This week, the Illinois legislature approved a civil unions bill that appears all but certain to become law. On Tuesday, the Illinois House narrowly approved the bill. The Senate (having passed the bill before) followed suit on Wednesday. Governor Pat Quinn (D) has promised to sign the bill, which is slated to take effect June 1, 2011.

This will make Illinois one of eleven states, plus the District of Columbia, that afford same-sex spousal rights in one form or another. (That includes California, where some same-sex marriages remain in effect while others generally wend their way through the federal courts.) Five states – Connecticut, Iowa, Massachusetts, New Hampshire, and Vermont – recognize same-sex unions as marriage. The rest, soon to include Illinois, extend spousal rights to those in registered domestic partnerships or civil unions. As if that weren’t confusing enough, California’s domestic partnership law remains on the book largely unchallenged. It apparently will be litigated and perhaps ultimately the U.S. Supreme Court will decide whether same-sex couples in California can lawfully marry.

In Illinois, proponents focused mainly on non-economic issues like hospital visitation rights and medical decision-making. For private employers, however, the bill’s greatest significance relates to employee benefits, especially health insurance. The bill draws no distinction between employers and insurers, but instead provides: “A party to a civil union is entitled to the same legal obligations, responsibilities, protections, and benefits as are afforded or recognized by the law of Illinois to spouses … .” Thus, employers who provided insured health benefits to spouses must provide them on the same terms to registered non-employee partners. Why insured and only insured? Because self-funded health plans are subject to the Employee Retirement Income Security Act (ERISA), they are not required to recognize civil unions. The federal Defense of Marriage Act (DOMA) provides that, for purposes of interpreting ERISA, the Internal Revenue Code and any other federal law, “marriage” is limited to a legal union between one man and one woman, and the word “spouse” refers only to a person of the opposite sex. As a result, the federal preemption doctrine allows self-funded plans to define spousal benefit as available exclusively to opposite-sex individuals.

Some things are clear. Effective June 1, 2011, employers in Illinois that offer insured health benefits must provide such benefits to parties to a civil union. Employers with self-funded plans can still choose to limit spousal benefits to opposite-sex couples.

Most large employers however, already offer some form of same-sex or domestic partner benefits. Many of those require the couple to complete an affidavit or other form that sets out pre-conditions for benefits, such as a minimum age requirement, joint residency, financial co-dependency or proof of no blood-relationship. While employers with self-funded plans generally can set whatever pre-conditions they want by virtue of federal preemption, employers offering insured benefits face ongoing challenges. Registration requirements can and do vary among those states permitting same-sex couples to register. An employer with insured benefits that wishes to have a uniform benefits application that works in all jurisdictions likely cannot have one, because of hurdles with varying state and local requirements. In some jurisdictions, an employer’s application requirement even may be unlawful in and of itself, such as if it imposes requirements for parties to a civil union but not for a legally married couple.

For now, employers should take the following action:

  • Decide What Benefits the Employer Wants to Provide to Whom. ERISA plan coverage is generally a design decision for the employer. If an employer does not want to provide domestic partner/civil union coverage, it may self-insure. An employer may offer coverage for same sex-partners and civil unions in order to be competitive in attracting employees and generating new business opportunities.
  • Review/Revise Plan Documents. Employers providing insured benefits should review their plan documents (including summary plan descriptions) to make sure they accurately reflect Illinois’ civil union requirements.
  • Check Insurance Policies and Positions. Employers located in Illinois providing insured health plan benefits should contact their insurance carriers to determine whether (and when) the policy will be modified for civil union coverage.
  • Consider Applicable Tax Laws. Employers with health plans that cover civil unions need to consider federal and state tax laws. Providing coverage to a non-employee partner of a civil union may cause an employee to have imputed income for federal income tax purposes and employers may need to contact their payroll vendors to adjust for tax withholding.