December 1, 2009
Everything But Marriage Act:
Employment and Benefits Impacts of the 2009
Additions to Washington State Registered
Domestic Partnership Laws
Suzanne J. Thomas, Partner, K&L Gates LLP
Heidi Eckel Alessi, Associate, K&L Gates LLP
Contents
Seminar PowerPoint
§
Employment and Benefits Impacts of the 2009 Additions to
the Washington State Registered Domestic Partnership
Laws
Panelist Biographies
§
§
§
§
§
§
Tab 3
“Domestic Partnership Rights and Responsibilities
Expansion Legislation: Employment Law” – Suzanne J.
Thomas
“Providing Employee Benefits to Domestic Partners” – Heidi
Eckel Alessi
Attachments
§
Tab 2
Suzanne J. Thomas
Heidi Eckel Alessi
Additional Materials
§
Tab 1
Tab 4
Attachment 1: Judiciary Committee Bill Analysis: E2SSB
5688
Attachment 2: Rule Making Order Implementing RCW
34.05.360
Attachment 3: Washington State Department of Labor and
Industries
Attachment 4: Expedited Rule Making Order Implementing
RCW 34.05.353
1
Sample Presentation Headline
Sample Subhead
Employment Implications of the 2009 Registered Domestic
Partnership Expansion Act
Suzanne J. Thomas
suzanne.thomas@klgates.com
206.370.6642
1
Employment Implications of the 2009 Registered
Domestic Partnership Expansion Act
2
Employment Implications of the 2009 Registered
Domestic Partnership Expansion Act
3
2
Washington State Registered Domestic Partners
To register as domestic partners, both individuals
must:
ƒ Share a common residence*
ƒ Both be at least 18 years of age
ƒ Not be married to, or in a registered domestic
partnership with someone else
ƒ Be capable of consenting to the domestic partnership
* This term is defined in RCW 26.60.020 (3).
4
Washington State Registered Domestic Partners
ƒ Not be nearer kin than second cousin
ƒ Not be a sibling, grandchild, aunt, uncle, niece or
nephew to the other partner, and
ƒ Either be of the same sex or of the opposite sex with
at least one of the individuals being at least 62 years
old.
5
3
Washington State Registered Domestic Partners
ƒ Qualifying domestic partners who register with the
state are provided with a certificate of state registered
domestic partnership.
ƒ Legal unions of same-sex partners in other
jurisdictions are recognized as domestic partnerships
in Washington if they are the “substantial equivalent”
of a domestic partnership under Washington law.
ƒ RCW 26.60.090.
6
Federal “Defense of Marriage Act”
ƒ Same-sex marriage is prohibited under federal law
for all federal law purposes.
ƒ The Federal Defense of Marriage Act defines the
terms “marriage” and “spouse” as follows: “the word
‘marriage’ means only a legal union between one
man and one woman as husband and wife, and the
word ‘spouse’ refers only to a person of the opposite
sex who is a husband or a wife.” 1 U.S.C. § 7.
7
4
State “Defense of Marriage Act”
ƒ Washington law defines “marriage” as “a civil contract
between a male and a female who have each
attained the age of eighteen years, and who are
otherwise capable.” RCW 26.04.010 (1).
ƒ Washington’s version of the Defense of Marriage Act,
which prohibits same-sex marriage in Washington,
remains in place. RCW 26.04.020 (c).
ƒ Washington will not recognize a same-sex marriage
even if it is valid in another jurisdiction. RCW
26.04.020 (3).
8
The 2009 Act is not “marriage”
Federal and Washington State laws which prohibit
same-sex “marriage” are not affected by the 2009 Act.
9
5
2009 Act
It is the intent of the legislature that for all purposes under state
law, state registered domestic partners shall be treated the same
as married spouses. Any privilege, immunity, right, benefit, or
responsibility granted or imposed by statute, administrative or
court rule, policy, common law or any other law to an individual
because the individual is or was a spouse, or because the
individual is or was an in-law in a specified way to another
individual, is granted on equivalent terms, substantive and
procedural, to an individual because the individual is or was in a
state registered domestic partnership or because the individual is
or was, based on a state registered domestic partnership, related
in a specified way to another individual. The provisions of this act
shall be liberally construed to achieve equal treatment, to the
extent not in conflict with federal law, of state registered domestic
partners and married spouses.
10
Effective Date of the 2009 Act
While some of the Domestic Partnership Expansion
law will not go into effect until later, the majority of the
law becomes effective upon certification of the
November 2009 election by the Washington Secretary
of State, which is expected to be on December 3,
2009.
11
6
Effective Date of the 2009 Act
ƒ Certain provisions, such as those relating to certain
state pensions, will not go into effect until January 1,
2014.
ƒ These include sections affecting the laws governing
retirement for certain government employees (judges,
firefighters, law enforcement officers, certain city
personnel, teachers, PERS 3 members, and public
safety employees), the Basic Health plan access act,
public assistance, and estate taxation.
12
Effective Date of the 2009 Act
ESSSB 5688 Effective December 3, 2009 - Provides
that for all purposes under state law, state registered
domestic partners shall be treated the same as
married spouses and that provisions of the act shall
be liberally construed to achieve equal treatment, to
the extent not in conflict with federal law.
13
7
Employer Actions
ƒ Regardless of their size, employers need to update:
ƒ handbooks
ƒ policies
ƒ other guidelines
ƒ Employers must ensure that registered domestic
partners are treated in the same way as married
spouses.
ƒ Be mindful of collective bargaining agreements.
14
15
8
The Washington Law against Discrimination
ƒ Ensure to Comply with RCW 49.60 et seq., the
Washington Law against Discrimination
ƒ Marital Status Discrimination
ƒ Sexual Orientation Discrimination
ƒ Sex Discrimination
16
The Washington Law against Discrimination
RCW 49.60.040 (selected definitions)
(11) "Employer" includes any person acting in the interest of an
employer, directly or indirectly, who employs eight or more persons,
and does not include any religious or sectarian organization not
organized for private profit.
→ Practice Tip: Note the general exclusion of non-profit religious or
sectarian organizations from the scope of RCW 49.60. This exemption
may be implicated regarding domestic partner/marital status
discrimination.
17
9
The Washington Law against Discrimination
RCW 49.60.040 (selected definitions)
(17) "Marital status" means the legal status of being married, single,
separated, divorced, or widowed.
→ Practice Tip: Note that marital status discrimination in employment
is prohibited under the Washington Law against Discrimination.
→ Practice Tip: Note that Title VII does not prohibit “marital status”
discrimination, whereas Washington law does.
18
The Washington Law against Discrimination
Marital Status Discrimination
RCW 49.60 et seq. prohibits discrimination on the basis of a
person's marital status by their employer.
A prima facie case of marital status discrimination under RCW
49.60.180(3) requires an employee to prove:
ƒ 1) the employer discriminated against the employee based on
their marital status, and
ƒ 2) the discrimination was not justified or excused by business
necessity. Magula v. Benton Franklin Title Co., 131 Wash. 2d
171, 176, 930 P.2d 307, 310 (1997)
19
10
The Washington Law against Discrimination
Marital Status Discrimination
In order to establish marital status discrimination, the employee must
prove that the marital status was a substantial factor in the employer's
adverse employment decision. Magula, 131 Wash. 2d 171.
20
The Washington Law against Discrimination
Marital Status Discrimination
In general, discrimination against an employee or applicant for
employment because of:
ƒ what a person's marital status is;
ƒ who his or her spouse is; or
ƒ what the spouse does,
is an unfair practice because the action is based on the person's
marital status. WAC 162-16-250.
21
11
The Washington Law against Discrimination
Marital Status Discrimination
WAC 162-16-250 (in part)
1) General rule. It is an unfair practice to discriminate against an
employee or job applicant because of marital status. Examples of
unfair practices include, but are not limited to:
(a) Refusing to hire a single or divorced applicant because of a
presumption that "married persons are more stable."
(b) Refusing to promote a married employee because of a
presumption that he or she "will be less willing to work late and travel."
22
The Washington Law against Discrimination
Marital Status Discrimination
All of these principles regarding marital status and spousal identity
should now apply to registered domestic partners, including partner
identity.
23
12
The Washington Law against Discrimination
Marital Status Discrimination
Recall that in Marquis v. City of Spokane, 130 Wash.2d 97, 922 P.2d
43, 51 (1996), the Washington Supreme Court held that an
independent contractor could bring a sex discrimination claim under
Wash. Rev.Code § 49.60.030, even though she was not protected by
Wash. Rev.Code § 49.60.180.
The same holding may result in a situation in which an independent
contractor claims marital status discrimination.
24
The Washington Law against Discrimination
Marital Status Discrimination
→ Practice Point:
Many (if not most) employers do not request or require married
opposite sex spouses to provide a copy of a marriage license.
Query: Should an employer request a copy of the Secretary of
State provided certificate of state- registered domestic partnership?
Consider the discussion regarding the Washington Law
against Discrimination (RCW 49.60 et seq.)
25
13
Leave Laws Governed By Washington Law in General
In 2008, the Department of Labor and Industry prepared a chart
regarding various Washington and federal leave laws. See,
Attachment 3. To be compliant with the 2009 Act, the term
“registered domestic partner” should be added to all Washington
State leave provisions. See, also, § D 1 below.
26
Interplay between the Washington State Family Leave
Act and the federal Family and Medical Leave Act –
do not get trapped!
27
14
Interplay between the Washington State Family Leave
Act and the federal FMLA
The Washington Department of Personnel adopted draft rules
(Attachment 2), and have also revised the Washington Administrative
Code to update these differences between WFLA and FMLA:
→ WAC 357-31-520
→ WAC 357-31-535
28
WAC 357-31-520 (effective 12.03.09)
Because the FMLA does not recognize registered domestic partners,
an absence to care for an employee's registered domestic partner is
not counted towards the twelve weeks of the FMLA entitlement
described in WAC 357-31-525.
For example: If an employee uses twelve weeks of leave to care for
their registered domestic partner during a twelve-month period, and no
other FMLA leave was used, the employee is still entitled to his or her
full twelve-week FMLA entitlement during the same twelve-month
period, as the leave used was provided for a purpose not covered by
FMLA;
29
15
WAC 357-31-520 (effective 12.03.09)
However, if an employee uses twelve weeks of leave to care for their
parent or for another FMLA qualifying reason, then during that same
twelve-month period the employer would not be required to provide
additional leave under Washington's family leave law to care for the
employee's registered domestic partner because the twelve-week
entitlement under FMLA and Washington's family leave law has been
exhausted.
30
WAC 357-31-520 (effective 12.03.09)
Who designates absences which meet the criteria of the
Family and Medical Leave Act?
The employer designates absences which meet the criteria of
the Family and Medical Leave Act. Paid or unpaid leave used
for that designated absence must be counted towards the
twelve weeks of the Family and Medical Leave Act entitlement.
Because the Family and Medical Leave Act of 1993 (29 USC
2601 et seq.) does not recognize registered domestic partners,
an absence to care for an employee's registered domestic
partner is not counted towards the twelve weeks of the Family
and Medical Leave Act entitlement.
31
16
Selected Issues Under the Fair Labor Standards Act
If an “exempt” employee takes “intermittent” or “reduced” leave under
the FMLA, the employer can commensurately reduce pay without
jeopardizing the employee’s “exempt” status under the Fair Labor
Standards Act. 29 CFR §825.206 (a).
However, under the federal regulations governing the FMLA, even if a
state requires leave that is similar to, but broader than, FMLA, the
employer cannot “dock” the employee’s pay for intermittent leave
without jeopardizing the employee’s exempt status. 29 CFR
§825.206(c).
ƒ The employee may choose not to take hourly deductions from the
employee’s pay, or may take such deductions by alternatively
converting the employee to “non-exempt” status. Id.
32
Selected Issues Under the Fair Labor Standards Act
See Steelman v. Hirsch, 473 F.3d 124 (4th Cir. 2007) (domestic
partner of sole proprietor, who worked at proprietorship for
several years, was not “employee” within meaning of FLSA,
precluding her action against proprietor seeking additional
compensation allegedly owed.)
33
17
Certain Washington State Agency Responses to
Enactment of the 2009 Act
The 2009 Act directs state agencies to amend their rules to reflect the
intent of the Legislature to ensure that all privileges, immunities, rights,
benefits, or responsibilities granted or imposed by statute to an
individual because that individual was or is a spouse are granted or
imposed on equivalent terms to an individual because that individual is
or was in a state registered domestic partnership.
Various state agencies which govern various employment relationships
have begun to address such required amendments.
34
Washington State Department of Labor & Industries
The following information is from the website for the Washington State
Department of Labor & Industries:
ESSSB 5688 – Expanding the rights and responsibilities of stateregistered domestic partners.
ƒ Expands the rights of state registered domestic partners by granting
any privilege, immunity, right, benefit, or responsibility granted or
imposed by statute, rule, policy, common law, or any other law that is
provided to spouses.
ƒ Repeals the non-judicial termination process for domestic partnerships
and requires that parties must file for dissolution to terminate a
partnership.
35
18
Washington State Department of Labor & Industries
Extends workers’ compensation benefits and crime victims’
compensation benefits currently available to spouses to include
state-registered domestic partners. Pension options and
survivor benefits are two examples.
Adds state-registered domestic partners to RCW 49.12 –
Industrial Welfare Act (family leave, for example).
36
Washington State Department of Labor & Industries
ƒ
The Department of Labor and Industry has prepared a chart
regarding various state and federal leave law. See,
Attachment 3.
ƒ
To be compliant with the 2009 Act, the term “registered
domestic partner” should be added to all Washington State
leave provisions.
37
19
Washington State Employment Security Department
The ESD has drafted rules to implement the 2009 Act. See,
Attachment 4.
http://www.esd.wa.gov/newsandinformation/legresources/uiac/ar
chive/uiac-dom-partner-rules.pdf
38
Marital Community Issues Relating to Employment
Law
Because Washington is a “marital community” state, employment and
business issues regarding “marital communities” also arise under the
2009 Act. For example:
in Washington, an employee’s spouse needs to “consent” in order for
the employee to assign his or her wages. RCW 49.48.100.
Consent of an employee’s spouse is necessary in certain other
contexts as well, such as for certain loan guarantees. Now, under the
2009 Act, any time a “spousal consent” is required, an equivalent
“domestic partnership consent” will be required.
39
20
What Steps Should Businesses and Employers Take
to Comply with the 2009 Act?
ƒ Initial Compliance Steps
ƒ Workplace Implementation
40
What Steps Should Businesses and Employers Take
to Comply with the 2009 Act?
→ Talk to your insurance broker.
Employers who offer state-regulated insurance coverage to
employees should check with their insurance broker or carrier to
determine what specific impact, if any, the 2009 Act will have on
their policies, enrollment and related issues, and to be ready to
“roll out” coverage to registered domestic partners as required
under the 2009 Act.
41
21
What Steps Should Businesses and Employers Take
to Comply with the 2009 Act?
→ Review handbooks and other policies.
Periodic review of handbooks or other policies is always a good
idea, particularly given this year’s amendments to the
Americans with Disabilities Act and the FMLA. Employers also
need to ensure that their anti-discrimination policies are up to
date.
42
What Steps Should Businesses and Employers Take
to Comply with the 2009 Act?
→ Draft a simple notice to distribute to employees regarding
the 2009 Act.
Employers should be prepared to post or distribute a simple
notice on the effective date of the 2009 Act while policy
revisions are under consideration.
43
22
What Steps Should Businesses and Employers Take
to Comply with the 2009 Act?
The notice to employees could state:
Recently, changes were made to Washington law regarding the
rights and responsibilities of registered domestic partners. We
will comply with all such laws and are working on revisions to
our policies and handbooks to reflect these changes. Please
feel free to direct any questions about domestic partnership
employment issues to ________ as we work to update our
policies.
44
Workplace Implementation
45
23
46
Workplace Implementation
47
24
Workplace Implementation
Employment discrimination laws do not regulate
“civility” in the workplace. They also cannot regulate
what an employee thinks or believes. However, such
laws regulate prohibited conduct in the workplace. It
is not uncommon for there to be some initial questions
or concerns about various discrimination laws.
48
Workplace Implementation
ƒ Some religious or other groups in the 1960's taught that
African Americans or other persons of color were inferior
and should be segregated from the rest of society on the
basis of their race. Title VII racial protections were
unsuccessfully challenged on this ground.
ƒ Some religious traditions or other groups continue to
teach that women should be excluded from positions of
authority and power because of their gender. Federal
gender and pregnancy protections were unsuccessfully
challenged on this ground.
49
25
Workplace Implementation
ƒ Many religious organizations refuse to hire a person of
another religion, even to perform a non-religious task like
sweeping the floor or sorting mail.
ƒ Differently-abled workers continue to integrate into the
workplace.
ƒ Employees have to respect other civil rights legislation.
For example, the 2009 Washington Legislature passed
new civil rights legislation declaring breast-feeding in
public accommodations to be a civil right that cannot be
interfered with.
50
Religious Views of Others
While religious accommodation questions may arise, case law
recognizes an employer’s need to train its employees on EEO and
related laws. See, e.g., Peterson v. Hewlett-Packard Co., 358 F.3d
599 (9th Cir. 2004) (Former employee's proposed accommodations to
his religious beliefs, which included either allowing employee to
continue to post anti-gay scriptural passages in response to employer's
workplace diversity campaign of posters, or removing the posters,
would have inflicted undue hardship upon employer, and thus failed to
support employee's Title VII failure-to-accommodate claim;
51
26
Peterson v. Hewlett-Packard Co., 358 F.3d 599 (9th Cir.
2004) (cont’d)
the first accommodation would have compelled employer to permit an
employee to post messages intended to demean and harass coworkers, and the second accommodation would have forced the
employer to exclude sexual orientation from its workplace diversity
program, infringing upon employer's right to promote diversity and
encourage tolerance and good will among its workforce.
52
Another Bill to Watch: the Proposed Federal
Employment Non-Discrimination Act
The Federal Employment Non-Discrimination Act,
S.1584/H.R. 3017 (“ENDA”) is presently moving through
Congress. If enacted in its current form, for employers with
fifteen or more employees, ENDA would prohibit
employment discrimination based on sexual orientation
and gender identity.
53
27
Another Bill to Watch: the Proposed Federal
Employment Non-Discrimination Act
The bill is closely modeled on existing civil rights laws,
including Title VII of the Civil Rights Act of 1964 and
the Americans with Disabilities Act. The bill explicitly
prohibits preferential treatment and quotas and does
not permit disparate impact suits.
54
Another Bill to Watch: the Proposed Federal
Employment Non-Discrimination Act
If enacted, ENDA would:
ƒ exempt small businesses, religious organizations and the
military
ƒ not require that domestic partner benefits be provided to
the same-sex partners of employees
ƒ provide for the same procedures, and similar, but
somewhat more limited, remedies as are permitted under
Title VII and the Americans with Disabilities Act
ƒ apply to Congress and the federal government, as well as
employees of state and local governments
55
28
Another Bill to Watch: the Proposed Federal
Employment Non-Discrimination Act
ƒ not apply to religious organizations or to the uniformed
members of the armed forces (the bill doesn’t affect the
"Don’t Ask, Don’t Tell" policy)
ƒ would not allow a "disparate impact" claim similar to the
one available under Title VII of the Civil Rights Act of
1964.
ƒ MAY have certain IRS implications
56
K&L Gates Will Continue to Track Developments
K&L Gates will continue to track updates regarding the
2009 Act, ENDA and other federal and state proposed
legislation which impacts employment, labor and
benefits issues.
57
29
Domestic Partner Benefits – Legal and Practical
Considerations
Heidi Alessi
(206) 370.7983
heidi.alessi@klgates.com
Why Provide Benefits?
Why Provide?
59
30
Market Compensation
Total Compensation
ƒ Health insurance benefits typically equal 20% of an
employee’s total compensation.
ƒ Disparity in compensation presents a risk of
discrimination claims.
Growing Trend
ƒ 83% of Fortune 100 Companies
ƒ 57% of Fortune 500 Companies
60
Marginal Cost
Risk of Disputes May Outweigh Marginal Cost
ƒ 64% - increase of less than 1% of total benefit costs
ƒ 88% - increase of 2% or less
ƒ Only 5% - increase of 3% or more
61
31
Employee Expectations
Most believe that Referendum 71 requires employers to provide
benefits to domestic partners.
Technical distinctions may not be understood.
62
The Legal Landscape:
Overlapping, Confusing & Inconsistent Laws
32
Employee Retirement Income Security Act
ƒ ERISA regulates most employee welfare plans and
retirement plans.
ƒ Government and Church plans are not subject to ERISA.
ƒ ERISA preempts all state laws that relate to ERISAgoverned plans.
ƒ Does not preempt state laws regulating insurance.
ƒ A law regulates insurance if it is specifically directed at
insurers.
64
Defense of Marriage Act (“DOMA”)
ƒ DOMA applies whenever a federal law is being
interpreted.
ƒ DOMA defines “spouse” as referring only to a person
of the opposite sex who is a husband or wife.
ƒ DOMA defines “marriage” as a legal union between
one man and one woman as husband and wife.
65
33
Civil Rights and Discrimination Laws
Title VII & Equal Pay Act
ƒ Under federal law it is not illegal discrimination on the
basis of gender to provide same-sex domestic
partner benefits but not OSDP benefits.
ƒ Under the Washington Law Against Discrimination
the distinction may be illegal discrimination on the
basis of sexual orientation or marital status.
ƒ To the extent WLAD would require equal benefits, it would
be preempted by ERISA.
ƒ Nevertheless, a lawsuit could be expensive and unequal
benefits may be used of discriminatory intent in a suit not
seeking benefits.
66
Washington’s Domestic Partnership Registry
ƒ Since 2007 individuals have been able to enter into a
state registered “domestic partnership” through the
Secretary of State.
ƒ Individuals register by completing a form and paying
a fee.
ƒ The individuals are then included in a searchable
registry maintained by the Secretary of State at
www.secstate.wa.gov/corps/domesticpartnerships/
ƒ Since 2008 termination of a domestic partnership
requires a judicial process similar to a divorce.
67
34
Who Can Be a Domestic Partner?
ƒ Share a common residence
ƒ Be at least 18
ƒ Not be married or in another registered domestic
partnership
ƒ Be capable of consenting to the partnership
ƒ Not be related (unless more distant than second
cousin), and
ƒ Be either of the same sex or opposite sex with one of
the partners being at least 62 years old.
68
Everything But Marriage Act – December 3, 2009
“For purposes of this chapter, the terms spouse, marriage, marital,
husband, wife, widow, widower, next of kin, and family shall be
interpreted as applying equally to state registered domestic
partnerships or individuals in state registered domestic partnership as
well as to marital relationships and married persons, and references to
dissolution of marriage shall apply equally to state registered domestic
partnerships that have been terminated, dissolved, or invalidated, to
the extent that such interpretation does not conflict with federal law.
Where necessary to implement this act, gender-specific terms such as
husband and wife used in any statute, rule, or other law shall be
construed to be gender neutral, and applicable to individuals in state
domestic partnerships.”
69
35
Everything But Marriage Act
ƒ The Act does not (and cannot) directly require private
employers to provide benefits to domestic partners.
ƒ The Act amends several insurance laws to include the generic
statutory language.
ƒ State Insurance Commissioner is requiring operational
compliance only – no contract amendments.
70
Quandaries
ƒ How can a plan administrator comply with the benefit plans
written plan terms if the insurance policy is not amended in
writing?
ƒ Is an employer required to pass-on the insurance companies’
obligations? Current case law suggests the answer is yes.
ƒ A wrap plan document could address these ambiguities.
71
36
Health Care Coverage
72
Are Employers Required to Provide Health Care
Coverage to Domestic Partners?
ƒ YES, when not subject to ERISA
ƒ Government Plans
ƒ Church
ƒ Depends, when subject to ERISA.
ƒ Insured Plans – yes
ƒ Self-Funded Plans – no (for now)
ƒWarning
ƒ Technical distinction not understood by employees.
ƒ Confirm that your insurance company agrees.
73
37
What Procedures Should be Used?
Define the terms “Domestic Partner” and “Spouse”
A neutral DP definition has five core elements:
1. Both are at least 18;
2. Not related;
3. Committed and in an exclusive relationship;
4. Financially interdependent; and
5. Share the same principal residence.
74
Require Only Necessary Documentation
ƒ
Is the process for enrolling a domestic partner more
burdensome than necessary?
ƒ
ƒ
For example, do you require an employee claiming a spouse
to prove the existence of a marriage?
A reasonable process might include:
1. An affidavit of domestic partnership (if no registry available);
2. An affidavit of tax status; and
3. An affidavit for termination of a domestic partnership.
75
38
Develop Plan for Implementing EBMA
ƒ Who will be eligible?
ƒ Will you allow immediate enrollment?
ƒ Will you allow mid-year enrollment for a new domestic
partner?
ƒHow will you handle contributions and income taxes?
ƒ Does your insurance company agree?
76
Tax Treatment of Health Care Coverage
77
39
How are Domestic Partner Benefits Taxed?
ƒ Health care coverage provided by an employer to an
employee, the employee’s spouse (currently defined by
DOMA), or tax dependent is not included in the
employee’s gross income for federal income tax, FICA
and FUTA.
78
Is the Domestic Partner a Tax Dependent?
ƒ
To be a tax dependent the domestic partner must:
1. Receive more than ½ his/her support from the
employee for the entire year, and
2. Have the same principal home address for the
entire year.
79
40
Examples:
Tax Dependent:
Not a Tax Dependent:
Sally’s partner does not work
outside their shared home to
take care of their children.
John’s partner has a full-time
job and contributes to
household expenses.
Jane’s partner was
unemployed from January –
June, but obtained a full-time
job on July 1.
80
Tax Treatment of Non-Dependents
IRS Guidance:
ƒ FMV of Coverage is Imputed Income to the
Employee, subject to income tax, FICA and FUTA.
ƒ Reimbursements (costs of health care services) is
not imputed income.
ƒ Employer entitled to rely on certification of employee
claiming dependent status.
81
41
What is the Fair Market Value?
No guidance – several options:
ƒ Amount the individual would have to pay in the
individual market?
ƒ COBRA cost?
ƒ Employer’s actual cost for that individual?
82
Calculating the Tax Impact
1. Monthly Imputed Income (The fair market value of the
coverage for a domestic partner)
2. Multiply 1 by 12.
3. Multiply 2 by employee’s federal income tax rate (or
presume 25%)
4. Multiply 2 by 7.65% for the employee’s share of FICA
5. Total estimated tax employee must pay on imputed
income (add 3 and 4)
83
42
Tax Treatment for Dependents
ƒ Whole Year Requirement
ƒ Prospective determination difficult
ƒ If not met, income must be imputed for coverage
provided during year (including any portion where
dependent status may have been met).
84
Cafeteria Plans/FSAs/HSAs
ƒ No pre-tax contributions to pay for premium.
ƒ No reimbursements from Flexible Spending Account
for domestic partner’s expenses.
ƒ No reimbursements from Health Savings Account,
but cost for domestic partner coverage can count
towards thresholds for HDHP.
ƒ If dependent status is lost mid-year recoup or report
on W-2 (consult counsel).
ƒ Dissolution is not a change in status – not a basis for
revoking election.
85
43
Paying for Coverage
Option 1:
ƒ Pay pre-tax for both EE+DP
ƒ Employee taxed for DP at end of year
ƒ Example: Individual = $500/mo., EE+DP = $1,000/mo,
Employer pays 80%, EE cost is $100/$200.
ƒ Full cost of $6,000 ($500x12) is additional income
reported on W-2 at end of year.
86
Paying for Coverage
Option 2:
ƒ Same facts but EE pays for DP coverage through
after-tax payroll deduction.
ƒ At the end of the year, EE is taxed on $6,000 minus
post-tax contributions.
ƒ Variation – impute value of employer’s contribution
ratably during the year. A portion of the $4,800 is
imputed to the employee’s paycheck each month.
87
44
Paying for Coverage
Practical Consideration:
ƒ Timing
ƒ If income is imputed at the end of year subject to
witholdings, employee takes a big hit in pay at one time.
88
COBRA
ƒ Domestic Partner may not elect COBRA coverage.
ƒ Employee might be able to elect COBRA coverage
for the Domestic Partner.
ƒ COBRA-like coverage – confirm insurance carrier
agrees.
89
45
Retirement Benefits
90
Death Beneficiary
ƒ Communicate method of designating a beneficiary,
which can be the employee’s domestic partner.
ƒ Amend retirement plans to provide that a domestic
partner is the default beneficiary.
ƒ Defined Benefit plans subject to QJSA & QPSA must
provide that single life annuity is default for unmarried participant, but can amend to provide that a
joint and survivor annuity is an optional form and
communicate to employees.
91
46
Non-Spousal Rollovers
Mandatory as of January 1, 2010
ƒ Designated beneficiary can avoid taxation by direct
rollover to an IRA (but not another qualified plan).
ƒ Communicate the importance of designating a
beneficiary.
92
Division Upon Dissolution?
ƒ Might violate anti-assignment rules.
ƒ Might be a QDRO – alternate payee must be a
“spouse, former spouse, child or dependent”
recognized by a domestic relations order as having a
right to receive a portion of participant’s benefit.
ƒ Does state law mean a DP is a “spouse”?
ƒ DOL Advisory Opinion – administrator not required to
analyze state domestic relations law and can rely on facially
valid order.
93
47
Questions?
94
48
2
Suzanne J. Thomas
AREAS OF PRACTICE
SEATTLE OFFICE
206.370.6642 TEL
206.370.6315 FAX
suzanne.thomas@klgates.com
Ms. Thomas is a partner with a labor and employment practice. She focuses her
practice on advice, counseling, representation and litigation, including class action
litigation, in sophisticated areas of employment law. Ms. Thomas has worked
extensively with financial institutions and their senior executives. She has substantial
background in conducting and overseeing independent investigations for publicly
traded, regulated, private and public employers, including managing issues of
privilege and work product. Ms. Thomas also advises companies on how to deal with
investigative results. Her practice includes related intellectual property protection and
business matters, such as mergers and acquisitions. Ms. Thomas advises and litigates
regarding a wide range of employment issues, including harassment, wage and hour
payment and compliance, hiring, discipline, termination, EEO, privacy rights, trade
secrets, non-competition, workforce restructuring, and personnel policies. She has
worked with private and public employers, including school districts and higher
education institutions. She has counseled employers in high profile matters, including
related internal and external public relations. Ms. Thomas is also active in community
service and pro-bono matters.
PROFESSIONAL/CIVIC ACTIVITIES
§
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§
Adjunct Professor of Law, Employment Survey course, Seattle University School
of Law
Board of Trustees, Greater Seattle Chamber of Commerce
Past Trustee, King County Bar Association Labor and Employment Law Section
Has served on the Planning Committee of the Pacific Coast Labor Conference
Leadership Tomorrow Graduate
General Counsel and Board Member, Alki Foundation, the Chamber’s political
affiliate
Past Trustee, King County Bar Foundation
COURT ADMISSIONS
§
§
§
U.S. Court of Appeals for the Ninth Circuit
U.S. District Court for the Western District of Washington
Washington State Supreme Court
BAR MEMBERSHIPS
Washington
EDUCATION
J.D., University of Michigan School of Law, 1987 (Order of Barristers)
B.A., political science, University of Washington, 1984 (Honor Society and Mortar
Board)
Suzanne J. Thomas
ACHIEVEMENTS
Ms. Thomas served as a gubernatorial appointee under Washington Governor Gary
Locke, and is a past president of the Washington Women Lawyers State Bar
Association. She is a Leadership Tomorrow Graduate. She has been recognized as a
Rising Star in Washington Law & Politics in 1999 and as a Super Lawyer every year
thereafter. She is also listed in the “Best Lawyers in America,” and was identified as a
Best Lawyer in the June 2006 and June 2007 Seattle Metropolitan magazine.
REPRESENTATIVE EXPERIENCE
§
§
§
§
§
§
§
Often serves as a neutral investigator and as a mediator for employment and
related business matters.
Advises lawyers and law firms regarding the Rules of Professional Conduct and
related issues including disqualification and disciplinary matters. She has served
as an expert relating to such issues.
She provides advice to elected officials and other public employees regarding
applicable ethics rules, and has represented such officials in agency and related
proceedings.
Has extensive experience counseling and representing clients in complex disputes
relating to contracts, securities, patents and other intellectual property, wireless
industry, restrictive covenants, stock options, and partnerships and corporate
ownership.
Success in obtaining summary judgments on behalf of individual and corporate
clients in state and federal court, and has taken matters successfully to verdict in
both forums. She has also briefed and/or argued appeals before the Ninth Circuit
Court of Appeals and the Washington Supreme Court, as well as intermediary
courts of appeal.
Frequently counsels and represents employers in relation to discrimination
charges filed with the Equal Employment Opportunity Commission (EEOC),
Washington Human Rights Commission (HRC), and Seattle Office of Civil
Rights (SOCR).
Regularly speaks on employment law topics, and regarding ethical issues at
continuing legal education and human resources seminars.
Heidi Eckel Alessi
AREAS OF PRACTICE
SEATTLE OFFICE
206.370.7983
TEL
206.370.6233
FAX
heidi.alessi@klgates.com
Heidi Alessi is an associate in the firm’s employee benefits and executive
compensation group. Her practice focuses on qualified and nonqualified retirement
plans, compliance with 409A, equity based compensation plans, and welfare benefit
plans. Ms. Alessi counsels employers, plan administrators and other plan fiduciaries
in employee benefits law, including the employee benefits and compensation issues
involved in mergers and acquisitions. In addition, Ms. Alessi is experienced in
defending litigation claims for benefits under ERISA governed plans, claims for
benefits under non-ERISA plans and tax-deferred annuities, and claims alleging
breach of fiduciary duties.
REPRESENTATIVE EXPERIENCE
§
§
§
§
§
§
§
§
§
§
§
§
§
§
Assisted clients with the design, drafting and amendment of qualified plans and
403(b) plans.
Prepared application for determination of tax–qualified status to IRS.
Assisted clients with the design and drafting of executive compensation and
equity incentive plans.
Drafted nonqualified deferred compensation programs and advised tax issues
relating to deferred compensation, including compliance with Code Section
409A.
Advised employers regarding benefits issues in connection with mergers and
acquisitions, including due diligence analysis of qualified and stock option plans,
transition and integration issues.
Assisted client with termination of defined benefit plan.
Advised clients regarding cash balance plans, pension equity plans, and
traditional defined benefit plan design options and compliance with the Pension
Protection Act.
Advised employers regarding IRS and DOL annual reporting and participant
disclosure requirements.
Advised employers regarding operations plan errors and correction options under
IRS’s Employee Plans Compliance Resolution System.
Advised clients regarding plan fiduciary obligations and requirements of ERISA
Section 404(c).
Provided advice regarding qualified status of domestic relations orders.
Advised clients regarding handling of claims for benefits and benefit disputes.
Advise plan fiduciaries regarding their fiduciary duties to the plan and how to
best protect themselves from liability.
Advised companies regarding best practices and procedures for adding domestic
partners to health care and retirement plans and the implications for related
cafeteria plans and health savings accounts.
PRESENTATIONS
§
§
“Cafeteria Plans: Drafting for the Recent IRS Regulations,” American Law
Institute/American Bar Association, Speaker, November 29, 2007
“The Automatic 401(k): Automatic Enrollment and Default Investment
Heidi Eckel Alessi
§
Alternatives,” Western Pension & Benefits Conference, Spring Seminar 2008
“Providing Employee Benefits to Domestic Partners in Washington State,” Seattle
Pension Roundtable, July 2009
PUBLICATIONS
§
§
“Attorneys Provide Tips on Drafting Changes to Plan Documents for Proposed
Regulations,” Pension and Benefits Reporter, November 30, 2007
Nonprofits and Public Schools Face a New World for 403(b) (Tax Sheltered
Annuity) Plans, August 2009
PROFESSIONAL/CIVIC ACTIVITIES
§
§
§
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§
Member, Western Pension & Benefits Conference, Seattle chapter
Vice-Chair and Board Member, Epilepsy Foundation Northwest
Board Member, Epilepsy Foundation America
Defense Research Institute, LHD/ERISA Committee
Seattle Pension Roundtable
COURT ADMISSIONS
§
§
U.S. District Court for the Western District of Washington
U.S. District Court for the Eastern District of Washington
BAR MEMBERSHIPS
Washington
EDUCATION
J.D., Seattle University School of Law (2001), summa cum laude, Academic Scholar,
Dean’s List, CALI Awards for Excellence in Civil Procedure, Legal Writing,
Administrative Law and Antitrust
B.A., The Evergreen State College (1998)
3
DOMESTIC PARTNERSHIP RIGHTS AND RESPONSIBILITIES
EXPANSION LEGISLATION:
EMPLOYMENT LAW
December 2009
Suzanne J. Thomas
Labor and Employment Practice Group
K&L GATES LLP
925 Fourth Avenue, Suite 2900
Seattle, Washington 98104
Firm website: www.klgates.com
Phone: 206-370-6642 (direct)
Fax: 206-370-6315
e-mail: suzanne.thomas@klgates.com
SUZANNE J. THOMAS, a partner in K&L Gates’ Labor and Employment practice, concentrates
in sophisticated employment law issues. Ms. Thomas has substantial experience in complex
commercial litigation, including intellectual property issues, and represents National,
International, Northwest, and non-profit employers on a wide range of issues. A substantial part
of her practice relates to employment issues in litigating discrimination matters and advising
clients regarding compliance, mergers and acquisitions, and trade secrets and unfair
competition. Ms. Thomas also represents executives regarding contract matters. Suzanne has
experience counseling clients in complex disputes relating to contracts, securities, patents and
other intellectual property, wireless industry, restrictive covenants, stock options, and
partnerships and corporate ownership. Ms. Thomas is a frequent lecturer on employment and
ethics issues. She is listed in the “Best Lawyers in America,” and was identified as a Best
Lawyer in the Seattle Metropolitan magazine. Suzanne has been named a “Super Lawyer” since
2000 and was a 1999 “Rising Star” by Washington Law and Politics. Ms. Thomas, a Leadership
Tomorrow Graduate, is a past President of the Washington Women Lawyers State Bar
Association, past Trustee of the King County Bar Foundation, King County Bar Association
Labor and Employment Section and General Counsel to, and past Chair of, and present
General Counsel to, the Alki Foundation (the political arm of the Greater Seattle Chamber of
Commerce). Ms. Thomas serves as a Trustee for the Greater Seattle Chamber of Commerce
Board of Trustees. She is an Adjunct Professor at Seattle University Law School, teaching
employment courses. Ms. Thomas provides advice to other lawyers regarding the Rules of
Professional Conduct and serves as a mediator for employment related matters.
I. Employment Implications of the 2009 Registered Domestic Partnership Expansion
(dubbed the “Everything but Marriage Act”)
A. History of Registered Domestic Partnerships in Washington State
In 2007 the Washington State Legislature created a domestic partnership registry to be
maintained by the Secretary of State and extended certain rights to registered domestic
partners. The legislation allows individuals to enter into a state registered “domestic
partnership” so long as the individuals meet certain criteria. To register as domestic partners,
both individuals must:
• Share a common residence1
• Both be at least 18 years of age
• Not be married to, or in a registered domestic partnership with someone else
• Be capable of consenting to the domestic partnership
• Not be nearer kin than second cousin
• Not be a sibling, grandchild, aunt, uncle, niece or nephew to the other partner, and
• Either be of the same sex or of the opposite sex with at least one of the individuals
being at least 62 years old.
Qualifying domestic partners who register with the state are provided with a certificate of state
registered domestic partnership. Legal unions of same-sex partners in other jurisdictions are
recognized as domestic partnerships in Washington if they are the “substantial equivalent” of a
domestic partnership under Washington law.2
Some existing Washington statutes were amended in 2007 to recognize certain domestic
partner rights and obligations, such as those associated with hospital visitation, health care
decision-making, organ donation decisions, and other issues related to illness, incapacity, and
death. Because of the volume of Washington laws that could be affected by domestic
partnership recognition, not all of Washington’s laws were amended in 2007 to recognize the
rights and responsibilities of registered domestic partners. Additional domestic partner laws
were adopted in 2008, such as community property rights, probate rights, and joint responsibility
for debts. Again, not all Washington laws impacted by registered domestic partner status were
amended.
When the registry was created, a domestic partnership could be easily terminated by filing a
notice with the Secretary of State. However, the law was amended in 2008, to, in part, modify
the termination process. Now, a domestic partner must file a petition for dissolution in superior
court and follow the same procedures applicable to a marital dissolution.
1
2
This term is defined in RCW 26.60.020 (3).
RCW 26.60.090.
2
B. 2009 Registered Domestic Partnership Expansion Bill
During the 2009 legislative session the Legislature passed, and Governor Gregoire signed, what
has been dubbed the “Everything but Marriage Act” or the “2009 Act.”3 The majority of the 2009
Act was scheduled to take effect on July 26, 2009. However, proponents of a referendum
seeking to repeal the bill submitted sufficient signatures to place a repeal referendum,
Referendum 71, on the November ballot. Despite the repeal effort, the Referendum was
approved by Washington voters,4 meaning that the 2009 Act will soon become law.
1. Federal and State laws which prohibit same-sex “marriage” are not
affected by the 2009 Act.
Federal and Washington State laws which prohibit same-sex “marriage” are not affected by the
2009 Act.5 As the Legislature explained in the 2009 Act (emphasis added):
It is the intent of the legislature that for all purposes under state law, state registered
domestic partners shall be treated the same as married spouses. Any privilege,
immunity, right, benefit, or responsibility granted or imposed by statute, administrative or
court rule, policy, common law or any other law to an individual because the individual is
or was a spouse, or because the individual is or was an in-law in a specified way to
another individual, is granted on equivalent terms, substantive and procedural, to an
individual because the individual is or was in a state registered domestic partnership or
because the individual is or was, based on a state registered domestic partnership,
related in a specified way to another individual. The provisions of this act shall be
liberally construed to achieve equal treatment, to the extent not in conflict with federal
law, of state registered domestic partners and married spouses.
An interesting case to consider in this regard is Leskovar v. Nickels, 140 Wash.App. 770, 166
P.3d 1251 (Div. 1,2007, rev. den., 63 Wash.2d 1043, 187 P.3d 270 (2008) (Mayor's executive
order requiring city departments to recognize “same sex marriages” of city employees in same
manner as opposite-sex marriages of city employees, for purposes of employee benefits, did
not directly conflict with state's Defense of Marriage Act defining marriage as civil contract
between a male and a female, as would invalidate the order; order merely determined who was
eligible for employee benefits without purporting to give legal effect to same-sex marriages,
though order contained aspirational language in its “whereas” clauses stating that “marriage
3
http://apps.leg.wa.gov/documents/billdocs/200910/Pdf/Bills/Senate%20Passed%20Legislature/5688-S2.PL.pdf
4
The rate of passage was 53.16% versus 46.84%. Source: Washington Secretary of State.
5
ESSSB 5688. Same-sex marriage is prohibited under federal law for all federal law purposes.
The Federal Defense of Marriage Act defines the terms “marriage” and “spouse” as follows:
“the word ‘marriage’ means only a legal union between one man and one woman as husband
and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or
a wife.” 1 U.S.C. § 7. Washington law defines “marriage” as “a civil contract between a male
and a female who have each attained the age of eighteen years, and who are otherwise
capable.” RCW 26.04.010 (1). Washington’s version of the Defense of Marriage Act, which
prohibits same-sex marriage in Washington, remains in place. RCW 26.04.020 (c).
Washington will not recognize a same-sex marriage even if it is valid in another jurisdiction.
RCW 26.04.020 (3).
3
equality” should be afforded to all consenting, adult couples regardless of their sexual
orientation.)
2. Because the 2009 Act has been voted into place, most provisions of the
2009 Act will go into effect on December 3rd, 2009.
While some of the Domestic Partnership Expansion law will not go into effect until later,6 the
majority of the law becomes effective upon certification of the November 2009 election by the
Washington Secretary of State, which is expected to be on December 3, 2009.
Following the election, the Washington Secretary of State posted the following synopsis of the
2009 Act:
ESSSB 5688 Effective December 3, 2009 - Provides that for all purposes under state
law, state registered domestic partners shall be treated the same as married spouses
and that provisions of the act shall be liberally construed to achieve equal treatment, to
the extent not in conflict with federal law.
For the full legislative history of each specific statutory change, see:
http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bills/Session%20Law%202009/5688S2.SL.pdf.
See, also, Attachment 1, which contains legislative summaries of the 2009 Act.
C. What kinds of laws are affected by the 2009 Act?
In addition to impacting many areas of law, such as family law, a myriad of employment-related
laws are affected by the 2009 Act. Much of the 2009 Act’s implementation will be clear-cut. In
general, registered domestic partners will be treated the same as married spouses for almost
every purpose, unless federal law requires otherwise.
1. Regardless of their size, employers need to update handbooks, policies
and other guidelines to ensure that registered domestic partners are
treated in the same way as married spouses. Be mindful of collective
bargaining agreements.
Numerous provisions of an employer’s handbooks, guidelines or other policies include
references to married spouses. The same may be true for collective bargaining agreements.
Some examples may include granting leave that is not required by federal or state law, such as
bereavement leave. Using bereavement leave as an example, if an employer provides
bereavement leave to an employee for leave regarding his/her spouse or in- laws, an employer
must now provide the same leave to a registered domestic partner.
6
Certain provisions, such as those relating to certain state pensions, will not go into effect until
January 1, 2014. These include sections affecting the laws governing retirement for certain
government employees (judges, firefighters, law enforcement officers, certain city personnel,
teachers, PERS 3 members, and public safety employees), the Basic Health plan access act,
public assistance, and estate taxation.
4
→ PRACTICE TIP: There may be a distinction between the term-of-art “registered
domestic partner” and how employers have otherwise been using the term “domestic
partner” for some or all of their employment considerations. Care should be given to use
of the term “registered domestic partner” unless the employer has deliberately chosen to
expand the benefits offered to non-state registered domestic policies. Note that the new
rights and responsibilities apply by statute only to registered domestic partners.
Nevertheless, contractual obligations may arise even to non-registered domestic
partners, depending on how the policies or handbooks are drafted.
→ PRACTICE TIP: While dealing with similar issues in a collective bargaining
agreement may technically implicate the need to “bargain”, as a practical matter, parties
will not be able to stand on collective bargaining agreements that do not recognize the
rights and obligations, as applicable, of the 2009 Act.
2. Ensure to Comply with RCW 49.60 et seq., the Washington Law against
Discrimination
Because of the mandate that “state registered domestic partners shall be treated the same as
married spouses,” marital status discrimination is implicated.
RCW 49.60.040 (selected definitions)
(11) "Employer" includes any person acting in the interest of an employer, directly or
indirectly, who employs eight or more persons, and does not include any religious or
sectarian organization not organized for private profit.
→ Practice Tip: Note the general exclusion of non-profit religious or sectarian
organizations from the scope of RCW 49.60. This exemption may be implicated
regarding domestic partner/marital status discrimination.
(17) "Marital status" means the legal status of being married, single, separated,
divorced, or widowed.7
→ Practice Tip: Note that marital status discrimination in employment is
prohibited under the Washington Law against Discrimination.
(25) "Sex" means gender.
(26) "Sexual orientation" means heterosexuality, homosexuality, bisexuality, and gender
expression or identity. As used in this definition, "gender expression or identity" means
having or being perceived as having a gender identity, self-image, appearance,
behavior, or expression, whether or not that gender identity, self-image, appearance,
behavior, or expression is different from that traditionally associated with the sex
assigned to that person at birth.
RCW 49.60 et seq. prohibits discrimination on the basis of a person's marital status by their
employer. A prima facie case of marital status discrimination under RCW 49.60.180(3) requires
an employee to prove: 1) the employer discriminated against the employee based on their
7
Note that Title VII does not prohibit “marital status” discrimination, whereas Washington law
does.
5
marital status, and 2) the discrimination was not justified or excused by business necessity.
Magula v. Benton Franklin Title Co., 131 Wash. 2d 171, 176, 930 P.2d 307, 310 (1997), quoting
Kastanis v. Educational Employees Credit Union, 122 Wash. 2d 483, 493, 859 P.2d 26, 31
(1993), opinion amended by 122 Wash. 2d 483, 865 P.2d 507 (1994). In order to establish
marital status discrimination, the employee must prove that the marital status was a substantial
factor in the employer's adverse employment decision. Magula, 131 Wash. 2d 171.
The Washington Supreme Court has held that the statute prohibiting marital status employment
discrimination does not apply to cohabiting, dating, or other social relationships, and thus an
employer was not barred from instituting a policy against cohabiting or dating employee's
supervising one another. The Court held that the ordinary meaning of “marital status” pertains
to the status of being married, separated, divorced, or widowed. Waggoner v. Ace Hardware
Corp., 134 Wash. 2d 748, 953 P.2d 88 (1998). The court noted that while an employer may not
discriminate against an employee because of the identity of the employee's spouse, neither the
Human Rights Commission nor the Court had ever implied that the identity of one's dating
partner receives the same protection as one's spouse under RCW 49.60.180.
In general, discrimination against an employee or applicant for employment because of (a) what
a person's marital status is; (b) who his or her spouse is; or (c) what the spouse does, is an
unfair practice because the action is based on the person's marital status. WAC 162-16-250.
However, the Washington Supreme Court has cautioned that where mixed factors—both a
plaintiff's marital status and other factors—are present, a cause of action is stated against an
employer only where the adverse employment action turns on marital status. Edwards v.
Farmers Insurance Co., 111 Wash. 2d 710, 763 P.2d 1226 (1988).
WAC 162-16-250
No agency filings affecting this section since 2003
Discrimination because of marital status.
(1) General rule. It is an unfair practice to discriminate against an employee or job
applicant because of marital status. Examples of unfair practices include, but are not
limited to:
(a) Refusing to hire a single or divorced applicant because of a presumption that
"married persons are more stable."
(b) Refusing to promote a married employee because of a presumption that he or she
"will be less willing to work late and travel."
(2) Exceptions to the rule. There are narrow exceptions to the rule that an
employer, employment agency, labor union, or other person may not discriminate on the
basis of marital status:
(a) If a bona fide occupational qualification applies (please see WAC 162-16-240).
(b) If an employer is enforcing a documented conflict of interest policy limiting
employment opportunities on the basis of marital status:
6
(i) Where one spouse would have the authority or practical power to supervise,
appoint, remove, or discipline the other;
(ii) Where one spouse would be responsible for auditing the work of the other;
(iii) Where other circumstances exist which would place the spouses in a situation of
actual or reasonably foreseeable conflict between the employer's interest and their own;
or
(iv) Where, in order to avoid the reality or appearance of improper influence or favor,
or to protect its confidentiality, the employer must limit the employment of close relatives
of policy level officers of customers, competitors, regulatory agencies, or others with
whom the employer deals.
[Statutory Authority: RCW 49.60.120(3). 99-15-025, § 162-16-250, filed 7/12/99,
effective 8/12/99.]
All of these principles regarding marital status and spousal identity should now apply to
registered domestic partners, including partner identity. Recall that in Marquis v. City of
Spokane, 130 Wash.2d 97, 922 P.2d 43, 51 (1996), the Washington Supreme Court held that
an independent contractor could bring a sex discrimination claim under Wash. Rev.Code
§ 49.60.030, even though she was not protected by Wash. Rev.Code § 49.60.180. The same
holding may result in a situation in which an independent contractor claims marital status
discrimination.
3. Leave Laws Governed By Washington Law in General
In 2008, the Department of Labor and Industry prepared a chart regarding various state and
federal leave laws. See, Attachment 3. To be compliant with the 2009 Act, the term “registered
domestic partner” should be added to all Washington State leave provisions. See, also, § D 1
below.
4. Interplay between the Washington State Family Leave Act and the
federal Family and Medical Leave Act – do not get trapped!
The Washington Family Leave Act, RCW 49.78 et seq. (“WFLA”) requires certain employers to
allow an employee to take leave to care for his or her spouse with a serious health condition.
Eligibility for such leave generally tracks eligibility under the federal Family and Medical Leave
Act (“FMLA”). Generally, WFLA leave runs concurrently with any leave the employee is entitled
to under FMLA.
The WFLA provides some distinctions, however. Under the 2009 Act, an employee who is
eligible for rights under WFLA is entitled to leave to care for that employee’s registered domestic
partner with a serious health condition, just like an eligible married employee could take such
leave to care for a spouse. By definition, FMLA does not provide coverage for domestic partner
care leave (see, 29 CFR § 825.122). The FMLA expressly prohibits designation of non-FMLA
qualifying leave as FMLA leave. 29 CFR § 825.700 (a); see esp. sub-section (3). Thus,
provided that an employee has not exhausted his/her WFLA for another qualifying event, WFLA
7
leave to care for the serious health care condition of a registered (or other) domestic partner is
in addition to, not concurrent with, any leave the employee would be entitled to under FMLA.8
The Washington Department of Personnel drafted proposed rules, to revise the Washington
Administrative Code to update these differences between WFLA and FMLA (see Attachment 2):
(Effective December 3, 2009.)
WAC 357-31-520
How does the Family and Medical Leave Act of 1993 and the family leave law
interact with the civil service rules?
Benefits provided through state laws and civil service rules must not be diminished or
withheld in complying with the Family and Medical Leave Act of 1993 (FMLA).
Washington's family leave law (chapter 49.78 RCW) generally is similar to and runs
concurrently with the federal FMLA for those provisions outlined in WAC 357-31-525
(1)(a) through (c) but also allows leave to be taken for the care of an employee's
registered domestic partner with a serious health condition. However, Washington's
family leave law does not address exigency leave, described in WAC 357-31-525 (1)(d),
or leave for a covered service member, described in WAC 357-31-525(2). Therefore, an
employer is not required to provide exigency leave or leave for a covered service
member for a registered domestic partner.
Because the FMLA does not recognize registered domestic partners, an absence to care
for an employee's registered domestic partner is not counted towards the twelve weeks
of the FMLA entitlement described in WAC 357-31-525. For example:
If an employee uses twelve weeks of leave to care for their registered domestic partner
during a twelve-month period, and no other FMLA leave was used, the employee is still
entitled to his or her full twelve-week FMLA entitlement during the same twelve-month
period, as the leave used was provided for a purpose not covered by FMLA; however, if
an employee uses twelve weeks of leave to care for their parent or for another FMLA
qualifying reason, then during that same twelve-month period the employer would not be
required to provide additional leave under Washington's family leave law to care for the
employee's registered domestic partner because the twelve-week entitlement under
FMLA and Washington's family leave law has been exhausted.
Effective December 3, 2009
WAC 357-31-535
Who designates absences which meet the criteria of the Family and Medical Leave
Act?
8
29 CFR §825.701 (3).
8
The employer designates absences which meet the criteria of the Family and
Medical Leave Act. Paid or unpaid leave used for that designated absence must
be counted towards the twelve weeks of the Family and Medical Leave Act
entitlement.
Because the Family and Medical Leave Act of 1993 (29 USC 2601 et seq.) does
not recognize registered domestic partners, an absence to care for an
employee's registered domestic partner is not counted towards the twelve weeks
of the Family and Medical Leave Act entitlement.
[Statutory Authority: Chapter 41.06 RCW. 09-17-056 and 09-18-113, § 357-31-535, filed
8/13/09 and 9/2/09, effective 12/3/09; 05-08-140, § 357-31-535, filed 4/6/05, effective
7/1/05.]
5. Selected issues under the Fair Labor Standards Act
Other technical traps for the unwary may exist in implementation of the 2009 Act. Using another
FMLA example, if an “exempt” employee takes “intermittent” or “reduced” leave under the
FMLA, the employer can commensurately reduce pay without jeopardizing the employee’s
“exempt” status under the Fair Labor Standards Act.9 However, under the federal regulations
governing the FMLA, even if a state requires leave that is similar to, but broader than, FMLA,
the employer cannot “dock” the employee’s pay for intermittent leave without jeopardizing the
employee’s exempt status.10 The employee may choose not to take hourly deductions from the
employee’s pay, or may take such deductions by alternatively converting the employee to “nonexempt” status. Id.
In another perhaps non-intuitive context, see Steelman v. Hirsch, 473 F.3d 124 (4th Cir. 2007)
(domestic partner of sole proprietor, who worked at proprietorship for several years, was not
“employee” within meaning of FLSA, precluding her action against proprietor seeking additional
compensation allegedly owed; domestic partner described intended lifetime partnership
incompatible with employer-employee relationship, had substantial indirect financial control over
proprietorship's funds via credit card paid for by proprietorship and use of joint checking account
containing funds transferred from proprietorship, and shared entrepreneurial risks and rewards
with proprietor. Fair Labor Standards Act of 1938, §§ 3(e)(1), 6(a), 7, 11(c), 29 U.S.C.A. §§
203(e)(1), 206(a), 207, 211(c).)
D. Certain Washington State Agency Responses to Enactment of the 2009 Act
The 2009 Act directs state agencies to amend their rules to reflect the intent of the Legislature
to ensure that all privileges, immunities, rights, benefits, or responsibilities granted or imposed
by statute to an individual because that individual was or is a spouse are granted or imposed on
equivalent terms to an individual because that individual is or was in a state registered domestic
partnership. Various state agencies which govern various employment relationships have
begun to address such required amendments.
9
29 CFR §825.206 (a).
29 CFR §825.206(c).
10
9
1. Washington State Department of Labor & Industries
The following information is from the website for the Washington State Department of Labor &
Industries:
ESSSB 5688 – Expanding the rights and responsibilities of state-registered
domestic partners.
·
Expands the rights of state registered domestic partners by granting any privilege,
immunity, right, benefit, or responsibility granted or imposed by statute, rule, policy,
common law, or any other law that is provided to spouses.
·
Repeals the non-judicial termination process for domestic partnerships and requires
that parties must file for dissolution to terminate a partnership.
·
Extends workers’ compensation benefits and crime victims’ compensation benefits
currently available to spouses to include state-registered domestic partners. Pension
options and survivor benefits are two examples.
·
Adds state-registered domestic partners to RCW 49.12 – Industrial Welfare Act
(family leave, for example).
Source: Washington State Department of Labor and Industries
http://www.lni.wa.gov/Main/AboutLNI/Legislature/Legislature/Default.asp?WT.svl=3
2. Washington State Employment Security Department
http://www.esd.wa.gov/newsandinformation/legresources/uiac/archive/uiac-dom-partnerrules.pdf
The ESD has drafted rules to implement the 2009 Act. See, Attachment 4.
Source: Washington State Employment Security Department.
E. Marital community issues relating to employment law
Because Washington is a “marital community” state, employment and business issues
regarding “marital communities” also arise under the 2009 Act. For example, in Washington, an
employee’s spouse needs to “consent” in order for the employee to assign his or her wages.11
Consent of an employee’s spouse is necessary in certain other contexts as well, such as for
certain loan guarantees. Now, under the 2009 Act, any time a “spousal consent” is required, an
equivalent “domestic partnership consent” will be required.
F. Health Insurance
The 2009 Act will impact certain Washington state insurance laws including RCW 48.18, dealing
with insurance contracts issued in Washington, RCW 48.20 and RCW 48.21, dealing with group
insurance policies, and RCW 48.30, which already prohibits discrimination based on sexual
11
RCW 49.48.100.
10
orientation and marital status. The 2009 Act does not require an employer to pay for such
premiums.
Note, though, if the employer pays for spousal benefits, under the Washington Law against
Discrimination (RCW 49.60 et seq.), an employer may face disparate treatment or even
disparate impact discrimination claims if the premiums are not likewise paid for registered
domestic partners. Many group health plans that are not subject to state law - primarily selfinsured plans - would not be impacted in the same way due to ERISA’s exemption of many such
plans from state laws. If the employer pays for married spouses under a self-insured plan, but
does not pay such premiums for registered domestic partners, the employer may face a
discrimination claim. Such claims may be subject to an ERISA preemption argument, although
the law in this area is an ever-changing landscape.
These complicated issues are addressed in detail in Ms. Alessi’s paper.
G. COBRA, ERISA and related Federal benefits laws.
Other federal laws also result in certain disparities in treatment of even registered domestic
partners. For example, although employer-provided health coverage for different-sex spouses
is excluded from an employee’s gross income, the “fair market value” of domestic partner
benefits is taxable income to the employee (with some exceptions relating to “dependent status”
under IRS regulations). As a result, an employee who elects domestic partner coverage pays
more income and payroll tax than a similarly-situated married employee.
Federal COBRA rights (including the COBRA stimulus plan) are also available for spouses, but
not for domestic partners - even when the employer-sponsored plan covered such partners.
However, employers may choose to extend COBRA-equivalent rights to domestic partners;
examination of discrimination laws and potential preemption issues should be considered.
Disparities in treatment of spouses versus domestic partners also exist under Flexible Spending
Account (“FSA”) plans. For example, medical expenses of a non-dependent domestic partner
are not eligible for tax-free reimbursement from an FSA, even if the employer offers partner
health insurance benefits.
These topics are all discussed in detail in Ms. Alessi’s paper.
H. What steps should businesses and employers take to comply with the 2009
Act?
1. Initial Compliance Steps:
·
Talk to your insurance broker. Employers who offer state-regulated insurance
coverage to employees should check with their insurance broker or carrier to
determine what specific impact, if any, the 2009 Act will have on their policies,
enrollment and related issues, and to be ready to “roll out” coverage to registered
domestic partners as required under the 2009 Act.
·
Review handbooks and other policies. Periodic review of handbooks or other
policies is always a good idea, particularly given this year’s amendments to the
11
Americans with Disabilities Act and the FMLA. Employers also need to ensure that
their anti-discrimination policies are up to date.
·
Draft a simple notice to distribute to employees regarding the 2009 Act.
Employers should be prepared to post or distribute a simple notice on the effective
date of the 2009 Act while policy revisions are under consideration. The notice to
employees could state:
Recently, changes were made to Washington law regarding the rights
and responsibilities of registered domestic partners. We will comply with
all such laws and are working on revisions to our policies and handbooks
to reflect these changes. Please feel free to direct any questions about
domestic partnership employment issues to ________ as we work to
update our policies.
2. Workplace Implementation
Employment discrimination laws do not regulate “civility” in the workplace. They also cannot
regulate what an employee thinks or believes. However, such laws regulate prohibited conduct
in the workplace. It is not uncommon for there to be some initial questions or concerns about
various discrimination laws. For example,
·
Some religious or other groups in the 1960's taught that African Americans were
inferior and should be segregated from the rest of society on the basis of their race.
Title VII racial protections were unsuccessfully challenged on this ground.
·
Some religious traditions or other groups continue to teach that women should be
excluded from positions of authority and power because of their gender. Federal
gender and pregnancy protections were unsuccessfully challenged on this ground.
·
Many religious organizations refuse to hire a person of another religion, even to
perform a non-religious task like sweeping the floor or sorting mail.
·
Differently-abled workers continue to integrate into the workplace.
·
Employees have to respect other civil rights legislation. For example, the 2009
Washington Legislature passed new civil rights legislation declaring breast-feeding in
public accommodations to be a civil right that cannot be interfered with.
Education surrounding such obligations will be key.
While religious accommodation questions may arise, case law recognizes an employer’s need
to train its employees on EEO and related laws. See, e.g., Peterson v. Hewlett-Packard Co.,
358 F.3d 599 (9th Cir. 2004) (Former employee's proposed accommodations to his religious
beliefs, which included either allowing employee to continue to post anti-gay scriptural passages
in response to employer's workplace diversity campaign of posters, or removing the posters,
would have inflicted undue hardship upon employer, and thus failed to support employee's Title
VII failure-to-accommodate claim; the first accommodation would have compelled employer to
permit an employee to post messages intended to demean and harass co-workers, and the
12
second accommodation would have forced the employer to exclude sexual orientation from its
workplace diversity program, infringing upon employer's right to promote diversity and
encourage tolerance and good will among its workforce. Civil Rights Act of 1964, § 701 et seq.,
42 U.S.C.A. § 2000e.) As noted by the Peterson court:
With respect to Peterson's first proposal, an employer need not accommodate an
employee's religious beliefs if doing so would result in discrimination against his coworkers or deprive them of contractual or other statutory rights. See Hardison, 432 U.S.
at 81, 97 S.Ct. 2264; Opuku-Boateng v. California, 95 F.3d 1461, 1468 (9th Cir. 1996).
Nor does Title VII require an employer to accommodate an employee's desire to impose
his religious beliefs upon his co-workers. Chalmers, 101 F.3d at 1021; Wilson v. U.S.
West Communications, 58 F.3d 1337, 1342 (8th Cir. 1995).
That is not to say that accommodating an employee's religious beliefs creates undue
hardship for an employer merely because the employee's co-workers find his conduct
irritating or unwelcome. Complete harmony in the workplace is not an objective of Title
VII. “If relief under Title VII can be denied merely because the majority group of
employees, who have not suffered discrimination, will be unhappy about it, there will be
little hope of correcting the wrongs to which the Act is directed.” Franks v. Bowman
Transp. Co., 424 U.S. 747, 775, 96 S.Ct. 1251, 47 L.Ed.2d 444 (1976) (quoting U.S. v.
Bethlehem Steel Corp., 446 F.2d 652, 663 (2d Cir. 1971)). While Hewlett-Packard must
tolerate some degree of employee discomfort in the process of taking steps required by
Title VII to correct the wrongs of discrimination, it need not accept the burdens that
would result from allowing actions that demean or degrade, or are designed to demean
or degrade, members of its workforce. See Oncale v. Sundowner Offshore Servs., Inc.,
523 U.S. 75, 118 S.Ct. 998, 140 L.Ed.2d 201 (1998). Thus, we conclude that Peterson's
first proposed accommodation would have created undue hardship for his employer.
I. Summary of the Employment Impacts of the 2009 Act
These are only a handful of the many ways in which the 2009 Act relates to employment and
business in general. Many other specific employment issues regarding benefits, pensions and
tax issues will need to be carefully analyzed in order to comply with the 2009 Act.
J. Another Bill to Watch: the proposed federal Employment Non-Discrimination
Act
The Federal Employment Non-Discrimination Act, S. 1584/H.R. 3017 (“ENDA”) is presently
moving through Congress. On September 23, 2009, the House Education and Labor
Committee held a full committee hearing in the House on the legislation. On November 5, 2009,
the Senate Committee on Health, Education, Labor and Pensions (HELP) also held a hearing
on the bill.
If enacted in its current form, for employers with fifteen or more employees, ENDA would
prohibit employment discrimination based on sexual orientation and gender identity.
The bill is closely modeled on existing civil rights laws, including Title VII of the Civil Rights Act
of 1964 and the Americans with Disabilities Act. The bill explicitly prohibits preferential
treatment and quotas and does not permit disparate impact suits.
13
If enacted, ENDA would:
·
exempt small businesses, religious organizations and the military
·
not require that domestic partner benefits be provided to the same-sex partners of
employees
·
provide for the same procedures, and similar, but somewhat more limited, remedies
as are permitted under Title VII and the Americans with Disabilities Act
·
apply to Congress and the federal government, as well as employees of state and
local governments
·
not apply to religious organizations or to the uniformed members of the armed forces
(the bill doesn’t affect the "Don’t Ask, Don’t Tell" policy)
·
would not allow a "disparate impact" claim similar to the one available under Title VII
of the Civil Rights Act of 1964. Therefore, an employer would not be required to
justify a neutral practice that may have a statistically disparate impact on individuals
because of their sexual orientation or gender identity
·
MAY have certain IRS implications
K&L Gates will continue to track updates regarding ENDA and other federal and state proposed
legislation which impacts employment, labor and benefits issues.
SE-6618 v1
14
Providing Employee Benefits to Domestic
Partners
Heidi Eckel Alessi
K&L Gates LLP
925 Fourth Avenue, Suite 2900
Seattle, Washington 98104
(206) 370.7983
heidi.alessi@klgates.com
I.
Background
This paper focuses on the legal and practical issues to consider when an employer
provides health insurance and retirement benefits to an employee’s domestic partner. When
providing benefits to domestic partners, it is important to understand the market competition,
actual cost, and changing legal landscape that have made domestic partner benefits the norm
rather than the exception to the rule.
A.
Market Competition and Cost
Health insurance and retirement benefits are often a significant portion of an employee’s
overall compensation. On average, health insurance benefits for an employee and the
employee’s family equal 20% of an employee’s overall compensation.1 Thus, when employee
benefits are not extended to an employee’s domestic partner or children of the partnership, there
is a significant disparity in compensation. Recognizing the disparity, 83% of Fortune 100
Companies and 57% of Fortune 500 Companies now voluntarily provide domestic partner
benefits.2
The number one reason for providing benefits is the ability to attract and retain
employees.3 Additionally, providing benefits to spouses while not offering the same benefits to
domestic partners may discriminate on the basis of sexual orientation and marital status, which is
prohibited in many jurisdictions by state and local laws. While such laws may be preempted by
federal law for purposes of a dispute over benefits, the disparity in benefits and compensation
may be evidence of discriminatory intent in other employment disputes.
Thus, many employers have determined that the need to provide competitive
compensation and reduce the risk of employment disputes outweigh the minimal costs of
providing benefits to domestic partners. Recent studies claim that the total cost of adding
domestic partner to health plans is negligible. One study showed that 64% of employers
providing domestic partner benefits experienced a total financial impact of less than 1% of the
company’s total benefits cost, while 88% percent experienced an increase of 2% or less and only
5% experienced an increase of 3% or more.4 There are two components that determine the costs
of health insurance benefits: (1) how many new enrollees would be added to the plan as a result
of extending benefits to domestic partners and (2) what risks are likely to be associated with the
additional enrollees. Most employers have found an average increase in enrollment of 1% and
no more risk when adding domestic partners compared to adding spouses.
1
Human Rights Campaign Foundation, 2009 Corporate Equality Index.
http://www.hrc.org/issues/domestic_partner_benefits.htm
3
Employee Benefit Research Institute, Domestic Partner Benefits: Facts and Background, February 2009
4
Human Rights Campaign Foundation, 2009 Corporate Equality Index.
2
2
B.
Legal Landscape
1.
Employee Retirement Income Security Act (“ERISA”)
Enacted in 1974, the federal Employee Retirement Income Security Act (“ERISA”) is a
“comprehensive and reticulated statute” designed to regulate most “employee welfare benefit
plans” and “pension plans.” ERISA §2. The term “employee welfare benefit plans” includes any
plan, fund, or program maintained by an employer to provide employees or their beneficiaries
with medical, sickness, accident, disability, death and other benefits, except for certain payroll
practices which continue an employees pay for a period of time. Id. at §3(1). The term “pension
plan” includes any plan, fund or program maintained by an employer that provides retirement
income to employees or results in a deferral of income by employees for periods extending
beyond employment except for certain severance plans. Id. at §3(2).
Under the supremacy clause of the U.S. Constitution, federal law may preempt state law.
U.S. Const. Art. VI. When Congress enacted ERISA, it expressly provided that all state laws
that relate to ERISA governed plans are preempted. ERISA §514.
This express preemption is so broad that courts have repeatedly held that any dispute
involving employer sponsored plan benefits is governed solely by ERISA and not by any state
law. See e.g. Aetna Health Inc. v. Davila, 542 U.S. 200 (2004); Pilot Life Ins. Co. v. Dedeaux,
481 U.S. 41 (1987). “ERISA includes expansive [preemption] provisions, which are intended to
ensure that employee benefit plan regulation would be exclusively a federal concern.” Alessi v.
Raybestos-Manhatten, Inc., 451 U.S 504 (1981). Thus, courts have held that state domestic
partner laws are preempted by ERISA, to the extent that such laws would require employers to
extend benefits to domestic partners, because requiring employers to cover domestic partners
could seriously impact the administration and content of ERISA plans. See Air Transp. Ass’n of
Am. v. City and County of San Francisco, 992 F. Supp. 1149 (N.D. Cal. 1998), aff’d, 266 F. 3d
1064 (9th Cir. 2001) (entering preliminary injunction to block enforcement of San Francisco
domestic partner law as likely preempted by ERISA.); Catholic Charities of Me. v. City of
Portland, 304 F. Supp. 2d 77 (D. Me. 2004) (city ordinance requiring any organization receiving
housing and community development funds to provide the same benefits to domestic partners
and spouses was preempted by ERISA).
A federal court in Massachusetts recently held that ERISA preempted a Massachusetts
law which prohibits discrimination on the basis of sexual orientation to the extent that it would
require coverage of domestic partners. Partners Healthcare System, Inc. v. Sullivan, 497 F.
Supp.2d 29, (D. Mass. 2007). In that case, an employee filed a complaint with the Massachusetts
Commission Against Discrimination (MCAD) alleging sexual orientation discrimination based
on the fact that his employer’s plan covered same-sex domestic partners but not opposite-sex
domestic partners. The MCAD proceeded to investigate the claim and the employer sought a
judicial injunction to stop the investigation. The court held that:
3
the purpose of ERISA preemption is to allow employers to construct one national pension
and benefits plan, which can control the payment of benefits to beneficiaries across
several states. It is not for … a state to tell plans who can and must be beneficiaries. If
courts allowed such results, differing state laws would quickly make it difficult to
administer a fair, uniform plan. Accordingly, any state law which directly controls who
an ERISA plan may specify as a beneficiary is potentially preempted.
497 F. Supp. 2d at 37.
The fact that ERISA will preempt most state laws that require an employer to provide a
particular benefit can leave a large gap that a state had intended to fill because ERISA does not
require an employer to provide benefits or any particular benefit (subject to rules prohibiting
discrimination in self-funded plans in favor of highly compensated employees). See e.g. Bellas
v. CBS, Inc., 221 F. 3d 517 (3d Cir. 2001) (ERISA does not mandate the creation of a plan and
does not dictate the benefits a plan must offer once created); Viggiano v. Shenango China Div. of
Anchor Hocking Corp., 750 F. 2d 276 (3d Cir. 1984) (ERISA does not require employers to
provide medical benefits). That gap is sometimes filled by state insurance regulations.
Despite the broad preemption of state laws, ERISA saves from preemption “any law of
any State which regulates insurance.” ERISA §514(b)(2)(A); American Council of Life Insurers
v. Ross, 558 F. 3d 600 (6th Cir. 2009). A state law regulates insurance for purposes of ERISA
preemption only if: (1) the state law is specifically directed towards entities engaged in insurance
and (2) the state law must substantially affect the risk-pooling arrangement between the insurer
and insured. Kentucky Association of Health Plans v. Miller, 538 U.S. 329, 341 (2003).
Additionally, certain employer sponsored plans are exempt from ERISA coverage. These
include employee benefit plans provided by governmental entities and churches. Thus,
governmental employers and churches must comply with state and local laws.
2.
Federal Defense of Marriage Act (“DOMA”)
Congress enacted the Defense of Marriage Act (“DOMA”) in 1996 to define marital
terms. See 1 U.S.C. §7. DOMA applies whenever a federal law is being interpreted. Id.
DOMA defines the term “spouse” as referring “only to a person of the opposite sex who is a
husband or a wife.” 1 U.S.C. § 7. DOMA also defines the term “marriage” to mean “only a
legal union between one man and one woman as husband and wife.” Id. DOMA also provides
that states are not required to recognize same-sex marriages that would be valid in another state.
However, DOMA does not require that an ERISA governed plan define spouse or
marriage in a manner consistent with DOMA.
3.
Civil Rights and Discrimination Laws
Under federal civil rights laws, including Title VII of the Civil Rights Act and the Equal
Pay Act, courts have found that it is not illegal discrimination on the basis of gender to provide
4
same-sex domestic partner benefits but not opposite-sex domestic partner benefits. See Foray v.
Bell Atlantic, 56 F. Supp. 2d 327, 329-30 (S.D. N.Y. 1999); Cleaves v. City of Chicago, 68 F.
Supp. 2d 964, 967 (N.D. Ill. 1999).
The Washington Law Against Discrimination (WLAD) prohibits discrimination on the
basis of sexual orientation and marital status. RCW 49. 60 et seq. Among other protections,
WLAD provides that is an unfair practice for an employer:
(1) To refuse to hire any person because of marital status or sexual orientation;
(2) To discharge or bar any person from employment because of marital status or sexual
orientation;
(3) To discriminate against any person in compensation or in other terms or conditions of
employment because of marital status or sexual orientation; or
(4) To print, or circulate, or cause to be printed or circulated any statement,
advertisement, or publication, or to use any form of application for employment, or to make any
inquiry in connection with prospective employment, which expresses any limitation,
specification, or discrimination as to marital status or sexual orientation.
As noted above, the WLAD would be preempted to the extent that it is read to require
equal benefits for domestic partners. Thus, an employee could not successfully sue an employer
under WLAD seeking health insurance coverage as a remedy, though an employer might spend a
significant amount to defend such a suit. An employee could plausibly use an employer’s failure
to provide domestic partner benefits as evidence of an overall discriminatory bias against
employees based on sexual orientation or marital status in the context of an employment dispute
that does not seek benefits as a remedy.
4.
Washington’s Domestic Partner Registry and the 2009 Registered Domestic
Partnership Expansion Bill (dubbed the “Everything but Marriage Act” and
known as “Referendum 71”)
In 2007 the Washington State Legislature created a domestic partnership registry to be
maintained by the Secretary of State and extended certain rights to registered domestic partners.
The legislation allows individuals to enter into a state registered “domestic partnership” so long
as the individuals meet certain criteria. To register as domestic partners, both individuals must:
• Share a common residence (as defined)
• Both be at least 18 years of age
• Not be married to, or in a registered domestic partnership with someone else
• Be capable of consenting to the domestic partnership
• Not be nearer kin than second cousin
• Not be a sibling, grandchild, aunt, uncle, niece or nephew to the other partner, and
5
• Either be of the same sex or of the opposite sex with at least one of the individuals
being at least 62 years old.
When the registry was created, a domestic partnership could be easily terminated by
filing a notice with the Secretary of State. However, the law was amended in 2008, to, in part,
modify the termination process. Now, a domestic partner must file a petition for dissolution in
superior court and follow the same procedures applicable to a dissolution of marriage.
During the 2009 legislative session the Legislature passed what has been dubbed the
“Everything but Marriage Act.” The Act subject to a referendum and approved by Washington
State voters in general election held on November 3, 2009. The Act is therefore effective
December 3, 2009.
The intent of the legislation, according to the final bill report, is that domestic partners be
treated the same as married spouses for all purposes under state law. The law directs state
agencies to amend their rules to reflect the intent of the Legislature to ensure that all privileges,
immunities, rights, benefits, or responsibilities granted or imposed by statute to an individual
because that individual was or is a spouse are granted or imposed on equivalent terms to an
individual because that individual is or was in a state registered domestic partnership.
The law amends numerous existing laws to generically provide:
For purposes of this chapter, the terms spouse, marriage, marital, husband, wife, widow,
widower, next of kin, and family shall be interpreted as applying equally to state
registered domestic partnerships or individuals in state registered domestic partnership as
well as to marital relationships and married persons, and references to dissolution of
marriage shall apply equally to state registered domestic partnerships that have been
terminated, dissolved, or invalidated, to the extent that such interpretation does not
conflict with federal law. Where necessary to implement this act, gender-specific terms
such as husband and wife used in any statute, rule, or other law shall be construed to be
gender neutral, and applicable to individuals in state domestic partnerships.
(emphasis added).
This language was added to several laws, including Washington’s state insurance laws
including RCW 48.18, dealing with insurance contracts issued in Washington, RCW 48.20 and
RCW 48.21, dealing with group insurance policies, and RCW 48.30, which already prohibits
discrimination based on sexual orientation and marital status. Commentators, insurance
companies, and the Washington Insurance Commissioner are concluding that the effect is to
require insurance companies to include coverage of domestic partners in policies issued to
employers, particularly health insurance policies.
6
According to the Insurance Commissioner’s Website:
So far, no policy changes need to be filed to comply with the new law.
Policies must be administered in a manner that treats registered domestic
partners the same as married spouses. No amendments are necessary.
In order to ensure that policy language is not misleading, we will require future
filings to state that all provisions applying to spouses apply equally to
registered domestic partners.
The new law does not require the term "spouse" to be defined in an
insurance policy; it only requires that "spouse" be interpreted to include
registered domestic partners, and that state registered domestic partners be treated
the same as married spouses.
Does the new law require insured plans issued in Washington state to cover
“state registered domestic partners” who are registered in any state where a
registry is available?
The new law requires plans to cover both Washington State registered domestic
partners and those registered in any other state.
When the new law takes effect, plans must grant domestic partners registered in
any state the same rights available to spouses.
The new law is silent on spouses married in other states who are not allowed to
legally marry in Washington. The Federal Defense of Marriage Act clearly
states that Washington is not required to recognize same-sex marriages
performed in other states. Therefore, we believe that insured plans are not
required to treat same-sex couples married in other states as spouses.5
The Insurance Commissioner’s decision to require only an operational change and to not
require a formal change to insurance policy documents creates a quandary for employee benefit
plan administrators. Under ERISA, a plan administrator is required to administer employee
benefit plans according to the express written terms of the plan documents. Insurance policies
are generally considered to be plan documents but at this point are not required to have written
terms providing for domestic partner coverage. Employers may wish to address this by adopting
a separate document, sometimes referred to as a “wrap” document to supplement the terms of the
insurance policy.
Another quandary is that there is no requirement that the employer extend the insurance
company’s operational compliance to the employer’s practices or eligibility requirements.
Additionally, if an employer has employees covered by the policy in many states, the employer
will have to determine if the domestic partner rights should apply to any or all employees. In
general, an insurance policy is subject to the laws of the state in which it is delivered to the
5
http://www.insurance.wa.gov/insurers/rates_forms/domesticpartners_FAQ.shtml#1 (last visited November 19,
2009).
7
consumer. See Couch on Insurance, Sec. 8.7 (3d ed). If a policy was delivered to an employer’s
home office in another state in compliance with the laws of that state, it is unclear whether the
new law will require domestic partner coverage to that portion of the policy covering individuals
in Washington. Conversely, if the policy is issued in Washington, it is unclear whether the
domestic partner rules would apply to employees covered by the policy outside of Washington.
Thus, employers should be proactive in addressing these issues in their own documents and with
the insurance company.
II.
A.
Health Care Coverage
Are Employers Required By Law to Provide Health Care Coverage to Domestic
Partners in Washington?
Government employers are clearly required to provide benefits to domestic partners by
state law as they are not subject to ERISA. For most private employers, whether they are legally
required to extend coverage to domestic partners will likely depend on whether their health plan
is insured by an insurance company or self-funded by the employer.
1.
Insured Plans
The Everything But Marriage Act was clearly enacted to require that all health plans
provide coverage to domestic partners to the same extent that they provide coverage to a spouse.
Since the law is specifically drafted to be directed to insurance companies and what can be
included in a policy, the law would likely not be preempted under ERISA due to the savings
clause for laws that regulate insurance.
A recent Ninth Circuit opinion suggests that a domestic partner requirement in insurance
policies would not be preempted by ERISA. See Standard Ins. Co. v. Morrison, 584 F. 3d 837
(9th Cir. 2009). That case addressed a rule adopted by the insurance commissioner of the state of
Montana which prohibited insurance companies from including discretionary clauses in group
policies. These clauses are included in policies solely because they effect the judicial standard of
review for insurance claims relating to employee benefit plans governed by ERISA. The
absence of such clauses dramatically changes the issues in a lawsuit governed by ERISA to the
detriment of insurance companies. Therefore, the Standard Insurance Company argued that they
are preempted by ERISA. The Ninth Circuit disagreed and held that, even though the rule
impacted employer sponsored plans, it was still a rule primarily directed at insurance companies.
The Sixth Circuit has also held that the possibility that a law would effect non-insurers
(including ERISA plan administrators and sponsors) is not enough to remove the law from the
category of insurance regulations saved from preemption. American Council of Life Insurers v.
Ross, 558 F. 3d 600 (6th Cir. 2009).
8
However, the distinguishing fact of those cases is that the insurance companies were
directly involved in the lawsuits. It is not clear whether the same result would be reached if an
employee sued the plan (as employees are required to do in the Ninth Circuit) to require that
employee benefits to be provided to a domestic partner, particularly when the insurance
commissioner is not requiring insurance companies to formally amend their policy documents.
2.
Self-Funded Plans
Self-funded benefit plans are those that are funded by the employer rather than a group
insurance policy. As such, the insurance laws do not apply to self-funded plan and ERISA
would preempt the application of state law which purports to require the employer to provide any
particular benefit. Since most self-funded plans are governed by ERISA, which gives employers
the flexibility to choose the benefits that will be offered, employers are not required to extend
coverage to domestic partners under self-funded benefit plans despite a state law that recognizes
the rights of domestic partners to be treated the same as spouses.
However, employers should review their plans to determine if domestic partners are
already covered. Many plans provide coverage to spouses without defining the term spouse.
When a plan gives an administrator discretionary authority to interpret plan terms, a court will
defer to the plan administrator’s interpretation of a plan term under ERISA, unless the
interpretation is arbitrary and capricious. See e.g., Firestone Tire Co. v. Bruch, 489 U.S. 101,
115 (1989). An interpretation is arbitrary and capricious only if it is outside the bounds of any
reasonable interpretation. Id.
Although the term “spouse” may not be defined by the plan or by ERISA, the term spouse is
defined by DOMA. Although ERISA does not require an employer to define spouse in a manner
consistent with DOMA, courts might find it reasonable for a plan administrator to interpret
spouse in a manner that is consistent with DOMA.
The reasonableness of such an interpretation would also be supported by general federal
common law. Where a federal statute does not define a term, such as ERISA’s failure to define
the term spouse, and the term has an “accumulated settled meaning” under the common law,
there is a presumption that Congress meant to incorporate the common law definition into the
statute. Johnson v. City of Saline, 151 F. 3d 564, 568 (6th Cir. 1998) citing Nationwide Mutual
Ins. Co. v. Darden, 503 U.S. 318, 322 (1992). There is federal common law, or an “accumulated
settled meaning” of the term “spouse” for purposes of ERISA. A spouse is “[o]ne's husband or
wife by legal marriage.” Williams v. Board of Trustees of the International Longshoremen's
Association, 388 F.Supp.2d 1353, 1365 (S.D.Fl.2005); Gallagher v. Park West Bank and Trust
Co., 921 F.Supp. 867, 877 (D.Mass.1996) and Davis v. College Suppliers Company, 813 F.Supp.
1234, 1237 (S.D.Miss.1993)(“[T]he common law meaning of spouse is settled, straightforward,
and dispositive: spouse means a man or woman joined in wedlock, in short, one's husband or
wife.”)(both citing Kahn v. Kahn, 801 F.Supp. 1237, 1241 (S.D.N.Y.1992). See also Croskey v.
Ford Motor Company UAW, 2002 WL 974827, *4 (S.D.N.Y.2002)(“[A]ll federal courts to have
9
considered the issue have determined that the [ERISA] term ‘spouse’ refers to the legal spouse”
meaning a husband and wife).
However, given the Everything But Marriage Act’s broad intent for domestic partners to
be treated the same as a spouse, some courts (particularly those within Washington and the
federal Ninth Circuit) might be inclined to conclude that it is unreasonable to limit the term
“spouse” to exclude domestic partners when ERISA does not require that “spouse” be defined in
any particular manner.
3.
Two Important Caveats
In considering whether to extend health care coverage to domestic partners, employers
should keep in mind two important considerations.
First, whether a plan is insured or self-funded, or subject to state insurance laws or not, is
a highly technical distinction that is not likely to be understood by most employees. The lay
interpretation and presumed intent of the Everything But Marriage Act is that domestic partners
will have a right to employer sponsored health care coverage. Thus, while that might not be
legally true in all cases and some employers may be legally correct in denying domestic partner
coverage, it could be a time-consuming and costly dispute that is not worth the minimal
incremental cost.
Second, if the employer’s plan is insured or subject to a stop-loss policy, the employer
should take every step to confirm that the insurance company agrees that the coverage extended
to domestic partners is covered by the policy. Otherwise, the insurance company might deny the
claims of domestic partners or rescind/non-renew the entire policy, leaving the employer with no
insurance and subject to liability to the employees for unpaid medical expenses.
B.
What Procedures and Documentation Should an Employer Require?
Employers will likely need to amend their plan documents to address several design
issues. The issues that must be addressed would include defining who is eligible. Will benefits
be extended to same-sex domestic partners and opposite-sex partners that meet the age
requirements only or will they be extended to all opposite-sex domestic partners? If the former,
will benefits only be extended to those that have legalized the relationship through a registry or
other state recognition? What documentation should be required? How will federal income tax
requirements be implemented? What continuation coverage can or should be provided?
1.
Define the term “Domestic Partner.”
An employer that provides health care coverage to domestic partners should consider
defining the term “domestic partner” in the plan document so as to avoid any dispute.
Employers with employees in Washington could consider adopting the state definition above, but
adopting that definition may cause problems because it excludes most opposite-sex domestic
10
partners and might not work in all jurisdictions. Notably, the law does not apply to opposite-sex
domestic partners that are both under the age of 62 because they are not within the state
definition. Thus, it is possible that defining a domestic partner in a manner that is consistent
with the Everything But Marriage Act would raise issues of discrimination under the WLAD.
Thus, an employer must decide whether domestic partner benefits will be provided to
opposite-sex partners to the same extent as same-sex domestic partners. A neutral definition,
that does not distinguish between opposite and same-sex partners usually has five core elements:
(1) the partners must be at least 18 years old, (2) the partners are not related by blood to a degree
that would prevent marriage, (3) the partners must be in a committed and exclusive relationship,
(4) the partners are financially interdependent, and (5) the partners must share the same principal
residence.
2.
Require Only Necessary Documentation.
Many employers initially feared that it would be too easy for employees to declare
anyone as their domestic partner in order to obtain benefits and likewise feared that it would be
difficult to determine when one partnership ended and another one began. Thus, many
employers have adopted procedures to verify the existence of a domestic partnership and may
require additional documentation from the employee.
Employers should be cautious to avoid creating a process that is so burdensome as to be
discriminatory and to avoid requiring documentation that could violate the employee’s privacy
rights. The Everything But Marriage Act eviscerates many of the concerns that caused
employers to adopt elaborate verification procedures. For example, many employers previously
imposed waiting periods on adding new domestic partners after a prior domestic partner is
removed from coverage. However, dissolving a domestic partnership in Washington now
requires the same procedure as dissolving a marriage. Thus, if employers do not impose limits
on adding new spouses, employers should consider whether there is any valid reason for
imposing restrictions on new domestic partners. Likewise, if employers do not require a
marriage license to verify the existence of a marriage, they should also consider whether there is
any valid reason to require documentation from a domestic partner.
A reasonable process for enrolling domestic partners could possibly include requiring (1)
an affidavit of domestic partnership, (2) an affidavit of tax status (for the reasons discussed
below), and (3) and affidavit of termination for when the domestic partnership ends.
In Washington, it might be unnecessary to require an affidavit of domestic partnership.
The Secretary of State’s website allows anyone to search the domestic partnership registry to
verify the existence of a domestic partnership. The registry is available at:
www.secstate.wa.gov/corps/domesticpartnerships/
11
3.
Develop a Plan for Implementing the Everything But Marriage Act –
a unique issue for open enrollment periods that have passed.
The Everything But Marriage Act provides that it is effective December 3, 2009. It is
unlike the typical employee benefit law which would be effective on plan years starting after the
effective date. This date will not coincide with most employers’ open enrollment periods and the
new law is not likely to be a special enrollment event specified in the employer’s plan. Thus,
employers should determine when they will allow employees to enroll a domestic partner in the
plan and confirm with their insurance agent or broker that the insurance company will permit the
enrollment mid-year. Employers will also need to confirm that a new domestic partner can be
enrolled mid-year to the same extent that a spouse can be enrolled upon marriage.
C.
How are domestic partner benefits taxed?
In general, Section 61(a) of the Internal Revenue Code (the “Code”) provides that an
employee’s gross income for purposes of federal taxation includes all compensation for services
performed, including fringe benefits such as health coverage for the employee or another person
by virtue of the employee’s relationship to the employer. However, there are several exceptions
to this rule.
When an employer provides health insurance for the spouse or dependents of an
employee, Section 106 of the Code provides that the gross income of the employee does not
include employer contributions to a health insurance plan for the employee, the employee’s
spouse or the employee’s dependents. Additionally, Section 105 of the Code provides that an
employee’s gross income does not include the amounts that are paid under an employer provided
health plan for the medical care of the employee, the employee’s spouse, and the employee’s
dependents. Thus, when the benefit is provided to an employee, the employee’s spouse or the
employee’s tax dependent, neither the value of the coverage nor the value of the medical
expenses are included in an employee’s income.
However, due to DOMA, a domestic partner is not considered a “spouse” for federal
income tax purposes. Thus, whether the exceptions of Sections 105 and 106 apply depend on
whether the domestic partner is the employee’s dependent as defined under Section 152 of the
Code. To qualify as the employee’s dependent under Section 152 of the Code, the domestic
partner or child of the domestic partner must (1) receive more than half of his or her support
from the employee for the year, and (2) have the same principal home address and be a member
of the employee’s household for the year. Code §152(a)(9).6
Example: Domestic Partner is a Tax Dependent. A full-time employee has a domestic
partner who does not work outside their shared home to take care of their children. In
6
There is an alternate definition of “dependent” at Code Section 152(a)(1) through (8) but domestic partners are not
expected to meet that definition.
12
that case, the domestic partner likely received more than half (if not all) of her support
from her domestic partner and would be a tax dependent of the employee.
Example: Domestic Partner is Not a Tax Dependent. In contrast, if the employee and
her domestic partner each have full-time jobs, neither one is likely to be the tax
dependent of the other.
1.
Tax Treatment for Non-Dependents
The Internal Revenue Service has addressed the taxation of non-dependent domestic
partners in several Private Letter Rulings (PLRs). See PLR 200339001, 20010801, 19985011,
9717018, 199231062, and 199034048. While PLRs are not binding on other employers, they
provide useful guidance. These PLRs generally hold that the fair market value of the coverage is
imputed income to the employee if the domestic partner does not qualify as a dependent under
Section 152(a)(9) and FICA/FUTA must be withheld on the imputed income. But once the fair
market value has been included in the employee’s gross income neither the employee nor the
domestic partner will be taxed on the value of the health care paid on behalf of the domestic
partner.
For example, in PLR 200339001, the IRS made the following conclusions:
1.
An employee’s same-gender domestic partner does not qualify as the spouse of
the employee for purposes of the Code.
2.
An employee’s domestic partner may qualify as a dependent of the employee only
if the requirements of Code Section 152(a)(9) are met.
3.
An employer is entitled to rely on a certification of the employee representing that
the domestic partner is the employee’s tax dependent under Code Section 152(a)(9).
4.
Medical coverage and reimbursements provided to a domestic partner are
excluded from the employee’s gross income if the domestic partner is the employee’s tax
dependent.
5.
If the domestic partner is not the employee’s tax dependent, the fair market value
of the medical coverage provided to the domestic partner is includible in the employee’s
gross income and is subject to income tax withholding and employment taxes.
6.
If the coverage is paid for with after tax contributions from the employee (as will
be the case where the fair market value is imputed to the employee and included in the
employee’s gross income or where the employer does not contribute to the cost), the
reimbursements for health care of the domestic partner will not be included in the
employee or domestic partner’s taxable income.
13
However, there is little guidance on how to determine the “fair market value” of the
health care coverage. The regulations promulgate under Code Section 61 provide that the fair
market value of a fringe benefit is “the amount that an individual would have to pay for the
particular fringe benefit in an arm’s length transaction.” Treas. Reg. 1.61-21(b). Although the
regulations provide that the cost incurred by the employer does not determine the fair market
value, the most common method of determining the fair market value is to use the group rate
paid by the employer for the cost of the coverage (minus the cost for the employee) or the plan’s
rate for continuation coverage under COBRA.
The tax impact to the employee would be calculated as follows:
1. Monthly Imputed Income
(The fair market value of the coverage for a domestic
partner)
2. Multiply Line 1 by 12.
3. Multiply Line 2 by employee’s federal income tax rate (or
presume 25%)
4. Multiply Line 2 by 7.65% for the employee’s share of
FICA
5. Total estimated tax employee must pay on imputed income
(Add lines 3 and 4)
2.
Tax Treatment for Dependents –Whole Year Requirement
In order to qualify as a dependent, the domestic partner must be a dependent for the
entire year. The problem is that at the time of open enrollment an employee might not know
whether the domestic partner will be a tax dependent for the entire year. For example, a
domestic partnership might dissolve mid-year. The employer might not be aware of the
dissolution or might receive notice severance months after the event. If the complete year
requirement is not met, the employer must impute the income to the employee for the value of
the coverage provided during the year.
3.
Cafeteria Plan/FSA and HSA Issues for Non-Dependents
Medical expenses for non-dependent domestic partners and their children are not eligible
for tax-free reimbursement under a Health Savings Account and the employee may not pay for
coverage on a pre-tax basis through a Flexible Savings Account. See Code §§125 and 223.
Medical reimbursements cannot be made through an FSA or HSA for a non-dependent domestic
partner. If dependent status is lost mid-year, the employer will need to recoup the
reimbursements by withholding from future taxable wages, offsetting future reimbursements or
reporting the reimbursements as taxable income on the employee’s W-2. An employer
considering withholding should consult with counsel regarding state wage laws.
14
Note that domestic partner coverage does not effect whether the employee’s deductible
amount qualifies as a high deductible health plan.
There are essentially two options for administering the tax treatment under a cafeteria
plan:
Option 1 – An employee can contribute on a pre-tax basis for his or her own coverage as
well as the cost of his or her domestic partner’s coverage. At the end of the calendar
year, the employee is taxed on the fair market value of the domestic partner’s health
insurance (the employee made no post-tax contributions towards the cost of domestic
partner coverage).
Example: Assume the full cost of individual coverage is $500 per month and the full cost
of two-party coverage is $1,000 per month. The employer pays 80% of the premiums, so
the monthly cost to employees is $100/$200 for individual/two-party coverage,
respectively.
The employee pays $200 per month on a pre-tax basis during the year, which represents
the two-party premium rate. The full cost of individual coverage for the domestic partner
($500 x 12 months) is imputed to the employee’s income. The employee pays $200 per
month on a pre-tax basis but has the full value of domestic partner coverage reported with
his W-2 income at the end of the year, which is $6,000 ($500 x 12 months).
Option 2 – An employee can contribute on a pre-tax basis for his or her own coverage
and contribute on a post-tax basis towards the cost of his or her domestic partner’s
coverage. At the end of the calendar year, the employee is taxed on the full value of the
domestic partner’s coverage minus any post-tax contributions towards the cost of
domestic partner coverage.
Example: Same facts as Option 1, except the employee contributes $100 per month on a
pre-tax basis for his or her own coverage and contributes $100 per month on a post-tax
basis towards the cost of his or her domestic partner’s coverage. At the end of the
calendar year, the employee is taxed on the full value of the domestic partner’s health
insurance ($500 x 12 months) minus any post-tax contributions towards the cost of
domestic partner coverage which were taxed throughout the year ($100 x 12 months), for
a total of $4,800 ($400 x 12 months).
Options 1 and 2 do not differ for employees from an economic perspective, i.e., both
options result in the employee paying taxes on the same amount of total income for the
taxable year. The only difference is that in Option 1, the employee is paying for domestic
partner coverage on a pre-tax basis during the year, so his or her “imputed income” will
be greater at the end of the year and his cash income higher during the year than the
employee who pays on a post-tax basis during the year.
15
A variation on Option 2 involves imputing the value of employer coverage ratably during
the year, e.g., the $4,800 of imputed income from the employer’s contribution is added to
the employee’s paycheck on a monthly basis. In our experience, many employers choose
this option because imputing income ratably during the year reduces the financial burden
the employee will incur if the entire amount is imputed (and the large amount of
applicable taxes withheld) at year-end.
If coverage for a dependent domestic partner is paid on a tax-free basis through a
cafeteria plan, the election is generally irrevocable and a dissolution of a domestic partnership is
not a change in status that allows a mid-year change to be made. The unfortunate effect is that
the use-it-or-lose it rules means the employee might forfeit a portion of his/her election. One
way to handle this is through the cafeteria plan document on the basis that it is a significant
change in cost. A change in the domestic partner’s other coverage may be a valid change in
status.
D.
Is COBRA Coverage Available?
COBRA coverage is limited to spouses (as defined by DOMA) and dependent children.
COBRA coverage is not available for domestic partners even when the domestic partner
qualifies as the employee’s tax dependent. However, many group insurance policies include
continuation provisions that may be used to provide COBRA-like coverage without the risk that
the claims would be denied by the insurance company. And, self-funded benefit plans can
provide COBRA-like coverage but employers should confirm that such extended coverage
would be subject to the employer’s stop loss policy.
But note that since any continuation coverage made available to a domestic partner is not
“COBRA” coverage, the individual is not eligible for the subsidy that reduces the premium for
COBRA coverage under the economic stimulus plan.
III.
Retirement Benefits
Issues relating to domestic partners may arise in relation to (1) who is the beneficiary
who will receive the employee’s benefit if the employee dies before it is distributed, (2) the
ability to make a direct rollover to another tax-qualified retirement plan or IRA to defer taxation,
(3) hardship distributions, and (4) division upon termination of the domestic partnership.
1.
Death Beneficiary
A defined contribution plan can be designed to allow an employee to designate a
beneficiary and can provide default rules. Employers with plans that already permit the
employee to designate a beneficiary, as most do, can leave the choice to name a domestic partner
as the beneficiary to the employee. Alternatively, an employer could adopt default rules to
16
provide that the benefit is paid to the employee’s domestic partner unless the domestic partner
has consented to the designation of another person as the beneficiary or provide that the benefit
is paid to the employee’s domestic partner if the employee has not designated a beneficiary.
Defined benefit plans that are subject to qualified joint survivor annuity rules and
qualified pre-retirement survivor annuity rules must provide that the default benefit form for an
unmarried employee is a single life annuity. Thus, the default would not include a survivor
benefit for a domestic partner. However a defined benefit plan could provide that an employee
can choose a survivor annuity with a domestic partner as the beneficiary.
2.
Non-Spousal Rollovers
As a general rule, benefits from a retirement plan are taxed at the time of distribution.
However, taxes can be deferred on certain distributions if the amount is “rolled-over” to another
qualified retirement plan or IRA. Effective for all plan years starting on or after January 1, 2010,
qualified retirement plans are required to permit the employee’s designated beneficiary,
including a non-spouse designated beneficiary, to make a direct rollover of the plan benefit to an
IRA which is then treated as an inherited IRA. See Code §402(c)(11). A non-spousal
beneficiary may not initiate a rollover to another employer’s plan. Thus, if a calendar year plan
does not currently permit non-spousal rollovers to IRAs, employers must formally amend their
plans no later than December 31, 2009.
3.
Hardship Distributions
A 401(k) or 403(b) plan can permit employees to take hardship distributions for the
medical, tuition or funeral expenses of the employee’s “primary beneficiary under the plan.”
See IRS Notice 2007-7. For this purpose, a “primary beneficiary under the plan” is an individual
who is named as a beneficiary under the plan and has an unconditional right to all or a portion of
the employee’s account balance under the plan upon the death of the employee. A plan that
wishes to allow such provisions must adopt an amendment and must satisfy all the other
requirements applicable to hardship distributions, such as the requirement that the distribution be
necessary to satisfy the financial need.
4.
Division Upon Dissolution of Partnership
The Code and ERISA prohibit an employee from assigning (or alienating) his or her
qualified retirement plan benefit. An important exception to the anti-assignment rule, is the
award of all or a portion of an employee’s benefit to an “alternate payee” pursuant to a Qualified
Domestic Relations Order (“QDRO”). Code 414(p). However, a non-dependent domestic
partner might not be an alternate payee. Code §414(p)(8). For the purposes of a QDRO, the
term “alternate payee” means “any spouse, former spouse, child or other dependent of a
participant who is recognized by a domestic relations order as having a right to receive all, or a
portion of, the benefits payable under a plan with respect to such participant.” Id. However, if
state laws require that a domestic partner be treated as a “spouse” in a dissolution, there may be a
17
court order directing the division of a retirement benefit. Generally, a plan administrator is not
required to analyze state domestic relations laws and can rely on a court order that appears valid
on its face. DOL Advisory Opinion 92-17A; DOL Guide “The Division of Pension Through
Qualified Domestic Relations Orders” Q&A 2-8.
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