Employee benefit plans and procedures should be reviewed to ensure compliance with recent significant changes in Washington state’s domestic partnership law. In November 2009, Washington voters approved Referendum 71, confirming the “everything but marriage” law treating state registered domestic partners the same as married spouses under Washington state law. The new law creates substantial domestic partner related compliance issues for employers and is effective Dec. 3, 2009.
This advisory provides some steps employers should take to ensure compliance with the law and answers some key questions employers may have regarding retirement, health benefits and tax issues.
What steps should employers take to comply with the new law?
- Review health and welfare plans. Review and update definitions of “spouse” and “domestic partner.” Review eligibility provisions for parity between spousal and domestic partner benefits. Consider whether your self-insured plans should have a different definition than your insured plans (see pre-emption discussion below).
- Review nonqualified deferred compensation plans. Review and update the definitions of spouse, domestic partner and beneficiary designations.
- Communicate with insurance providers to provide parity in benefits for registered domestic partners and to ensure COBRA-like coverage, if desired.
- Revise employee handbooks, participant communications and internal policies to reflect new benefit provisions for domestic partners.
- Review federal tax treatment of domestic partner benefits and update administrative policies and participant communications.
- Closely monitor developments related to the evolving state and federal treatment of domestic partners. Benefits policies and practices may require subsequent amendment.
What is the new law and what impact does it have on employer-provided benefits?
The new law requires state registered domestic partners to be treated the same as married spouses under Washington law. This means that any benefits an employer provides to a spouse must be provided to a registered domestic partner, unless Washington state law is “pre-empted” (see below).
The new law achieves this result by interpreting certain terms (such as “spouse,” “husband,” “wife” and “marriage”) throughout Washington law as applying equally to state-registered domestic partners. State-registered domestic partners may be either same-sex partners or partners of the opposite sex, if at least one partner is 62 years or older, and must satisfy certain other requirements. Employers are not required to provide benefits to unregistered domestic partners, but may choose to do so.
How are insured group health plans affected?
If health coverage or other benefits are provided to married spouses through an insurance policy, such benefits must also be provided to registered domestic partners. No formal amendment to group policies is required. While insured plans are often subject to the Employee Retirement Income Security Act of 1974 (ERISA), ERISA permits the state regulation of “insured” benefits.
How are self-insured group health plans affected?
Most self-insured health and welfare plans are governed by ERISA, which pre-empts state regulation of most self-insured plans. Accordingly, self-insured health and welfare plans that are governed by ERISA are not required to provide coverage to domestic partners under the new state law, although nothing prevents them from doing so.
Self-insured governmental and church plans are not subject to ERISA pre-emption and are, therefore, generally subject to the domestic partner coverage obligations.
How does the new law impact open or special enrollment?
There is no definitive guidance on how the new law impacts open or special enrollment. Generally, for purposes of open or special enrollment, newly registered domestic partnerships should be treated the same as new marriages. For example, if the employer provides a special enrollment right to a newly married employee, the same special enrollment right should be provided to an employee with a newly registered domestic partner. Employees are not required to provide proof of registration, unless the employer requires married employees to provide proof of marriage.
What are the federal tax implications of domestic partner benefits?
Federal tax rules govern the tax treatment of domestic partner benefits. Generally, if a domestic partner or his/her dependents are an employee’s Internal Revenue Code (“Code”) Section 105(b) tax dependents, the value of the health coverage is not subject to federal income and employment taxes, and the benefits provided will be tax-free. If a domestic partner or his/her dependents are not Code Section 105(b) tax dependents, generally the employee will be taxed on the premium cost of the insurance provided to the domestic partner. Federal legislation has been introduced to change this tax treatment.
May employers provide benefits to unregistered domestic partners and opposite-sex domestic partners?
Yes, but they are not required to do so. If you are making distinctions between registered and unregistered domestic partners and same- or opposite-sex partners, make sure these distinctions are set forth in your plan documents. Such distinctions may raise staff relations issues and claims of discrimination.
Is there a “conscience clause” exception for religious entities?
No, but employers can meet compliance obligations without specifically endorsing domestic partner rights by offering employee+1 adult coverage.
How are retirement plans affected?
Retirement plans are generally governed by ERISA (except for church and governmental plans), which pre-empts state law. However, ERISA does not prevent employers from treating domestic partners as spouses in their retirement plans. This allows for a policy of consistent treatment across benefits such as health and retirement. For example, a default beneficiary in a retirement plan could be a registered domestic partner.
What about family leave laws?
Please see Davis Wright Tremaine's June 2009 advisory, "Domestic Partners – Expanded Employment Rights."
What about COBRA?
While employers may voluntarily offer domestic partners and their dependents a COBRA-like benefit, the new law does not require the extension of COBRA rights to registered domestic partners. However, because COBRA does not apply, make sure that your insurance carrier has approved such coverage before voluntarily extending coverage to domestic partners.
More information regarding the Washington state domestic partnership provisions is available at the Washington State Office of the Insurance Commissioner’s Web site and the Secretary of State’s Web site.