What impact do state and local laws that allow gay marriages or civil unions have on employee benefit plans?

More and more states and municipalities are passing laws that allow gay marriages and civil unions. The overall effect of these laws is not entirely clear yet. In a 2004 interview with CCH, Andrew Sherman, a Senior Vice President at Segal Company, offered these observations:

• Definition of marriage. Plan sponsors will have to be concerned with how "marriage" is defined in their plans. Many plans don't define this term because traditionally it has been something that was understood. Some plans refer to "legally married" spouses. There is some thinking that if gay marriages are legally recognized, they would fit the definition of marriage under the terms of those plans. Some employers are now amending their plans to define marriage as between a man and a woman.
• Recognizing other states' unions. The Defense of Marriage Act specifically says that states do not have to recognize the acts of another state regarding marriage. This will be open for legal interpretation.
• Encouraging provision of domestic partner benefits. While state and local laws can't require employers to offer benefits, they can enact laws that encourage employers to offer domestic partner benefits if they want to do business with the city or state (i.e., obtain state and city contracts).
• Tax implications. Domestic partner benefits cannot be paid on a pre-tax basis because domestic partners are not considered IRS tax-qualified dependents. When an employer provides domestic partner benefits, income needs to be imputed to the employee's wages based on the fair market value of the coverage provided.
• COBRA. A domestic partner who loses coverage under a health plan does not have the right to an individual election of COBRA.

Reprinted with permission. © CCH