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March 1999

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 opposite sex.

• An employer wishing to implement a domestic partner program needs first to identify what constitutes a domestic partner. The most common definitions contain 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 interdependent.

• 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 the partners signing 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 a 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 this benefit?

• Most employers that offer domestic partner benefits offer a range of only low-cost benefits, such as family/bereavement/sick leave, relocation benefits, access to employer facilities, and attendance at employer functions. However, most public attention involving domestic partner benefits involves employers that offer health insurance coverage to domestic partners.

• According to the KPMG Peat Marwick 1998 Health Benefits survey, 10 percent of surveyed firms with 200 or more employees offered health insurance coverage to domestic partners. This is a decline from 13 percent in 1997. Peat Marwick found that among private-sector firms, those in high technology industries (16 percent) were most likely to offer domestic partner health insurance coverage, while firms in transportation, communications, and utilities (5 percent) were least likely. A listing of firms that offer full health insurance coverage to domestic partners is posted by the Human Rights Campaign, which describes itself as the largest national lesbian and gay political organization in the United States, at the following Web site:

Why an employer offers domestic partner benefits:

Fairness -- Many employers believe that by 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 martial 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 that the employer values a diverse work force. Employee morale and productivity has been found to improve in work environments where individuals believe the employer demonstrates that it values its employees.

Costs of domestic partner benefits:

• This is the primary concern for employers, especially with regard to health benefits, since extending coverage to more individuals increases the cost of health benefits. There are two components driving 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 2–3 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, compared with those employers that allow opposite-sex couples to enroll. Overall, Hewitt 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 than when adding spouses. Experience has shown that the costs of domestic partner coverage to be lower than anticipated. 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 way of 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 $100,000.

Tax treatment and qualification for benefit privileges under current law:

Tax Treatment

• 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 non-spouse 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 marriages,a and 16 statesb that recognize common-law marriages contracted in other states , even though they do not recognize common-law marriages contracted in their own states. Opposite-sex couples in those jurisdictions who apply for a common-law marriage do receive the tax favorable treatment for domestic partner coverage in an employment-based plan.

• The tax 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 Spending Accounts

• Employee flex 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 for COBRA coverage. A domestic partner may be part of an employee's election.

Health Insurance Portability and Accountability Act of 1996 (HIPAA)

• 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

• The Air Transport Association of America successfully sued the City of San Francisco, claiming airlines do not have to comply with the city's 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.

For more information, contact Ken McDonnell, (202) 775-6342, or see EBRI's Web site at

Sources: Melody A. Carlsen, “Domestic Partner Benefits: Employer Considerations,” Employee Benefit Practices, fourth quarter 1994, International Foundation of Employee Benefit Plans: Brookfield, WI; Hewitt Associates, “Domestic Partners and Employee Benefits: 1994,” Research Paper, Hewitt Associates: Lincolnshire, IL; Barry Newman, Paul Sullivan, RTS, and Michele Popper, “Domestic Partner Benefits: An Employer's Perspective,” June 1996, Alexander Consulting Group: Newburyport, MA.

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.