Civil Unions Legalized in Illinois; Implications for Employee Benefit Plans

By on February 16, 2011

by Joseph S. Adams, Todd A. Solomon and Brian J. Tiemann

Employers should take action now to prepare for requests for benefit coverage from employees planning to enter into a civil union once a new law legalizing civil unions for same-sex or opposite-sex partners takes effect in Illinois on June 1, 2011. The most common requests for benefits for a civil union partner are likely to be coverage under the employer’s medical, dental and vision plans, and survivor annuity coverage under defined benefit pension plans.

Medical, Dental and Vision Benefits. Employers with medical, dental or vision plans insured with 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. Employers that are required to or that voluntarily choose to extend such coverage to an employee’s civil union partner will need to ensure that the employee is properly taxed on these benefits. Because civil unions are not recognized under federal law, employers must impute income to the employee for federal income tax purposes, unless the partner qualifies as a “dependent” of the employee pursuant to Section 152 of the Internal Revenue Code. However, because civil union partners in Illinois are entitled to all of the rights and benefits as spouses, the value of employer-provided medical, dental and vision coverage is not taxable for Illinois state income tax purposes.

Retirement Benefits. The Illinois civil union law will not require non-government employers with qualified retirement plans to extend spousal benefits to civil union partners since these plans are regulated solely by federal law. However, employers may want to consider amending their plans if they want to provide full parity in benefits for civil union partners. Employers with defined contribution plans may want to identify civil union partners as default beneficiaries in the event an employee fails to designate a beneficiary or if the beneficiary predeceases the employee. Another option with respect to defined contribution plans is to permit an employee to obtain an optional hardship withdrawal for IRS-recognized expenses related to a civil union partner. Employers with defined benefit pension plans may want to permit an employee’s benefit to be paid over the joint life of the employee and his or her civil union partner and/or to allow a civil union partner to receive a death benefit if the employee dies before retirement.

More information on the employee benefit plan implications of the legalization of civil unions in Illinois can be found here.




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