Effective June 1, 2011, civil unions for same-sex and opposite-sex partners will be legalized in Illinois. The new Illinois Civil Union law entitles civil union partners to all the legal rights and obligations afforded to opposite-sex married individuals under existing Illinois law. The law also recognizes as a civil union any same-sex marriage, civil union, domestic partnership or substantially similar legal relationship entered into in other states. This law will impact employee benefit plans with respect to Illinois employers and employees.

As a result of the Illinois Civil Union law, employers should anticipate a rise in requests for civil union partner benefits, particularly with respect to the employer's health plans. Employers with insured health plans with insurance contracts issued in Illinois will be required to extend coverage to an employee's civil union partner if the plan provides coverage for other employees' spouses. However, employer health plans that do not provide spousal coverage, are self-insured, or operate under contracts issued in a state without a civil union law are not required to extend such coverage. Employers are not required to provide federal COBRA continuation coverage to civil union partners under their health plans, regardless of the type of plan or place of issuance.

Under the Illinois Civil Union law, health benefits provided to civil union partners must be provided on a tax-favored basis similar to the tax treatment of those benefits for dependents or spouses. This tax treatment differs from Federal income tax law, which generally requires employees to pay their portion of civil union coverage premium on an after-tax basis and employers to impute income to the employee for the employer's cost for the civil union partner health benefits.

The Illinois civil union law does not require non-government employers to extend qualified retirement plan benefits to civil unions since these plans are regulated by Federal law.

Comment: Prior to June 1, employers should review their current benefit plans and determine what actions, if any, need to be taken to comply with the Illinois Civil Union law. Employers may need to amend their existing benefit plans, summary plan descriptions and enrollment materials. Employers may also need to update their payroll systems to accommodate the state tax consequences of the new law.