This is from Belinda S. Morgan at Foley and Lardner:
Should Employers Continue to Offer Domestic Partner Coverage?
The Historic Rationale for Domestic Partner Coverage. Before marriage equality efforts gained momentum in the United States, many employers offered domestic partner health benefits to the same-sex partners of their gay and lesbian employees. Although an employer’s domestic partner coverage might have provided its gay and lesbian employees’ same-sex partners with the same health benefits as opposite-sex spouses received, the gay and lesbian employees did not receive the same tax benefits for that coverage their straight counterparts did. While coverage for opposite-sex spouses could be provided to straight employees tax-free, a gay or lesbian employee had to include the cost of domestic partner coverage in his or her gross income unless the employee’s domestic partner qualified as his or her “dependent” for tax purposes.
Reasons to Discontinue Domestic Partner Coverage. Some employers do permit unmarried, straight employees to obtain domestic partner coverage for their opposite-sex partners. Most employers, however, offered domestic partner coverage because their gay and lesbian employees could not legally marry their partners. Following the Supreme Court’s decision in Obergefell, that is no longer the case, and many employers that historically offered domestic partner coverage are revisiting the decision.
Continuing to offer domestic partner coverage means continuing administrative challenges for the employer’s human resources staff. In addition, as noted above, the cost of domestic partner coverage must be included in an employee’s income (and is subject to federal taxation) unless the employee can treat his or her domestic partner as a tax dependent. Making that determination can be time-consuming, and typically requires the employer to rely on the employee’s certification that his or her domestic partner is actually a tax dependent. If the employee is incorrect in that certification, the employer could be subject to penalties for failing to report and withhold.
In addition to the issues surrounding the determination of whether an employee’s domestic partner is the employee’s tax dependent, the employer’s domestic partner policy may require employees to provide other forms of proof and documentation (i.e., proof they are in a “committed relationship” or are financially interdependent) to prove the validity of their domestic partnership. Employees seeking health coverage for their opposite-sex spouses are not typically required to provide this sort of information. The employer’s human resources staff will be tasked with reviewing any such documentation and determining its validity.
Given the administrative headaches associated with providing it — as well as the fact that the primary reason for offering the benefit no longer exists after the Court’s decision in Obergefell — many employers may now be eager to drop their domestic partner coverage. Before doing so, however, employers should ask themselves whether domestic partner coverage is such an effective recruiting/retention tool that the benefits of offering such coverage outweighs the associated administrative hassles. The answer to this question may depend on the employer’s industry, the types of individuals it seeks to employ, and whether it offers domestic partner benefits only to its gay and lesbian employees or to all its employees.
Transition Issues. If after weighing the pros and cons of offering domestic partner benefits, an employer elects to discontinue that coverage, it will need to determine how best to communicate its decision and transition affected individuals to other coverage. As part of this process, such employers should consider the following:
- Will the employer offer a transition period before dropping its domestic partner coverage to allow employees sufficient time to marry their domestic partners? If so, how long will the period be?
- Will the employer permit current employees to continue domestic partner coverage for their partners under some sort of “grandfather” policy, while offering only spousal coverage to new employees?
- If eligibility/type of benefits available is based on the length of an employee's marriage, will the employer count periods during which the employee was part of a domestic partnership for this purpose?
- Will the employer continue domestic partner coverage for older employees who might lose Social Security or other retirement benefits if they marry?
