, would such coverage be offered to a new domestic partner of the employee’s former partner (if a subsequent qualifying event occurs during the continuation period)?
To simplify administration, employers often follow the same coverage, notice and premium rules for continuous coverage for married couples and domestic partners.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires employers to provide certifications of health coverage when covered employees and their dependents lose coverage for any reason. Although HIPAA only covers domestic partners who are dependents, an employer that provides coverage for nondependent domestic partners may voluntarily want to include them in its HIPAA certification procedures and then apply the other HIPAA requirements to them for consistency in administration.
Employers that provide domestic partner benefits are not required to offer leaves of absence under the Family and Medical Leave Act (FMLA) for the care of a domestic partner who has a serious health condition. However, some employers provide equivalent leave voluntarily, consistent with the policies on domestic partner benefits. Leave that is taken for care of a domestic partner would not reduce an employee’s 12 weeks of FMLA leave. This nonstatutory leave would be in addition to the statutory leave, in the event that the employee has other health or family problems that qualify him or her for FMLA leave.
If leave is requested at the birth of a child or an adoption or placement of a child in foster care, an employee is entitled to FMLA leave if the employee is standing “in loco parentis.” The Department of Labor (DOL) has interpreted the FMLA’s definition of “in loco parentis” to include domestic partners who are caring for a child regardless of the legal or biological relationship. The DOL interpretation applies to nontraditional families, including unmarried partners and families in the lesbian-gay-bisexual-transgender (LGBT) community.
The employee’s marital status becomes relevant only if he or she seeks leave to care for an unmarried domestic partner with a serious health condition, or if both domestic partners work for the same employer and both request leave for the birth, adoption or placement of the child.
Preretirement survivor pension benefits from a defined benefit plan. This benefit is required by law to be provided to a spouse, but is generally not available to a nonspouse. Plan amendments may be necessary. Pension plans may need to be revised to include the domestic partner as an allowable beneficiary; many plans only allow spouses to be designated as a beneficiary.
Nonspouse rollover provision under Pension Protection Act of 2006. As of Jan. 1, 2010, all qualifying plans allow any nonspouse beneficiary to roll over inherited retirement benefits paid in the form of a lump sum to an inherited IRA on a tax-free basis. As part of this change, beneficiaries who choose to take the benefits in cash, rather than roll them over, will have 20 percent of the amount withheld in taxes.
Bereavement and miscellaneous
Employers that offer paid bereavement leave to employees on the death of close family members, including spouses, should consider whether they must make this benefit available to civil union partners or domestic partners. Employers should also consider whether they should include domestic partners at organizational gatherings or trips that spouses attend, or whether domestic partners should be able to take advantage of family discounts on products or services offered by the employer. Another consideration is allowing paid sick leave to be used to care for a domestic partner or for the domestic partner’s child if paid sick leave can be used by employees to care for spouses.
Flexible spending accounts. The use of flexible credits is only permissible in the case of domestic partners who are dependents. Also, a domestic partner may not receive benefits from a flexible spending account unless he or she is a dependent. (See the discussion on tax implications below for what qualifies a domestic partner as a dependent.)
Group term life. The IRS has ruled that the cost of group term life coverage for a domestic partner is not excludable from income as a “de minimis” fringe benefit, or one that is so small that accounting is not required. The cost is includible in the employee’s income as compensation for services, computed using the Table 1 rates in the regulations under Internal Revenue Code §79. Conversely, any death benefits paid under such insurance are not includible in the income of the employee, domestic partner or other beneficiary.
Health care benefits provided to domestic partners are treated as imputed income. Imputed income is the addition of the fair market value of noncash compensation—in this case, the benefits offered to domestic partners—to the employee’s taxable wages to properly withhold income and employment taxes from the wages. Imputed income is reported on Form W-2. Imputed income is not subject to the federal income tax withholding rules. Employees may choose to have federal income tax withheld on the imputed income or to pay what may be due when filing their federal income tax return. Tax penalties may apply if the employee has not withheld enough federal income taxes on the imputed income. Imputed income is subject to withholding for FICA tax purposes.
So how does an employer determine the fair market value of the benefits being offered? Many employers simply take the difference between the cost of single coverage and the cost of family coverage or one-dependent coverage. For example, under a two-tier formula, single coverage costs $400 per month, and family coverage costs $600 per month. The imputed income in this example would be $200 per month, and that amount is subject to FICA taxes.
Domestic partners who meet the definition of a dependent under Internal Revenue Code §152 are allowed to forgo the additional tax liability. For this reason, some employers often offer benefits only to domestic partners who qualify as dependents. To qualify, an individual must meet the following requirements:
The employer may require that the employee provide certification or proof that his or her domestic partner meets these conditions.
A separate administrative system must be set up for domestic partner benefits accounts (unless the dependent qualifies under Internal Revenue Code §152) for paying taxes on employer-sponsored benefits. The involvement of the human resources, accounting and payroll departments will be needed to handle the registration and affidavit process, the calculation of imputed income, and changes in withholding.
Finally, after you have checked with legal counsel and had the plan reviewed, check and recheck your summary plan descriptions, enrollment materials, election and beneficiary designation forms, and other employee communications to make sure they all clearly define who is and is not covered and under what circumstances. Employers will also want to disclose the federal and state tax implications of any benefits provided to same-sex spouses. Plans should be reviewed annually for any necessary updates.
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