Last month, Oregon joined the small but growing number of states that recognize domestic partnerships of same-sex couples. Many employers question the impact the new law will have on their employee benefit plans, and how they should respond.
Health Insurance and Health Savings Accounts (HSA)
Employers may provide tax-free health insurance benefits to non-employee domestic partners if the partner meets the Internal Revenue Code definition of "dependent." That requires, among other tests, that the domestic partner receive at least one-half of his or her support from the employee. To entitle a domestic partner to benefits, the employer's health plan must expressly provide for such benefits. Employers should review their plan's eligibility provision to ensure that the plan reflects the employer's intent. Employers choosing to offer benefits to a domestic partner may consider requiring an affidavit or other certification process to determine and document the eligibility of the domestic partner.
COBRA does not consider a domestic partner to be a "spouse" entitled to COBRA benefits, and such partners are therefore not entitled to COBRA rights or notices. Despite this, and since COBRA provides minimum coverage requirements, an employer's health plan may offer COBRA benefits to a domestic partner since COBRA does not prohibit an employer from offering continuation coverage to a larger group than required. Again, careful drafting and close consultation with the health plan insurer are required. HIPAA has a slightly different definition of dependent that may require providing a special enrollment period for domestic partners who lose their own coverage.
Dependent Care Assistance Program (DCAP) and Health Flexible Spending Account (FSA)
As above, these plans may provide benefits for domestic partners that satisfy the tax code's definition of dependent, provided that the plan eligibility provision is drafted to do so. Again, the employer should review the plan(s) to ensure they are working correctly.
Retirement Plans
Many 401(k) or profit sharing plans allow hardship distributions for certain educational or medical-related expenses of the participant's dependent. Such expenses incurred on behalf of a domestic partner that satisfy the dependent definition are eligible for hardship distributions.
One important element that is not available to domestic partners is automatic inheritance of a retirement plan benefit. Federal law limits that automatic right to a "surviving spouse," defined as the surviving member of an opposite-sex marriage. An employee who wishes to have his or her non-employee partner receive any death benefit must complete a beneficiary designation form for that purpose.
Cafeteria (Section 125) Plans
Cafeteria plan rules allow participants to make changes to their elections if the participant has a "change in status event." One such event is a change in "legal marital status." However, registering as domestic partners is not considered a change in legal marital status. Even a same-sex marriage is not a change in status event, again because of the federal law's restrictive definition of "marriage."
Other benefit plans (life insurance, dental, vision, etc.) should undergo a similar analysis. Failing to know and understand the tax consequences of benefit plan coverage in a rapidly evolving area of the law can have an adverse impact on both the employer and the employee.
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