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Domestic Partner Benefits Fact Sheet
As of April 1996, more than 300 employers in the U.S. offered benefits to the domestic partners of unmarried employees. Employers started offering medical benefits to domestic partners at least 15 years ago, and the number of employers offering these benefits has continued to grow each year.
Why Should My Company Offer Domestic Partner Benefits to Employees?
It makes good business sense. In order to attract and retain the most qualified, highly productive, valuable employees, employers must address the benefits needs of an increasingly diverse work force. Employees who feel they are valued are likely to be more loyal, committed, and productive, and are more likely to demonstrate a positive attitude on the job.
Denial of benefits to employees with long-term, marriage-equivalent partnerships creates resentment based on their perception that they do not receive equal pay for equal work. Benefits are a significant percentage (roughly 30 percent) of total compensation, and health insurance is a major component of these benefits.
If you compensate employees differently based on sexual orientation and marital status, they feel you are discriminating against them. This can possibly lead to law suits, particularly in cities or states where there are laws protecting the civil rights of gays and lesbians. Company policies prohibiting discrimination are ineffective unless they are enforced and are inaccurate unless benefits are distributed fairly.
What Will It Cost My Company?
That depends on enrollment. Expect fewer than 1 percent of employees to sign up if benefits are extended to same-sex domestic partners (up to 2.5 percent in some areas), or 2 percent to 5 percent (10 percent at most) if opposite-sex unmarried couples are eligible as well. According to the National Gay and Lesbian Journalists Association (NGLJA), at Stanford University and New York’s Montefiore Medical Center, where only same-sex couples are eligible, costs have added less than 0.3 percent and 0.2 percent respectively to their annual budgets for medical benefits. The Cities of Seattle, WA and Berkeley, CA, which cover all partners, saw their medical budgets rise 1.4 percent and 3 percent, respectively.
To limit enrollment, many companies only offer domestic partner benefits to same-sex couples. Employers who exclude benefits to unmarried opposite-sex couples may do so because this group has a legal avenue to benefits— can get married. According to companies who offer domestic partner benefits, participation in the benefits programs is quite low. Most often, both domestic partners work and already receive medical coverage through their own employers.
Employees who chose to use the benefits are also faced with additional income tax on the value of the benefit unless the domestic partner meets a special IRS Code definition of “dependent” (see Tax Implications below). This may discourage the use of domestic partner benefits; however, even if the employees do not plan to use the benefits, many consider their companies’ offering of the benefit as a “safety net” and as a gesture of goodwill.
Obviously, adding more people to a policy increases costs; however, companies who offer domestic partner benefits report that domestic partner coverage costs the same or less than covering a spouse. This may be due to the fact that people with domestic partners tend, on average, to be younger, and younger people incur fewer costly medical expenses. Most employers find that offering benefits costs little and results in much-enhanced employee satisfaction, loyalty and morale.
What About AIDS? Contrary to many businesses’ expectations, health-care costs for gay and lesbian partners are often less than those for heterosexuals, despite fears of footing the bills for more AIDS cases. The cost of a premature birth, heart disease or cancer is higher than the lifetime medical costs for an AIDS patient. In addition, lesbians are at very low risk of contracting HIV. A 1991 Bureau of National Affairs survey, the most recent survey conducted which included questions on domestic partner benefits and AIDS, showed that none of the surveyed employers that offered domestic partner coverage experienced an AIDS-related claim filed by an employee’s domestic partner. (The Segal Company, 1994)
Definition of “Domestic Partner” Defining the term “domestic partner” under a benefits plan is important. A widely used definition describes “domestic partners” as “two adults who share an emotional, physical and financial relationship similar to that of a married couple but who either choose not to marry or cannot legally marry. They share a mutual obligation of support for the basic necessities of life.” Some employers use the term “spousal equivalents.”
How to Develop Domestic Partnership Benefits For Your Employees Senior management’s public support for the program establishes a positive context and contributes to the success of these benefit programs. Once top management has expressed its support and extends benefits to spousal equivalents, the next step is to define eligibility for domestic partner benefits. Will only same-sex couples qualify or may opposite-sex partners participate? What are the eligibility rules for the children of one’s domestic partner? Many employers require their employees to sign an affidavit attesting that the domestic partnership has existed for a set amount of time. In cities where domestic partners can legally register, a registration certificate may suffice. Some employers require domestic partners to go through a waiting period after the affidavit is signed to become eligible for coverage. For copies of sample affidavits of domestic partnerships/spousal equivalents, please contact the Segal Company, benefits consultants, at (202) 833-6400. If legally married employees may enroll spouses without showing their marriage license or signing an affidavit, it makes sense for others to be able to enroll their partners following the same rules. Other rules of eligibility may include: proof that the employee and their spousal equivalent reside together and intend to continue doing so, are financially interdependent, are not blood related and are not married to anyone else. After rules of eligibility are established, decide which benefits programs will be offered.
Some benefits, other than health, dental and vision care insurance which should be considered include: employee assistance program services, financial counseling, funeral and bereavement leave, Family and Medical Leave Act (FMLA) leave for an ill domestic partner, parenting leave, child care services, adoption assistance, dependent-child scholarships, access to the company’s fitness center and relocation benefits. If any of these benefits are offered to employees and their spouses or children, they should be made available to employees and their domestic partners or their children. While employers are not required by law to extend COBRA coverage to employees’ domestic partners, most employers that extend medical benefits to domestic partners also make COBRA coverage available to employees’ domestic partners. In these cases, the employers follow the same rules for COBRA coverage, notice, and premium that apply to married couples.
You must negotiate confidently with insurers. Insurers that have provided or have indicated a willingness to provide domestic partner health benefits include Aetna, Blue Cross, Cigna, and Kaiser Permanente. Please call Lambda Legal Defense & Education Fund at (212) 995-8585 for a more extensive listing of insurers.
In the past, insurers have demanded a surcharge for domestic partner benefits. Most of these insurers, after discovering their costs have not increased with the addition of domestic partners, have dropped surcharges, but some insurers may still impose a surcharge. If this is the case with your insurer, you may want to check with another insurance company.
Once the plan is in place, the plan’s provisions should be communicated clearly to employees. This ensures employees with domestic partners understand rules of eligibility and the benefits that are available, and is an opportunity for all of your employees to see that you value and respect them.
Some employees may be hesitant to access domestic partner benefits because they do not want to disclose their sexual orientation to coworkers. Be sensitive to your employees’ wishes for confidentiality. If an affidavit is required, one member of the human resources department can be made responsible for overseeing the signings, thereby limiting the number of persons within the organization who are privy to that information. Human resources, accounting and the payroll departments will need some guidance and a system in place for handling enrollment, the calculation of imputed income and changes in withholding.
Tax Implications Domestic partners do not meet the Internal Revenue Code’s definition of dependent and are not legal spouses; however, if the domestic partner has children, they might be considered dependents. IRS Private Letter Rulings indicate that employees will be taxed on the value of the coverage provided to a domestic partner. Therefore, married employees can pay premiums for spouses with pre-tax dollars, but those with domestic partners must use after-tax dollars. Employers must report imputed income on the employees’ W-2 forms, based on the fair-market value of their domestic partners’ benefits, and must pay FICA and FUTA on that income (The Segal Company). As a result, employees enrolling domestic partners end up paying more in taxes; this is one reason so few sign up for health benefits (NLGJA).
Employers that offer benefits through IRS Code Section 125 plans face certain design restrictions relative to the use of pretax dollars. Tax implications also vary for some employers based on their funding mechanism. Check with your accountant as you are structuring your policy. Until the IRS spells out tax ramifications for employers offering domestic partner benefits, employers should seek the advice of legal counsel as they make plans to extend benefits.
According to the Segal Company, if group health coverage is funded through an IRC 501(c)(9) trust, known as a voluntary employees beneficiary association (VEBA), which is allowed to cover employees, spouses, and dependents, then offering coverage to domestic partners may cause the sponsoring employer to lose its tax deduction under that Code section. The IRS has the authority to revise these regulations. Again, check with your attorney or CPA.
Footnote: The information in this guide comes from a number of sources: “Domestic Partner Benefits: At What Cost?,” National Lesbian and Gay Journalists Association, 1994; “Domestic partner benefits pose new challenges for employers,” ACA News, June 1994; Executive Letter, The Segal Co., 1993; “Same-Sex Partners Win IBM Coverage,” Washington Post, September 20, 1996; “Arguments for Adoption of Health Benefit Coverage for Employees’ Same-Sex Partners,” Hollywood Supports; “National Overview of Jurisdictions and Companies That Recognize and/or Provide Benefits to Domestic Partners of Employees,” Lambda Legal Defense and Education Fund, 1996.
Some Companies with Domestic Partner Benefits (For a complete listing of companies, please contact the Lambda Legal Defense & Education Fund. Their address and phone number are listed under Resources for Further Information.)
American Psychological Association
City of Ann Arbor, Michigan
City of Baltimore, Maryland
Bank of America, San Francisco
Barnes & Noble Booksellers
Ben & Jerry’s Ice Cream
City of Berkeley, California
Blue Cross/Blue Shield of MA
City of Boston, Massachusetts
Bureau of National Affairs
Civil Service Employees
Association of New York State
Coors Brewing Company
Eastman Kodak, Co.
Genetech, San Francisco
Home Box Office
International Data Group
KQED TV and Radio
Law School Admissions Council
Levi Strauss & Co.
Lotus Development Corp.
State of Massachusetts
Metro-Goldwyn-Mayer Inc. (MGM)
Montefiore Medical Center, NY
Morrison & Foerster
National Public Radio
City of New York, NY
New York Life & Annuity
Northwest Airlines (non-health benefits)
NYNEX (NY Telephone Co.)
Pacific Mutual Life
Principle Mutual Life
Riggs National Corporation
RJR Nabisco Holdings (non-health benefits)
City and County of San Francisco
City of Seattle, Washington
Sony Pictures Entertainment
Starbucks Coffee Company, Seattle
Teachers Insurance & Annuity
Time Warner, Inc.
State of Vermont
Walt Disney Co.
Resources for Further Information:
American Compensation Association
14040 N. Northsight Blvd.
Scottsdale, AZ 85260
fax: (602) 483-8352
Lambda Legal Defense & Education Fund
6088A Putnam Ave
Ridgewood, NY 11385
National Lesbian and Gay Journalists Association
250 Massachusetts Ave NW
Washington, DC 20001
The Segal Company
72 K St NW
Washington, DC 20001
fax: (202) 833-6544
National AIDS Fund
428 M St NW
Washington, DC 20001
fax: (202) 411-1441
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