Gay Couples Navigate Steep Retirement Challenges

When financial planner Patricia Pearsall-Ramey advises gay couples as they near retirement, she encourages them to think about “their unique planning needs.” Among the complications they face: government safety-net programs like Social Security that don’t recognize their relationships.

“If something were to happen to one of them, they could be at a significant financial disadvantage because they won’t be able to get a Social Security survivor benefit,” says Pearsall-Ramey, who works at the accounting firm Ernst & Young. “It really places the burden on the couple to make sure they’re saving sufficiently.”

A new study about lesbian, gay, bisexual and transgender baby boomers explores the challenges that the Stonewall generation, along with their employers, must cope with as retirement approaches.

The study, sponsored by the MetLife Mature Market Institute and the American Society on Aging, also hints that the generation which launched the modern gay rights movement with the Stonewall riots of 1969 could influence retirement policies as they age. “Still Out, Still Aging” compares 1,201 boomers age 45 to 64 who identify as LGBT with 1,206 heterosexual people of the same age.

Few baby boomers—the estimated 78 million Americans born from 1946 to 1964— have saved enough to retire at 65, according to the report’s findings. Only 21 percent of the LGBT respondents and 25 percent of the general population have achieved their retirement-savings goals or are on track. Nearly half of the LGBT boomers surveyed plan to work until at least age 70.

Those findings show the importance of educating employees about retirement savings and expanding automatic enrollment in 401(k) plans and automatic escalation, which automatically increases the contributed percentage of earnings over time, says Barbara Howard, director of gerontology at MetLife Mature Market Institute. LGBT employees also should inquire about domestic-partner benefits and designating a domestic partner as a beneficiary for their pension plan, she says.

Some companies have taken steps to provide what they consider parity. At Ernst & Young, “everything that is available to our straight couples is also available to our LGBT couples,” says Chris Crespo, inclusiveness strategy director. “We have spousal equivalency in all of our benefits.” The professional services firm offers a defined-benefit plan, a 401(k) plan, long-term care insurance, medical insurance for retirees and their spouses or domestic partners and free financial planning.

Even when companies offer retirement benefits to LGBT boomer-age workers, they pay more taxes than their heterosexual counterparts, according to the Williams Institute at UCLA School of Law. That’s because the Defense of Marriage Act limits spousal tax exemptions to opposite-sex partners. Medical insurance provided to the same-sex partner of a retired employee is taxed as income, whereas the same insurance given to an opposite-sex spouse is not taxed.

To offset that built-in cost, Google Inc. in July began reimbursing its gay and lesbian employees the extra federal tax that those employees pay when their domestic partners receive health benefits. The reimbursement, to be noted as a line item on paychecks, is retroactive to January 1.

Kimpton Hotels and Restaurants, a boutique chain based in San Francisco, and Cisco Systems Inc. also pay the tax on imputed values of domestic partner benefits. In the nonprofit sector, The Bill and Melinda Gates Foundation “grosses up” salaries to pay the tax for domestic-partner health benefits.

Employers also aren’t required to provide the employees with the option of having their same-sex partners receive a qualified pre-retirement survivor annuity, paid to the surviving partner, if the employee is vested in a defined-benefit plan but dies before retiring.

But same-sex partners recently moved one step closer to equal treatment under inherited retirement plans, says Samir Luther, associate director of the Workplace Project for the Human Rights Campaign Foundation.

Since January 2010, employers must let a non-spouse beneficiary, such as a domestic partner, roll inherited retirement savings into an individual retirement account without paying taxes immediately, just as the tax code has allowed spouses to do.

Luther recommends that employers notify workers of the change through more than just their annual benefits update. He also hopes that the MetLife study will help him and his colleagues find more ways that employers could help LGBT boomers prepare for retirement. “There haven’t been a lot of people focused on best practices for LGBT retirees,” he says.

Todd Solomon, a partner in the employee benefits practice group of law firm McDermott Will & Emery, agrees that more employers are reviewing retirement plans.

“The first wave was everyone equalizing their health plans, and they left their retirement plans alone,” says Solomon, author of Domestic Partner Benefits—An Employer’s Guide. “Now they’re trying to equalize their retirement plans as well.”

Solomon cites two changes that he considers “cutting edge”:

• Writing 401(k) plans so a same-sex partner becomes the beneficiary if the employee forgot to designate one. Federal law already requires that an opposite-sex spouse be made the automatic beneficiary in such situations.

• Allowing hardship distribution from 401(k) plans to pay medical expenses of same-sex partners if they allow such withdrawals for opposite-sex spouses.

The benefits at Solomon’s law firm, for example, include a pre-retirement survivor annuity and leave for domestic partners equivalent to what’s provided to straight employees under the Family and Medical Leave Act.

FMLA-equivalent leave could be particularly important to LGBT boomers. The MetLife study found that more LGBT boomers provide care to a parent, domestic partner or friend than their straight counterparts. Gay, bisexual and transgender men provide the most care—41 hours a week, compared with 29 hours for other men.

“It’s pretty astounding the number of hours that males were putting in,” MetLife’s Howard says. “Employers need to respond to this issue.”

Those findings show the importance of flexible work arrangements and of employee assistance programs, she says. “Make sure that you constantly are getting the message out about the kinds of support that are available to your entire workforce population for elder care issues,” she says.

Employers also should revisit their preconceptions of family. Almost two-thirds of LGBT boomers say they have a group of friends whom they consider to be their families. And they aren’t the only boomer-age workers likely to have families who don’t conform to notions of a nuclear family.

“That traditional Ozzie & Harriet or Leave It to Beaver—that 1950s stereotype that people have—isn’t normal family anymore, whether that’s heterosexual or homosexual,” Howard says. “Think about heterosexuals who are not married. Think about siblings living together. Think about multigenerational households.

“If you think about friends forming this intimate family of choice, clearly it is a source of strength, support and networking for life,” she says.

For human resources professionals, one of the most troubling findings may be what all baby boomers—gay and straight—still have in common: They have based their long-term care plans on a fallacy. Fifty-seven percent of LGBT boomers and 49 percent of other boomers falsely expect Medicare to pay for their long-term care.

“It’s distressing,” Howard says.

In general, Medicare doesn’t pay for long-term care. The federal program covers the first 20 days of care in a skilled nursing facility following a hospital stay of at least three days. It also pays for home health care for those patients who meet certain requirements. But Medicare is not designed to pay for long-term care.

At least 70 percent of people 65 and older will require a period of long-term care in their lives, according to the U.S. Department of Health and Human Services.

“It is in many respects something that we can predict pretty well in the aggregate—the number of people who may need long-term care—but I’m not going to be able to predict whether you need it or I need it,” Howard says. “I think we’re all hoping it will be the other guy.”

Forty-nine percent of employers offer long-term care insurance as part of a group-purchasing program, Hewitt Associates Inc.’s 2009 Benefits SpecSelect database finds.

Without long-term care insurance, individuals pay for their own long-term care until they spend their assets to become poor enough to qualify for Medicaid, the government’s medical assistance program for low-income people. Medicaid remains the primary source of funding for long-term care, according to the U.S. Department of Health and Human Services.

But when it comes to Medicaid, LGBT seniors are more vulnerable. Opposite-sex partners of Medicaid patients are allowed to keep their home and a certain amount of income and assets so they aren’t forced to live in poverty.

“That [option] does not exist for LGBT people,” says Laurie Young, aging-policy analyst for the National Gay and Lesbian Task Force. “This is not just a retirement, but almost an end-of-life issue.”

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