Domestic Partner Benefits

In 1982, the Village Voice started the trend of offering domestic-partner benefits, or benefits an employer voluntarily decides to offer to an employee's unmarried partner of the same or opposite sex, to its employees. The cities of Berkeley and West Hollywood, Calif., followed suit in 1985. And since then, about 3,500 employers - including nearly one-fifth of Fortune 500 companies - have offered domestic-partner benefits, according to Kim Mills, education director for the Human Rights Campaign, a national gay and lesbian political organization.

"[The trend] really took off in the IT sector in the 1990s. Since then, we've seen a lot of communication firms, law firms, a growing number of unions, and labor organizations. Recent trends are toward gas and oil, and banking and financial services. There is not so much in manufacturing and food services - industries where benefits in general tend to be sparse," said Mills.

David Kirchner, a principal with the Benefits Consulting Group at the Boston-based law firm Ropes & Gray, said both large corporate clients and smaller, 10-person companies are offering domestic partner benefits. "Domestic partner benefits are one more way in which corporate America has stayed ahead of the federal government," Kirchner said. "Despite the hurdles imposed by the tax code, companies are saying, 'This is how we're going to do it.' "

Enrollment is lower than expected
Domestic-partner benefits fall into two categories: same-sex and opposite-sex partners - and it is up to employers to decide whether to cover just same-sex partners or both. About 35 percent of the plans that the Human Rights Campaign has followed offered benefits only to same-sex partners. However, it is predominantly opposite-sex domestic partners who take advantage of the other 65 percent of plans that offer benefits to both types of partners. Sixty-seven percent of individuals participating in domestic-partner coverage are in opposite-sex relationships, according to a study conducted by Hewitt Associates in 1994.

These are trends that continue today. "Overwhelmingly, opposite-sex couples are the ones who take advantage of it," said Ken McDonnell of the Employee Benefit Research Institute (EBRI). In fact, he said, many same-sex partners are not taking advantage of benefits when they are offered. "Hewitt was anticipating in its planning stages about 10 percent [participation]. Usually, 2 to 3 percent of those eligible take advantage of benefits," said McDonnell. Reports throughout the 1990s consistently confirm that enrollment is low, typically only between 0.5 and 2 percent of eligible employees.

Are benefits separate but equal?
Companies offer both soft and hard benefits to domestic partners. Soft benefits include sick leave, access to company facilities, employee assistance programs, and employee discounts. The higher-cost hard benefits include medical insurance, dental insurance, dependent life insurance, daycare, and tuition assistance.

According to a domestic-partner benefits fact sheet compiled by the EBRI, "Most employers that offer domestic partner benefits offer a range of only low-cost benefits." However, McDonnell said that medical coverage is the indicator in which people primarily are interested. The Human Rights Campaign, for example, uses health insurance as a minimum indicator when counting employers who offer domestic-partner benefits.

Kirk Nass, of the Chevron Chemical Company's Oronite Additives Division, participates in the domestic-partner benefits program at his company. He said that at Chevron, almost all of the spousal benefits are extended to domestic partners, with slight exceptions in retirement and COBRA benefits for federal tax reasons. "Anything that said 'spouse' now says 'spouse/domestic partner.' The mechanisms to implement it worked the same as if I had gotten married. It all went pretty smoothly. I have identical coverage [to that of a married employee]. There haven't been any problems. It has been working great."

Nearly all companies offering domestic-partner benefits require employees to prove the existence of a relationship, something married employees are usually not required to do. A survey by the Society for Human Resource Management said that 42 percent of employers offering domestic-partner benefits require employees to prove common residency through rental agreements, mortgage documents, leases, and bills. Companies also usually require a six-month to one-year waiting period between relationships to verify the seriousness of the partnership. "In domestic-partner situations, there is a presumption that relationships are less committed," said Mills.

Nass said some Chevron employees found the affidavit an inconvenience, but after the 10 minutes it took to complete the form and get it notarized, it was done.

No COBRA and more taxes for domestic partners
There are considerable legal differences between domestic partnership and marriage, particularly in federal tax law. The Consolidated Omnibus Budget Reconciliation Act of 1995 (COBRA) requires companies with 20 or more employees to continue medical benefits to spouses and dependent children in the event of death, divorce, reduction in hours, termination of employment, Medicare entitlement, and change in dependent status. Same-sex partners are not legally included in this entitlement. In response, some companies provide domestic-partner benefits similar to COBRA.

What's more, the Internal Revenue Service considers domestic-partner benefits taxable income, while spousal benefits remain tax-free. The benefits are only considered nontaxable if the partner meets the Internal Revenue Code Section 152 rule. Under this rule, the partner must be a dependent "who, for the taxable year of the taxpayer, has as his principal place of abode the home of the taxpayer and is a member of the taxpayer's household." Some employers are finding ways around this dilemma. Companies attempt to make the benefits more accessible to employees by increasing the benefits compensation package to offset the amount taxed.

Gay couples aren't more expensive to insure - or retain
Perceived cost remains the primary disincentive for employers when deciding to enlist partner benefits, as they believe adding more enrollees to a plan will increase premiums and add further risks - one concern being that male same-sex partners will be at a greater risk for AIDS. However, this is offset by the reduced likeliness of pregnancy. McDonnell said, "It costs nothing extra. Same-sex couples tend to be cheaper."

Companies have several incentives to offer domestic-partner benefits in a market where strong compensation packages are needed to attract and retain employees. In addition to helping companies remain competitive, equal compensation for employees lifts morale and boosts loyalty, and workers feel more secure knowing their families are being provided for. And public image is often improved when a company promotes equality in the workplace.

There are four main reasons why employers decide to offer benefits, according to Ilse de Veer, a principal in groups benefit practice with William Mercer who consults with employers on implementing domestic-partner benefit programs. "The primary reason is to keep pace with the competition, because the labor market is tight," she said. The other reasons she cited were employee requests, compliance with company nondiscrimination policy, and compliance with government ordinances.

The reason most companies fail to offer domestic-partner benefits is that they either do not think they have any gay employees, or they simply didn't think of it. In the end, though, it takes just a few manageable steps for a company to implement a program.