Domestic Partner Benefits



Domestic Partner Benefits

Frequently Asked Questions

1. What is a domestic partner?

A domestic partner is a partner who resides with, but is not married to, you. For the preceding 12-month period you and your domestic partner must have:

• Lived in the same residence,

• Shared financial obligations (including basic living expenses),

• Been each other's sole and exclusive partner,

• Publicly represented yourselves as domestic partners,

• Intended to continue this relationship in this manner indefinitely, and

• Not been married to anyone nor have another domestic partner.

o You are not related by blood or marriage to a degree that would prohibit a legal marriage in the state in which you reside.

o You are both at least eighteen (18) years of age and are mentally competent to consent to contract.

2. How do I add my domestic partner and/or domestic partner’s child(ren) to my FLEX benefit plans?

In order to add a domestic partner and/or domestic partner's child(ren), you must call HR Shared Services to request the domestic partner enrollment information. In addition to attesting to an Affidavit of Domestic Partnership, you may be required to provide documentation to show your domestic partner’s eligibility and that you have completed the 12-month period described in “18” above under the conditions described there.

If you make false statements on the Affidavit of Domestic Partnership, the Company or its agent(s) may take civil action to recover direct or indirect losses (including benefits paid which would not have been if accurate information had been provided) and attorney's fees. The Company may discipline you up to and including terminating your employment (and your

domestic partner's employment, if employed by the Company).

3. When can I add my domestic partner and/or domestic partner’s child(ren) to my FLEX benefit plans?

Following are the times when you may add someone who qualifies as a domestic partner and/or domestic partner's child(ren), i.e. after you have completed a 12 month period together under the conditions described under “18” above and the Company has certified your domestic partnership status as explained under “19” above:

• During an Annual Enrollment period

• Within 31 days of:

o Your hire date

o A status change

4. What are the rules around waiving or adding coverage at a later date for my domestic partner?

Coverage for your domestic partner and/or domestic partner’s child(ren) is subject to the same enrollment and eligibility considerations as other dependents (provided your relationship with that person meets the plan's eligibility requirements and the Company has given you written approval of the Affidavit of Domestic Partnership).

5. For what benefits can I enroll my domestic partner?

You may enroll your domestic partner in the Medical, Dental/Vision/Hearing and Life and AD&D benefits when your relationship with that person meets the plan's eligibility requirements and when the Company has given you written approval of the Affidavit of Domestic Partnership. Each of these circumstances must continue to exist for you to continue coverage. To enroll a domestic partner for FLEX benefits, see below.

6. How do I enroll my domestic partner for FLEX benefits?

If you are interested in enrolling your domestic partner for the first time, call HR Shared Services to give notice of your intent to add a domestic partner. HR Shared Services will provide you with information regarding the enrollment process and documentation requirements. If preferred, you may request that a package of information be sent to you. Regardless of the process you choose, you must submit the notarized Affidavit of Domestic Partnership via mail or fax.

You must be able to provide two (2) supporting documents to HR Shared Services from the list of documents evidencing domestic partnership. These documents must clearly refer to you and your domestic partner, and must show that your relationship has existed for at least 12 months prior to the date when you first enroll your domestic partner. No more than one document from each of the following categories may be submitted:

• Domestic Partnership Agreement

• Registration of domestic partnership with local government where you live

• Joint mortgage or lease or other evidence of joint ownership of real estate

• Designation of domestic partner as primary beneficiary in your will, life insurance or IRA accounts (for these purposes only, primary beneficiary means a person to whom you have allocated 50% or more of your estate, life insurance or IRA accounts as applicable)

• Durable power of attorney for property or health care

• Evidence of joint ownership of a motor vehicle

• Evidence of joint checking, savings or credit accounts.

The Company and its designated agent(s) will determine if the documents are sufficient proof of domestic partnership.

7. Can I add my domestic partner’s child(ren) to my Medical, Dental/Vision/Hearing Care or Life and AD&D coverage?

Yes, provided they meet the definition of an eligible dependent as follows:

Your domestic partner's child(ren) are under age 26 and not covered by his or her employer’s plan. "Child(ren)" include:

o Your domestic partner’s natural or legally adopted (or placed for adoption)

child(ren).

o Your domestic’s partner’s step-child(ren), legally authorized foster child(ren), and any child for whom he or she is legal guardian, if these child(ren) depend on you for support and maintenance and live with you in a regular, parent-child relationship for at least six months of the calendar year.

o Your domestic partner’s eligible, unmarried, physically or mentally disabled

child(ren) who are wholly dependent on you for support and maintenance and became disabled and dependent before age 26. You must provide notice of the disability to HR Shared Services within 31 days of your child turning age 26 for that child to be considered an eligible dependent.

Special Eligibility Rules:

If you and your domestic partner both work for the Company, you may enroll as an employee or a domestic partner, but not both. If you and your domestic partner have child(ren) together, only one of you may enroll your eligible dependent child(ren). You may add your domestic partner's child(ren), even though they are not your own child(ren) if you go through the approval process and are approved for a domestic partner (even if you do not add your domestic partner to your coverage).

8. How does IRC Section 152 impact FLEX benefit coverage for my domestic partner and/or domestic partner’s child(ren)?

IRS regulations allow pre-tax payment of premiums for domestic partners and domestic partner’s child(ren) only if the domestic partner and/or domestic partner’s child(ren) is an Internal Revenue Code (IRC) Section 152 dependent. You can access a worksheet regarding dependents in IRS Publication 17 “Your Federal Income Tax” at .

It is your responsibility to provide notice and proof to Nortel (via Federal Income Tax Return only) that your domestic partner and/or domestic partner’s child(ren) qualifies as a Section 152 dependent. Otherwise, Nortel will assume that your domestic partner and/or domestic partner’s child(ren) does not qualify, and the domestic partner and/or domestic partner’s child(ren) deductions will be taken on a post-tax basis and imputed income will be applied.

9. What if my domestic partner and/or domestic partner’s child(ren) does not qualify as a Section 152 dependent?

Your domestic partner and/or his/her child(ren) can still enroll in Medical,

Dental/Vision/Hearing Care and Life and AD&D insurance coverage provided your

relationship with that person meets the plan's eligibility requirements and the Company has given you written approval of the Affidavit of Domestic Partnership.

However, the premium contributions for your domestic partner and/or domestic partner’s child(ren) cannot be paid on a pre-tax basis. Any premium payment Nortel provides for your Domestic Partner Benefits FAQ 10/07 4

domestic partner and/or domestic partner’s child(ren) will be considered taxable income for you. Your domestic partner and domestic partner’s child(ren)’s health care expenses will not qualify for reimbursement from the Heath Care Reimbursement Account (HCRA) and Dependent Day Care Reimbursement Account (DDCRA).

Unless you provide documentation, (Federal Income Tax Return), Nortel will assume that your domestic partner and/or domestic partner’s child(ren) are not qualified Section 152 dependents.

10. What do I need to do if my domestic partnership terminates?

If there is any change (e.g., you stop living in the same residence or you cease to be each other's sole and exclusive partner), you must file a Termination of Domestic Partnership Statement with HR Shared Services within 31 days of the date of termination. If you fail to file the Termination of Domestic Partnership Statement within 31 days, coverage for your domestic partner and/or domestic partner's child(ren) will still be deemed to have ceased at the end of the month in which the event occurred. Therefore, you will be subject to repayment obligations for benefits provided after that date to the individuals who no longer qualify for benefits and you may be subject to disciplinary action for intentional failure to report the change.

11. If my domestic partner and I terminate our relationship, will he/she and his/her child(ren) be eligible for COBRA-equivalent coverage?

Yes. Your domestic partner and/or domestic partner's child(ren) may have COBRA election rights by which any applicable health coverage may be continued. However, if you do not notify HR Shared Services regarding the change in status within sixty (60) days of the termination of domestic partnership, your domestic partner and/or domestic partner's child(ren) will not be eligible for COBRA.

12. What are the tax issues for domestic partner insurance?

If your domestic partner and domestic partner’s child(ren) do not qualify as eligible

dependents under the Internal Revenue Code (IRC) Section 152, you will have imputed income for the cost of providing coverage under the Nortel benefit plans.

Imputed income is the dollar amount added to the "wages" section of your annual statement of taxable income (your W-2 form). Because of this imputed income, additional federal taxes, Social Security taxes, and Medicare taxes will be assessed and deducted bi-weekly from your Nortel paycheck.

13. How is the imputed income for my domestic partner’s and/or domestic partner’s child(ren’s) coverage determined and what types of taxes will I be assessed?

The imputed income is based on the Company's cost of covering your domestic partner and domestic partner’s child(ren) and (per IRS regulations) is added to your gross earnings per pay period. You will be assessed, Federal and Social Security taxes as well as State taxes (if applicable) on this additional imputed income.

14. How are the taxes paid?

First the imputed income is added to your gross income per pay period. FICA (Social Security taxes), Federal and State taxes (if applicable) are calculated using the new gross income amount. Once the taxes have been deducted, the imputed income will then be deducted from your earnings. The imputed income deduction is made to reverse the amount that was added to your gross pay for determining the tax. Since imputed income is not “actual” pay, only an amount used for determining taxes, it must be subtracted from earnings after taxes are determined.

15. How will the taxes and imputed income appear on my paycheck?

The actual Medical and Dental/Vision/Hearing Care and Life and AD&D insurance deductions will show up on your paycheck as an after-tax deduction for your domestic partner and his/her child(ren) and a before-tax deduction for yourself. The imputed income also is listed on your bi-weekly paycheck.

16. How will the taxes and imputed income appear on my W2?

Imputed income is not listed separately on the W2 form. It is included as part of your regular gross income. The adjusted FICA amount is listed on your last pay check of the year and is also listed on your W2 form.

17. Why am I being taxed for Group Health and Life Coverage for my domestic partner and my domestic partner’s child(ren)?

The IRS does not recognize the term “domestic partner” in the Internal Revenue Code sections that provide tax advantages for health plan coverage provided to employees and their dependents. For a domestic partner and/or domestic partner’s child(ren) to qualify as a dependent for tax purposes, he or she must meet all of the following criteria under the IRC Section 152:

1. The employee must provide more than one-half the dependent’s support.

2. The dependent’s principal residence must be the home of the employee and the

dependent must be a member of the employee’s household.

3. The relationship cannot violate local law.

4. The dependent must be a citizen or national of the U.S. or a resident of the U.S. or of a country contiguous to the U.S.

If your domestic partner and/or domestic partner’s child(ren) do not satisfy the Section 152 definition of a dependent, the following applies:

• The employee may not elect pre-tax salary reductions for contributions toward domestic partner and/or domestic partner’s child(ren) coverage; any required contributions must be paid on an after-tax basis.

• The fair market value of the employer-paid portion of the domestic partner and/or

domestic partner’s child(ren) coverage is taxable to the employee.

• The employee cannot be reimbursed for domestic partner and/or domestic partner’s child(ren) claims through a flexible spending account on a tax-free basis.

The taxable amount is considered wages and is subject to income withholding requirements, including FUTA and FICA. In order to avoid penalties for insufficient withholding or under reporting of income, Nortel requires documentation if the employee maintains that the non-employee domestic partner and/or domestic partner’s child(ren) is a dependent. Documentation includes an affidavit from the employee and a copy of the current Federal Income Tax return claiming the non-employee domestic partner and/or domestic partner’s child(ren) as a qualified dependent.

If benefits are extended to children of domestic partners, tax considerations vary based on several factors, such as whether the child is the biological or legally adopted child of the employee or only of the domestic partner and whether the child is a dependent under Section 152.

18. What is the State Income Tax Treatment for domestic partners?

Most states follow Federal Income Tax treatment for domestic partners. Several states, such as California, Connecticut, New Jersey, Vermont and Oregon, may allow domestic partner coverage to be excluded from the employee’s gross income under certain circumstances (e.g., in California, the domestic partners have to be registered in the state registry; in Oregon, the state income tax exemption is for same-sex domestic partners only).

29. Why is the 12 month waiting period not being eliminated for domestic partners?

Elimination of the 12 month waiting period was not supported in a recent benchmarking survey among Nortel’s comparator group. Domestic partner benefits are available to both same-sex and opposite sex domestic partners. Elimination of the waiting period could result in increased claims and administrative costs.

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