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Impact of Connecticut's New Civil Union Law on Employee Benefits

October 4, 2005

As many of you undoubtedly know, Connecticut’s new civil union law went into effect October 1, 2005. As many of you also probably know, benefits offered by most employers to their employees are governed by a federal law known as the Employee Retirement Income Security Act ("ERISA"). Another federal law, the Defense of Marriage Act, restricts the definitions of "spouse" and "marriage" for purposes of federal law to exclude any type of same-sex union. Thus, because many employee benefits are governed by federal law, such benefits will generally not be impacted by the Connecticut civil union law. Nonetheless, the civil union law will present issues for Connecticut employers, as discussed below:

Health Plans.

  • Private-Sector Plans: Fully Insured vs. Self-funded. Health plans sponsored by private-sector employers are governed by ERISA, which is subject to the restrictions of the federal Defense of Marriage Act. Although ERISA generally preempts state laws that relate to employee benefit plans, fully insured health plans remain subject to certain state laws. The State of Connecticut Insurance Commissioner has taken the position that health insurance companies providing coverage that is subject to regulation by the State of Connecticut will need to comply with the civil union law by offering coverage to civil union partners on the same terms as it is offered to spouses. In contrast, self-funded plans are governed solely by ERISA and, as such, are not impacted by the new state law. Of course, private-sector employers with self-funded plans could voluntarily extend coverage to civil union partners.
  • Public-Sector Plans. Health plans sponsored by public-sector employers are not governed by ERISA. As a result, they are subject to state law, including the new civil union law, and coverage offered to spouses should be made available on the same terms to civil union partners under such plans, regardless of whether the plan is fully insured or self-funded.
  • Domestic Partner Benefits. Many Connecticut employers currently offer domestic partner benefits. Such employers should review their current domestic partner policies and determine what changes should be made in light of the civil union law. For example, at some point going forward, some employers may decide to offer benefits to civil union partners only.
  • Income Tax Treatment. If health plan coverage is provided for civil union partners, the value of such coverage will be taxable income to the employee for federal income tax purposes (unless the civil union partner qualifies as the employee’s tax dependent), but it will not be subject to Connecticut income tax under the new law. (The State of Connecticut Department of Revenue has indicated that the new state tax treatment will be effective beginning January 1, 2006). This bifurcated tax treatment varies somewhat from the tax treatment of domestic partner coverage, which is generally subject to both federal and state income tax. Employers offering coverage for civil union partners will need to update their payroll systems to account for the different tax treatment.

Retirement Plans.

  • Private-Sector Plans. Retirement plans sponsored by private-sector employers are governed by ERISA and the Internal Revenue Code (the "Code"). Because such plans are governed by federal law, which is limited by the Defense of Marriage Act, they are generally not impacted by the Connecticut civil union law.
  • Public-Sector Plans. Retirement plans sponsored by public-sector employers are not governed by ERISA, but most are significantly regulated under the Code and thus subject to the restrictions of the federal Defense of Marriage Act. As a result, such plans are generally not impacted by the Connecticut civil union law. However, to the extent a benefit under a governmental plan is not governed by federal law (a death benefit, for example), the new civil union law may be applicable.

Plan Documents and Communications.

  • Many employee benefit plans define the term "spouse" in a general way or by reference to state law, leaving open a potential argument that the terms of the plan extend benefits to civil union partners despite the limitation on the definition of spouse under federal legislation. Thus, employers should review such plan terms, as well as employee communications, to ensure that they accurately reflect to whom the employer intends to extend spousal benefits under a particular plan.
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