The Value of Domestic Partner Benefits in Recruiting and Retaining LGBT Employees

Todd Solomon
August 18, 2009 — 2,555 views  
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Employers seeking to recruit and retain talented lesbian, gay, bisexual, and transgender ("LGBT") employees     are increasingly finding that offering domestic partner benefits is a necessary part of their recruiting efforts.  As demand for skilled employees and a diverse workplace has grown in recent years, prospective LGBT employees have come to request and even expect that employers recruiting in a competitive market will offer employees in same-sex relationships access to the benefits that have long been offered to employees in opposite-sex relationships.  These sought-after employees will accept employment and are more likely to stay employed with employers that foster the best work environment and offer the best compensation and benefits packages; packages that now include comprehensive benefits for domestic partners.

The potential aid in recruiting talented LGBT employees is only one of the many reasons that employers have for offering domestic partner benefits.  Many employers opt to offer domestic partner benefits out of a basic sense of fairness for employees in same-sex relationships so that these employees are not treated any differently than employees in opposite-sex relationships.  In addition, diversity in the workplace has become an important factor for success as clients and customers are demanding evidence and statistics demonstrating that the employer values and promotes a diverse workplace, including diversity on the basis of sexual orientation, when they are selecting law firms with which they will do business.

Structuring and implementing a domestic partner benefits policy can be a confusing process for employers, particularly in light of the recent developments in the conflicting federal and state laws on the recognition of same-sex marriages, civil unions and domestic partnerships.  Many employers who are considering a domestic partner benefits policy for the first time are working to understand the interplay between these complex federal and state laws so that the benefits they offer to their employees' same-sex spouses and partners are in line with current market trends.  Even those employers that already have domestic partner benefits policies in place are reexamining their existing policies in response to a growing number of requests that the benefits offered to employees in same-sex relationships be equivalent to the benefits offered to employees in opposite-sex relationships.

What benefits should be offered?

The first step for employers that are considering a domestic partner benefits policy is to decide what benefits should be offered.  Since there are no federal law mandates that employers offer certain types of benefits to employees in same-sex relationships, employers are generally free to structure their domestic partner benefits policies in any manner they choose.  However, the domestic partner benefits an employer chooses to offer must comply with a series of federal laws and regulations, the application of which can be difficult to interpret since state laws recognizing same-sex marriages, civil unions and domestic partnerships are disregarded for all purposes of federal law.

The easiest place for employers to start is with benefits that are not governed by the Employee Retirement Income Security Act of 1974 ("ERISA").  These benefits include voluntary benefits such as long-term care insurance or home and automobile insurance that can be extended to domestic partners without incurring additional costs for the employer since the employee pays the full cost of the benefit.  Employers can also choose to go a step further and extend other non-federally regulated benefits for which the employer incurs the cost on behalf of domestic partners, such as life insurance, employee discounts, moving/relocation expenses, or bereavement and funeral expenses.  Employers concerned about the cost of offering domestic partner benefits should be aware of a 2005 study which found that the majority of employers that had implemented domestic partner benefits policies experienced a total benefits cost increase of less than one percent.[1]

The most common domestic partner benefit entails extending coverage under the company's health, dental and vision plans to the domestic partners of employees.  Employees who enroll a domestic partner in these benefits pay a "married" or "employee plus 1" premium in the same way that an employee with an opposite-sex spouse would pay for spousal coverage.  Employers located in states where same-sex marriage has not been banned and that have insured health, dental or vision plans may actually have an obligation under benefit law mandates to recognize same-sex marriages and provide equal benefit coverage for same-sex spouses depending upon where the policy is issued. 

Employers that extend these types of welfare benefits to domestic partners must keep in mind that the value of the employer's contribution to coverage for the employee's non-Tax Code dependent domestic partner must be imputed as income to the employee for federal income and employment tax purposes and will be similarly taxed in the majority of states for state income tax purposes.  In addition, the employee's premiums for the domestic partner's coverage must be paid on an after-tax basis.  This disparate tax treatment results in employees with non-dependent domestic partners paying significantly more money out of pocket for their health benefits than employees covering opposite-sex spouses.  Employers that want to provide equal benefits may choose to address this issue by "grossing up" the income of employees covering domestic partners by the amount that the employees must pay in taxes for their domestic partners' coverage.  Employers opting to gross-up employees' salaries should keep in mind that, since the employees must pay taxes on the gross-up, the amount of the gross-up should include both the amount of the tax that the employee would pay for the domestic partner's coverage and the amount of the tax that the employee would pay on the gross-up itself.  While very few employers have actually implemented a tax gross-up, some companies are considering the measure as a way to equalize the costs of benefits coverage for employees with same-sex partners.

Many employers that permit employees to enroll a domestic partner in the company's health plan also extend continuation coverage to domestic partners upon the termination of the employee's coverage in the health plan, similar to coverage that must be extended to employees and their opposite-sex spouses and dependent children under the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA").  Although domestic partners are not entitled to continuation coverage under COBRA since the federal Defense of Marriage Act ("DOMA") limits the definition of "spouse" to a person of the opposite-sex for all purposes of federal law, many employers permit domestic partners to extend coverage in a manner consistent with COBRA coverage.

Another benefit commonly offered to employees in same-sex relationships involves extending leave similar to that required by the Family Medical Leave Act ("FMLA").  The leave offered can allow an employee to take paid time off from work to care for an ill domestic partner or for the birth or adoption of a domestic partner's child.  Employers are required by the FMLA to offer this leave to employees in opposite-sex relationships; however, the federal DOMA prevents this law from requiring employers to provide equivalent leave to employees in same-sex relationships.  More and more employers are offering this benefit, notwithstanding that they are not legally required to do so.

Although less common, some employers also choose to extend spousal survivor benefits under a defined benefit pension plan to an employee's domestic partner.

Who is eligible to receive benefits?

Because employers have great latitude in structuring their domestic partner benefits policies, they must also decide who will be eligible to receive benefits form the policy.  Some employers opt to limit domestic partner benefits to employees in same-sex relationships, since employees in opposite-sex relationships already have access to spousal benefits if they marry.  Other employers prefer to make domestic partner benefits available to all unmarried employees (that is, both same- and opposite-sex domestic partners), thereby allowing an employee in an opposite-sex relationship who does not wish to marry to obtain benefits for an opposite-sex partner who satisfies the definition of domestic partner under the employer's policy.  Before making a decision on who will be eligible for domestic partner benefits coverage, employers should assess whether their city or state has enacted an equal benefits ordinance which may require an employer offering domestic partner benefits to make the benefits available to opposite-sex domestic partners as well as to same-sex domestic partners.

Employers must also identify the eligibility requirements that a domestic partner must satisfy in order to receive benefits.  Many employers located in states where same-sex marriage, civil unions or domestic partnerships are legal require some proof that the employee and his or her same-sex partner have legally married or registered their same-sex union in accordance with state law.  Employers in states without a form of legally recognized same-sex union typically set forth specific criteria for domestic partners in order to ensure that benefits are extended only to those domestic partners who are the equivalent of legal spouses except for the fact that they are unable to legally marry.  Employees and their domestic partners are often required to sign an affidavit of domestic partnership as proof that the domestic partner is the equivalent of the employee's spouse.  The affidavit is a statement that the employee and his or her domestic partner sign under penalty of perjury attesting that the domestic partner satisfies certain criteria required by the employer.

Although employers are able to determine their own criteria that a domestic partnership must satisfy in order for the employee's domestic partner to be eligible for benefits, many employers require proof of the same common factors.  Many require the employee to attest that he or she has been in a relationship with the domestic partner for at least six or twelve months and that they have shared a common residence for six or twelve months.  In addition, many employers require some proof of financial interdependence.  Nearly all employers also include typical requirements that the employee and his or her domestic partner must be competent to attest to the relationship, cannot be related to each other to the same degree as required for marriage under the state's laws, and both meet the minimum age required for marriage under the state's laws.  Employers located in cities or states with equal benefit ordinances must keep in mind that most of these ordinances prohibit employers from requiring any more proof of a domestic partnership than that required for spousal relationships.

The HRC Corporate Equality Index

The Human Rights Campaign Foundation's ("HRC") Corporate Equality Index ("the Index") may be a helpful resource for employers considering implementing or updating a domestic partner benefits policy.  Each year, HRC surveys large corporations and law firms throughout the country and rates their respective policies and practices that are pertinent to LGBT employees.  Employers can refer to the Index to identify those additional benefits, policies, or practices that the employer can offer to promote LGBT diversity and better position itself within the competitive market.  In addition, prospective employees now refer to the Index for ratings on which employers are among the best places to work for LGBT employees.  Employers can also use the Index as a guide to ensure their existing domestic partner benefits polices are in line with current trends since the rating criteria are often updated.

Evolution of a Domestic Partner Benefits Policy

For many employers, implementing a domestic partner benefits policy is an evolving process with periodic changes implemented because of requests from employees or to align with changes in the benefits offered by peers in the employer's market.  We offer the domestic partner benefits policies of our own firm, McDermott Will & Emery LLP, as an example. 

Our firm first offered domestic partner benefits in 2002 in response to requests from our employees, the growing trend among our peer firms to offer similar benefits and our own desire to promote diversity.  We chose to offer a comprehensive set of benefits for domestic partners from the start, benefits that included health, dental and vision insurance, FMLA-like leave and bereavement leave, and access to employee discounts.  A few years later, we opted to provide continuation health coverage similar to COBRA in response to the HRC Corporate Equality Index, which rated firms and companies on whether they including continuation coverage.  This was viewed as a diversity best practice, which McDermott implemented.  Our firm requires employees to sign an affidavit of domestic partnership in order for their domestic partners to be eligible to receive benefits.  Although the firm initially required proof of common residence for one year prior to being eligible for benefits and some proof of financial interdependence, we eliminated these requirements several years ago in response to requests from an employee who wanted to enroll a domestic partner and would not have had to provide similar proof if the domestic partner were an opposite-sex spouse.  McDermott also recently implemented guidelines to assist transgender employees with transitioning in the workplace.  We continue to review our benefits policies and practices to identify ways that we can improve the benefits we offer to our LGBT employees.  As a result of McDermott's willingness to embrace enhanced domestic partner benefits and to recognize that the implementation of such benefits policies is an evolving process, our firm has scored a 100% rating on the HRC Corporate Equality Index each year since 2006 and was noted by the HRC as one of the "Best Places to Work" for LGBT employees.

[1] Benefit Programs for Domestic Partners & Same-Sex Spouses, Hewitt Associates, July, 2005.

Todd Solomon


Todd A. Solomon is a partner in the law firm of McDermott Will & Emery LLP based in the Firmís Chicago office. As a member of the Employee Benefits Department, Toddís practice is concentrated primarily on designing, amending, and administering pension plans, profit sharing plans, 401(k) plans, employee stock ownership plans, 403(b) plans, and nonqualified deferred compensation arrangements. He also counsels privately and publicly-held corporations and tax-exempt entities regarding fiduciary issues under ERISA, employee benefits issues involved in corporate transactions, executive compensation matters, and the implementation of benefit programs for domestic partners of employees. A portion of his practice consists of advising clients on fiduciary and plan investment matters. Todd has experience counseling plan fiduciaries with respect to investment policies, alternative investments (e.g., hedge funds, limited partnerships, real estate), prohibited transaction issues, investment management agreements, and payment of expenses from plan assets.