Human Capital Briefs

Rethinking Family-Related Benefit Programs after the Doma Decision

July 09, 2013

On June 26, 2013, in U.S. v. Windsor, the U.S. Supreme Court held the federal Defense of Marriage Act (“DOMA”) unconstitutional as a violation of the right to liberty found in the due process clause of the 5th Amendment to the U.S. Constitution. This ruling will have many impacts on employee benefits, and extend to same sex married couples the rights of married couples as required by Federal law.

As employers work to comply with the DOMA decision, this may be a good time for them to rethink some of their other family related benefit plan provisions and communications. It may also be a good time to rethink how much risk they are willing to bear. Over the last decade, many employers have been reducing the amount of risk they cover and pay for in their benefits. I and many other actuaries are concerned that employees are ill prepared for dealing with the risks they face. Employers are much better able to pool risk and negotiate a favorable arrangement for risk protection.

Benefits may cover the employee only, or they may also cover eligible family members such as spouses, dependent children, and other dependent family members. Some rights must be extended to spouses by law.

Some of the questions employers may wish to ask include the following:

• How important from an employer’s standpoint is protecting the employee’s family from financial burdens and risks?
• How much life insurance should an employer automatically provide to employees?  How much should be available through voluntary benefits for optional purchase?
• If retirement benefits are provided through DC plans, does an employer want to provide a lifetime retirement income option, or support employees in purchasing such an option effectively? 
• How does an employer help employees ensure that disability will not devastate their retirement savings?
• To what extent does an employer wish to provide benefits that are more generous for married employees or employees with children?
• To what extent does an employer wish to pay for dependent benefits? Who should be eligible for dependent coverage? When grandparents are caring for grandchildren, should they be eligible for benefits that are available to children? How much of the cost should employees pay?
• Do blended families (those where one member of a couple has a child who was born before the family was formed) have special needs, and does an employer want to support them?
• Does an employer wish to help employees who are seeking to adopt children?
• What special issues do same sex couples raise?
• What benefits should be offered to domestic partners, and should they be the same for same sex and opposite sex domestic partners? Should different rules apply in states where same sex couples are not allowed to marry?
• How should an employer differentiate between married couples and domestic partners?

The DOMA decision does not change the answers to most of these questions, but it changes the definition of family in some situations and it changes the rights of same sex couples.  It is also a reminder that family structures are evolving, and that a family’s needs are changing as they evolve. While the Society of Actuaries has not done research on same sex couples and their economic issues, last year it partnered with the MetLife Mature Market Institute to look at blended families and retirement planning issues related to different family structures. 

The New American Family study focused on planning issues that were the same by family type and those which differed.  One of the significant findings was that employees did not think about family issues very much when planning for retirement. The researchers started the study expecting to find more differences in how blended families looked at retirement risks than they found.   

The most dramatic differences between families are between couples and non-couples.  Economically couples are better off than non-couples, and couples can help each other out.  The majority of older non-couples are women who live longer than men and are less likely to remarry after divorce or widowhood. The New American Family study indicates that non-couples are more concerned about risks generally than couples, which fits with the difference in economic status. I expect that same sex couples will be similar to other couples with respect to these issues.

My second blog on this subject matter, to be published next week, will provide more insights based on the results of the New American Family Study.

 

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