Segal Analyzes Impact of NYC Domestic Partner Requirement

August 5, 2004 ( - New York City has become one of the latest municipalities requiring city contractors to offer domestic partner benefits to their employees; leaving plan sponsors with questions about the impact these laws have on their city contracts.

>In June, the New York City council overrode Mayor Michael Bloomberg’s veto of a bill that requires firms doing business with the city to offer domestic partner benefits.   The bill, Local Law 2004/027 requires employers with city contracts of $100,000 or more to provide the same health insurance and other benefits to employees with domestic partners as they provide to employees with spouses, according to A Segal Company Bulletin.  

The City of New York acknowledges the mandate will not be without tax ramifications.   For example, Segal points out, under federal tax laws, employees are taxed on the value of employer-provided health coverage to a non-tax dependant domestic partner. Additionally, any contribution an employee made to such a plan would have to be made with after-tax income.

Initially, the Council approved the bill in May, which was then vetoed by the mayor earlier in June.   The legislation, to take effect in 120 days after the June 28 th enactment date, would apply only to new and renewed city contracts.  

Challenging Road

>Segal sees two potential areas for the law to be challenged.   Most immediately, Bloomberg has threatened to sue the city council to reinstate his previous veto.   Additionally, given the impact the requirements have on Employee Retirement Income Security Act (ERISA) governed benefit plans, contractors may challenge the law on ERISA-preemption grounds.   Precedent for such a challenge can be found in the February federal court ruling Catholic Charities of Maine Inc. v. Portland, D. Maine.  In that case, US District Judge D. Brock Hornby of the US District Court for the District of Maineruled an ordinance requiring employers receiving certain housing and community development funds to extend benefits to employees’ domestic partners is preempted ERISA (See  City Cannot Mandate that Church Provide Benefits for Partners ).

The case came after a May 2001 ordinance enacted in Portland, Maine requiring the city to provide benefits to employees with domestic partners that was later extended in June 2002 to require that agencies receiving federal housing and community development money offer domestic partners the same benefits as spouses.   Catholic Charities, a non-profit, had been receiving housing and community development funds, but refused to comply with the ordinance once it had been extended. The group, the social-service arm of the Roman Catholic Church, maintained that to comply with the two-year-old ordinance would violate Roman Catholic doctrine opposing homosexual behavior, cohabitation by unmarried couples, and premarital sex.

>The New York City law, however, recognizes the different standard by which faith-based groups, such as Catholic Charities, operate and included an alternative requirement for contractors that are religious or denominational organizations where the certification would be inconsistent with the group’s religious principles.   Under the alternative requirement, these groups must provide “household membership coverage” for employees, rather than domestic partner coverage.   Such coverage requires equal benefits be provided to both an employee and one household member that is at least 18 years of age and living permanently with the employee.  

>The New York City mandate also includes a waiver process for contracting agencies to apply for under certain circumstances, such as for emergency and sole source contracts, the Segal analysis said.

A copy of Segal’s analysis is available at