Domestic Partner Benefits
What is a domestic partnership and what proof
of the relationship is required?
- Domestic partner benefits are
benefits that an employer voluntarily chooses to offer to
an employee's unmarried partner, whether of the same or
- An employer wishing to implement a
domestic partner program needs first to identify what
constitutes a domestic partner. The most common
definitions include four or five core elements: 1) the
partners must have attained a minimum age, usually 18; 2)
neither person is related by blood closer than permitted
by state law for marriage; 3) the partners must share a
committed relationship; 4) the relationship must be
exclusive; 5) the partners must be financially
- An employer also must decide
whether the domestic partner program is to cover same-sex
couples only or include opposite-sex couples.
- Documentation of proof of a
domestic partner relationship can take many forms. It is
up to the employer to determine what is appropriate. Some
employers are satisfied with a requirement that the
partners sign a written statement of their relationship.
Some employers may require proof of some financial
relationship, such as a joint lease or mortgage or copies
of tax returns showing financial interdependence.
Whatever documentation is required must be germane to the
issue of validating a domestic partnership, or it could
lead to claims of invasion of privacy.
What is included in domestic partner benefits, and how many
employers offer these benefits?
- Most employers that offer domestic
partner benefits offer a range of low-cost benefits, such
as family/bereavement/sick leave, relocation benefits,
access to employer facilities, and attendance at employer
functions. However, most public attention focusing on
domestic partner benefits involves employers that offer
health insurance coverage to domestic partners.
- According to a 1999 survey by the
Kaiser Family Foundation and Health Research and
Educational Trust, 18 percent of American workers were
employed in firms that offered coverage for domestic
partners; 11 percent were in firms that offered domestic
partner coverage to same-sex couples; and 12 percent were
in firms that offered coverage to unmarried heterosexual
- The Human Rights Campaign Fund,
which describes itself as the largest national lesbian
and gay political organization in the United States, had
identified 2,856 employers that offered domestic partner
benefits as of Aug. 6, 1999. A listing of firms that
offer full health insurance coverage to domestic partners
is posted by the Human Rights Campaign at the following
web site: www.hrc.org/issues/workplac/dp/dplist.html
Why an employer offers domestic partner benefits:
- Fairness--Many employers
believe that a policy of offering benefits to legally
married partners of employees and not offering the same
benefits to the partners of non legally married partners
of employees discriminates on the basis of sexual
orientation and/or marital status. Many employers have a
formal policy against discrimination on the basis of
sexual orientation. The decision to offer domestic
partner benefits communicates to employees that the
employer is committed to its stated policy.
- Market competition and
diversity--The attraction to employees of a
comprehensive benefits package that offers health and
retirement coverage is well documented. In today's tight
labor market, designing a benefits package that appeals
to a diverse work force enables an employer to maintain a
recruitment edge and communicates to employees that the
employer values a diverse work force. Employee morale and
productivity have been found to improve in work
environments where individuals believe the employer
demonstrates that it values its employees.
Costs of domestic partner benefits:
- Cost is the primary concern for
employers, especially with regard to health benefits,
since extending coverage to more individuals increases
the cost of health benefits. Two considerations drive the
cost issue: 1) how many new enrollees the plan can expect
to receive; and 2) what risks are likely to be associated
with those individuals.
- Hewitt Associates, in a 1994 study
of domestic partner benefits, found that only 2 percent
to 3 percent or less of all employees offered domestic
partner coverage in the health plan actually elected to
take it. Many employers, in the planning stage, had
anticipated an enrollment rate of 10 percent. Employers
that allow only same-sex couples to enroll domestic
partners in the health plan report a lower enrollment
rate than employers that allow opposite-sex couples to
enroll. Overall, the 1994 Hewitt study found that 67
percent of the couples electing domestic partner coverage
were opposite-sex couples.
- Hewitt found, in 1994, that
employers are no more at risk when adding domestic
partners to their benefits plan than when adding spouses.
Experience has shown the costs of domestic partner
coverage to be lower than anticipated, and there are
several reasons why: The employees eligible for domestic
partner coverage tend to be young, and, as a result,
healthier; enrollment in domestic partner coverage is
low, primarily due to the fact that most domestic
partners already have coverage through their own
employers; any increased risk of AIDS among male same-sex
couples appears to be offset by a decreased risk among
female same-sex couples; and same-sex domestic partners
have a near-zero risk of pregnancy.
- Most recent estimates (1996) of the
lifetime costs of treating a person with HIV disease
range from $71,143 to $424,763. By comparison, the cost
of a kidney transplant can be as high as $200,000, and
the cost of premature infant care can run from $50,000 to
Tax treatment/qualification for benefit privileges/recent
- The Internal Revenue Service (IRS)
has addressed the issue of domestic partner coverage in
several private letter rulings. According to those
rulings, employment-based health benefits for domestic
partners or nonspouse cohabitants are excludable from
taxable income only if the recipients are legal spouses
or legal dependents. The IRS also states that the
relationship must not violate local laws in order to
qualify for tax-favored treatment.
- The IRS leaves the determination of
marital status to state law. Currently, no state
recognizes same-sex marriages. Some cities (i.e., San
Francisco and New York City) allow domestic partners to
register their relationship with the city, but these
registries do not provide legal status as marriage or
common-law marriage. With regard to opposite-sex couples,
there are 13 states that recognize common-law marriagesa
and 16 statesb that recognize common-law marriages
contracted in other states, even though they do not
recognize those that are contracted in their own states.
Opposite-sex couples in those jurisdictions who apply for
a common-law marriage do receive the tax-favored
treatment for domestic partner coverage in an
- For those who do not qualify for
tax-favored treatment, the tax on the benefits is
determined by assessing a fair market value for covering
the domestic partner. This amount is then reported on the
employee's W-2 form and is subjected to Social Security,
FICA, and federal withholding taxes.
Sec. 125 Flexible Benefits and
- Employee flexible allowances that
include extra money or credits toward providing coverage
for a domestic partner are treated as taxable income.
- Flexible spending account benefits
may not be provided to a domestic partner because such
accounts can include only nontaxable income.
Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA)
- A domestic partner may not make an
independent election of COBRA coverage. A domestic
partner may be part of an employee's election.
Health Insurance Portability and Accountability Act of 1996
- Domestic partners may not be
dependents and therefore technically are not covered by
HIPAA. However, an employer that provides health
insurance to domestic partners may want to include them
in the certification procedure and apply the other HIPAA
requirements for consistency in administration.
- San Francisco Nondiscrimination
in Contracts-Benefits Ordinance, effective Jan. 1, 1997
- The Air Transport Association of
America successfully sued the City of San Francisco,
claiming airlines do not have to comply with the city's
domestic partner ordinance because the airlines' benefit
packages are governed by federal law, specifically the
Employee Retirement Income Security Act of 1974 (ERISA).
ERISA pre-empts state and local laws with regard to
employee benefits. In an April 10, 1998, ruling, the U.S.
District Court for the Northern District of California
upheld the San Francisco ordinance except with
regard to airlines. In her ruling, Judge Claudia Wilkens
stated that the city acts as a market
participant in dealing with city contractors--other
than airlines--and the law therefore does not violate the
ERISA pre-emption provisions. However, in the city's
dealing with airlines at the city-owned airport, the city
acts as a regulator, and not a market participant, so
therefore the ordinance is pre-empted by ERISA with
regard to the airlines, the judge ruled. The ruling
applies the market participant standard to
situations where the city wields no more power than an
ordinary consumer in its contracting relationships.
- In November 1999, Los Angeles and
Seattle joined San Francisco in enacting an ordinance
that requires private employers that contract with the
cities to provide benefits to workers' domestic partners.
Vermont Supreme Court Ruling, Dec.
20, 1999, Stan Baker, et al. vs. State of Vermont, et al.
- This ruling stemmed from a
challenge to state law brought by three same-sex couples
that had been denied marriage licenses. In its unanimous
ruling, the Vermont State Supreme Court held that there
was no reason under the state constitution for
denying the legal benefits and protections of
marriage to same-sex couples. The Court did not
give permission to legalize same-sex marriages, but
instead ordered the state legislature to develop some
method for implementing its decision. The Court did not
give the legislature a deadline for legislative action.
The impact on employee benefit plans will depend on what
the state legislature decides. If the legislature creates
a domestic partnership equivalent to marriage, then
employers would be able to retain more design flexibility
in their benefit plans. ERISA would shield self-funded
employers from covering domestic partners of
Vermont employees. If the legislature legalizes same-sex
marriage, then ERISA would not shield self-funded
employers. All other employers in Vermont would be
required to cover same-sex spouses under their employee
The case cannot be appealed to a federal court, because
the ruling of the Vermont Supreme Court is based
exclusively on Vermont's constitution.
It is important to note that if the Vermont legislature
legalizes same-sex marriage, this would have an impact on
all benefit plans. Same-sex spouses in Vermont would have
the same legal rights as opposite-sex spouses with regard
to a defined benefit pension plan, a defined contribution
pension plan, life insurance policies, family leave
benefits, etc. The tax treatment of the benefits for
same-sex spouses would be the same as that for
opposite-sex spouses. (See tax treatment of domestic
partner benefits, above.)
For more information, contact Ken McDonnell, (202) 775-6342,
or see EBRI's Web site at www.ebri.org.
Sources: Melody A. Carlsen, Domestic Partner Benefits:
Employer Considerations, Employee Benefit Practices,
International Foundation of Employee Benefit Plans (Fourth
Quarter 1994); Hewitt Associates, Domestic Partners and
Employee Benefits: 1994, Research Paper
(Lincolnshire, IL: Hewitt Associates); Barry Newman, Paul
Sullivan, and Michele Popper, Domestic Partner Benefits: An
Employer's Perspective (Newburyport, MA: Alexander Consulting
Group, June 1996).
a/The following states and the District of Columbia recognize
common-law marriages: Alabama, Colorado, Georgia, Idaho, Iowa,
Kansas, Montana, Ohio, Oklahoma, Pennsylvania, Rhode Island,
South Carolina, and Texas.
b/The following states recognize common law marriages that are
valid in other states: Arizona, Arkansas, California, Delaware,
Hawaii, Maryland, Minnesota, Missouri, Nebraska, New York, North
Carolina, Oregon, Tennessee, Virginia, Washington, and West
Virginia. These states do not recognize common law marriages
contracted in their own state.