Ernst & Young steps up for same-sex partners

The logo of Ernst & Young is seen at their headquarters in New York December 20, 2010.

NEW YORK (Reuters) - Ernst & Young employees who opt for same-sex domestic partners' medical benefits will get something of a delayed bonus this year when they file their 2011 federal and state tax returns.

While the company began offering same-sex domestic partner benefits in 2002, like most other employers, it taxed the amount spent as income, while other family policies come out of pre-tax income. But as of January 1 this year, the company will reimburse employees for those taxes for the 2011 tax year, and for tax years going forward.

For Bryan Parsons, a 15-year Ernst & Young employee who's an associate director in quality and risk management, that could mean "thousands of dollars," he said. "Having the firm put its money where its mouth is, is a powerful comment about their commitment to equality. And having just moved into a new apartment, I'm sure there will be a number of things I can do with the money."

The new policy puts Ernst & Young, with 45,000 employees in the United States, in a unique place among American employers. As of December 2011, only 30 for-profit employers did what's known as "grossing up" -- offering reimbursement on same-sex domestic partners' medical benefits - according to the Washington D.C.-based Human Rights Campaign. Parsons co-chairs the HRC's business advisory council.

And the most recent survey by the National Business Group on Health found that just 8 percent of 51 employers questioned gross up for federal tax purposes, with 6 percent doing so for state taxes -- translating to four employers offering federal reimbursement, and three on the state level.

Among the Big Four accounting firms, Ernst & Young is the first to offer the perk.

What motivated the change?

"It was a matter of fairness, and we felt that it was time," said Chris Crespo, Ernst & Young's inclusiveness director for the Americas. "When change didn't appear to be moving forward, we decided to move internally. We're not sure how many employees it's going to directly impact, but it's only going to grow."

BENEFITS AND THE BOTTOM LINE

The Internal Revenue Service first weighed in on tax consequences of employer-provided domestic partner health benefits in 1990. In a private-letter ruling to the city of Seattle, it stated that Section 106 of the I.R.S. tax code only excludes from an employee's gross income any payments made by the employer for health coverage of the employee, their spouse, or dependents.

The sticky question raised was whether domestic partners could fit the definition of "spouse" or "dependents," an issue federal lawmakers haven't resolved in the years since.

Last year saw some glimmers of hope, as the Tax Parity for Health Plan Beneficiaries Act was introduced in both branches of Congress by lawmakers from both the Democratic and Republican parties. The act would end taxation of benefits provided for domestic partners and other non-spouse beneficiaries under employers' health plans, but it has stalled since its House and Senate introductions in June 2011.

For Ernst & Young to step forward, "it certainly should be considered a very generous benefit because it's additional cash," said Helen Darling, president and CEO of the National Business Group on Health, which includes more than 330 large U.S. employers. "That's probably why too many companies aren't doing it: It means paying out more cash. And it's big especially during hard times when everybody has to pay more for their benefits."

Meanwhile, domestic partner medical benefits as a whole for same-sex partners, regardless of tax reimbursement, are far from universal. Newly released figures from an AON Hewitt survey of 967 employers found that in 2011, just two-thirds offered such coverage, while 27 percent offered no coverage at all for domestic partners.

How much "grossing up" will cost Ernst & Young is impossible to estimate at this point, Crespo said.

"We know it will be substantial; it's not just the federal government, but states that tax these benefits as well. We won't know that answer until the end of next year, frankly."

Karyn L. Twaronite, the firm's inclusiveness officer for the Americas, said regardless of the cost, it's money well spent.

"It allows us to subsidize the investment in good employees," she said. "We want to maximize their potential. We also want to make sure to leverage the differences to grow our business; we know non-homogeneous teams produce better results, and that's important to our bottom line."

And it's very important to Parsons, on a level that has nothing to do with dollars and cents. He's been following the reimbursement issue for three years, labeling it "the iniquity." Financial penalties aside, he thinks the taxation issue says something about his human rights that isn't positive.

Ernst & Young's move, he said, not only sends the opposite message, but raises the bar for others in the financial field.

"I hope other companies and the individuals within them hear our story," he said. "Change is attainable, and sometimes pretty quickly. It communicates a commitment not only to our stakeholders, but to the whole human rights movement."

(The writer is a Reuters contributor. The opinions expressed are his own.)

(Editing by Bernadette Baum, Beth Gladstone and Jan Paschal)