So you say you're married, eh?

[Guest erisafried]

So may favorite client has cooked up what sounds like an absolutely *swell* idea for establishing spousal status, and I wondered if anyone here has seen a similar approach or has any thoughts about it generally.

Although I am sure counter-examples could be found, for the most part employers seem to take an employee's word for it if she says that she's married. Standard practice seems to be to ask the employee-spouse to certify her marital status and leave it at that, subject to discpline, recoupment of benefits improperly paid, and/or being turned over to the fuzz for fraud if the actual status is other than advertised. Some employers might even ask for a marriage license.

The brain storm my client has had is that marriage licenses and other ancillary evidence of marital status just aren't good enough! Instead, the idea is to require allegedly married people to produce a copy of their federal tax return (Each year? Once? Not clear.) showing either "married filing jointly" or "married filing separately" status. This would be the exclusive evidence that could be used to show marital status - no ancillary evidence would be allowed. Not even the sworn testimony of a bus full of bishops would suffice in the absence of the tax form.

I see the "logic" behind this idea since you are required to declare yourself every year on the tax form, and merely possessing a marriage license does not establish that you are currently married. Even so, the idea of a plan sponsor asking for sensitive financial information from employees every year - or even once - creeps me out just a little. If you only ask once, it is not any better than a marriage license at picking up subsequent divorce. To get what you really want, you'd need to ask for the form every year.

Problems? For one thing, I think the problem they are trying to solve - namely, unauthorized "dependents" on the plan - can be addressed adequately through less intrusive means. There is also the possibility that married people might check the wrong box on the tax form, either purposefully or accidentally. Or they might have a tax "strategery" that the plan sponsor would just as soon not know about. It's just TMI. Some things, a plan sponsor just doesn't want to know.

There is also the problem of how to deal with domestic partners and same sex spouses who may be precluded by law from "married" filing status - certification appears to be good enough for them, but not for married people? To this last point, the optics of requiring more personal info from married people than from domestic partners could rub some folks the wrong way.

I think it is fair to say that this approach would be a bit unusual. As such, I am thinking that clear communication would be imperative, or enforcing the rule would be (even more) problematic. I am also thinking that it would be a spectacularly poor idea to attempt to enforce this rule retroactively on employees whose spouses have incurred large medical claims where it is clear that the employees are married but refuse to hand over their tax forms.

Anybody have any thoughts about this?

[david rigby]

... and it's very easy to create a phony form just for this purpose.

Seems that the ER is putting all its eggs in one basket, a leaky one at that.

[401 Chaos]

Interesting and timely post. We've seen a number of folks working through these issues in conjunction with dependent eligibility verification audits lately that seek to review dependent eligibility status and drop ineligible dependents going forward if the requested documentation is not provided. (Sounds a little different than your situation but I think general issues are likely to be the same.) For example, many state health plans are currently conducting or have recently conducted such audits along with private employers. If you do a google searh for "dependent eligibility verification" I think you will get several samples of forms, etc. requesting existing participants to submit documentation as part of their audit.

Based on what I've seen, I think a copy of the federal tax form is one of the most common documents "accepted" to prove marital status. Some employers seem to require this alone as your client may be contemplating. Others provide folks an alternative approach. The most common approach I've seen is that the employee has to produce a copy of the most recent federal tax form or (1) a copy of a marriage certificate, and (2) some recent utility bill, tax bill, etc. listing both individuals or a copy of a joint bank statement listing both individuals. Some also will accept copies of current beneficiary designations for say group life insurance or 401(k) Plan benefits that list the individual as the spouse and primary beneficiary of the benefits.

My general sense is that none of these approaches are fool proof and each is likely to be somewhat burdensome. I like the alternative of permitting folks to provide something other than tax info for the reasons you suggest. Seems if they are married, they will have to have or be able to obtain a copy of a marriage certificate. The other stuff, however, I think can be more difficult. Particularly the utility bills, etc. which in my family are all just in one name. We do have a joint checking account and we could provide beneficiary info too (which the employer probably already has) but in the end it was easiest for us to provide a copy of the federal tax return. Our audit allowed us to black out financial info, SSN, and other non-critical information. We filed electronically (turbo tax) so in addition to providing a copy of the first page showing both individuals' names, we also had to provide a certificate of electronic filing that listed both names. For folks that do not file electronically, seems they had to provide a copy of the first page and signature page of the form.

What we've found in these audits for clients is that, as you predict, a number of individuals have some rather "unique" tax strategies and do not file as married (either jointly or separately) to avoid the marriage penalty or whatever. I'm not sure there are many, if any, situations where it is legal to file as unmarried if you really are married so this does put the employer in a bit of an awkward situation. For those reasons, I think some permitting some alternative to the tax form approach is advisable.

In looking at the various alternatives, I've had clients say they feel the non-tax alternatives could be easy to manipulate. For example, some divorced people maintain joint accounts for whatever reason and some also have beneficiary designations with their ex-spouse listed as a primary beneficiary, etc. My response to that, however, has been that it seems to me it would be just as easy if not easier to forge a federal tax return if these individuals were the type that they were already cheating on their taxes--i.e., they could just go get a blank form, black out the appropriate boxes and list both individuals on the fake form and sign (or fake the other's signature). Afterall, the spouse or ex-spouse will have reason to want to do this if they are pretending to be a spouse for health insurance purposes.

We've had others suggest that they may allow individuals to produce a marriage certificate and a separate affidavit providing that the individuals are currently married, have not been divorced, etc. and acknowledge that dishonesty with respect to the form is grounds for termination, etc. Perhaps that's another alternative--would be similar to domestic partner affidavit.

As noted above, I'm not sure any of these are really foolproof if somebody is trying to fake marital status but your client definitely is not alone in thinking requesting a copy of the federal tax form is an appropriate documentation requirement--and permitting only that option. You are also correct in pointing up that there are likely to be some issues with that, particularly if there are no other alternatives. (You may be surprised with how many folks have a unique interpretation of the marital status for tax purposes.)

[Peter Gulia]

A somewhat related question:

Do some of the businesses that do a "dependent eligibility audit" do so on a contingency fee; for example, $yy multiplied by the number of ineligible persons removed?

[Guest erisafried]

401 Chaos - good points, all. The context for my question is indeed a dependent eligibility audit. Two things trouble me about the proposal I've entertained though. Using tax forms as one type of proof of status generally seems OK to me, although as an employer, I probably would want to minimize my exposure to the substance of the forms and just see which box is checked about filing status. My concern is if an employer wants to use the tax form as the EXCLUSIVE means of establishing marital status. I suppose you could do that, but I can imagine the employee relations issues (at least) that would arise if you tell married people that they are only "married" for purposes of the plan if they cough up the tax form. From an administrative standpoint, I can understand the desire to have a single, authoritative proof of status, but even a tax form is vulnerable to manipulation. As you say, if an employee is predisposed to try to pull something over on the employer, he will find a way to do it. It's a false hope to think that you can create a bulletproof way to avoid employee misdeeds. There is also the issue about those creative tax strategies - what if you know for a fact that the employee is married but she checked the "head of household" box instead of "married filing jointly"?

The other thing that gives me heartburn is the idea of deciding to impose a rule like this retroactively. Suppose your eligibility audit turned up a employee with a spouse who has received substantial medical benefits. The employee produces all sorts of materials showing current marital status, but refuses to produce his tax form. The plan docs simply indicate that "satisfactory" evidence of marital status is required for spousal coverage. The administrator decides that it wants to try to recoup six figures worth of prior benefits paid. I am not sure I'd want to be up on the witness stand trying to explain that one.

Peter - the dependent auditors (mostly large consulting firms with this as a side business, although there are dedicated shops as well) I've run across all seem to charge a fee to the employer rather than taking a "bounty". That said, it would not surprise me at all to learn that some auditors receive success bonuses when they identify ineligible dependents.

[david rigby]

Don't overlook the potential for interaction with qualified plans, such as the spousal survivor requirements.

[K2retire]

Even overlooking the possiblity of deceptive intent, the tax return only reports the marital status on December 31. An employee who married (or divorced) on December 30 would not have their status accurately reflected on the tax return for what was true for plan purposes on the other 364 days of that year.

[BG5150]

Ok. So, I'm married in 2009. File our forms as "Married filing [single/jointly] in January. Get divorced on March 2010. Get hired May 2010. Am I married? Sure. here's my 2009 tax return and marriage license.

[Guest erisafried]

Nice avatar there Bartman, and another good point. Any sort of evidence of marital status (or not) is going to be susceptible to gaming if you are dealing with people who are otherwise inclined to fleece you. I suppose the only sure cure is to stop offering spousal coverage altogether.

Then again, if you think that your workforce is comprised entirely of crooks looking to scam your plan with bogus claims, perhaps you need a new workforce.

[401 Chaos]

Interesting discussion.

As to Peter's question, I too have only encountered groups that charge a fee (well, actually I think there are several fees for each little service) but they don't base that on the number of disqualified dependents. In actuality, all of the groups I've encountered have generally been fairly participant friendly and helpful in trying to qualify people (assuming it appears they really are married). Off the top of my head, I'm not sure that a plan sponsor would be prohibited from entering into such an arrangement but I'd want somebody to opine on the fiduciary and legal aspects of all of that before pursuing.

Regarding retroactive removal, I agree with you on the difficulties with all of that. The programs I've seen generally try to head some of that off by announcing that coverage will stop as of the date (or shortly after the date) of the first notice requesting documentation so that people are squarely put on notice of the need for documentation before racking up additional expenses. I also know employers that are planning on doing these audits that have told their employees about it in advance--including during open enrollment at the end of the previous year--as sort of an fyi / think twice if you are going to be including ineligible dependents.

As noted, I'm not sure there is a bullet-proof system unless the employer was to search out / require marriage certificates and then do some ongoing / periodic search for divorce records. With the tax forms, I guess I would expect the most obvious abuse would be that two unmarried people (maybe common law marriage??) would file as married in order to try and get group health coverage notwithstanding the marriage penalty on the tax front. Seems like group health coverage for somebody that is otherwise uninsurable will outweigh any marriage penalty amounts. Lots of employers we've seen only require a copy of the tax forms with no other documentation. I would think a better approach might be to require a copy of a marriage certificate plus one additional source of proof of marriage (which might include federal tax forms). Given that the use of the tax forms has its own pitfalls, I definitely would suggest that an employer provide some alternative documentation options other than just tax forms.

Finally, it is not clear to me what responsibilities an employer has to the IRS / taxing authorities and/or with respect to spousal conditions under other plans if it thinks it has clear evidence that married individuals have filed incorrectly. I'd welcome thoughts from others on what, if any, legal obligation an employer might have to pursue and/or report that.

[Guest Nate Ogden - OBA]

A somewhat related question:

Do some of the businesses that do a "dependent eligibility audit" do so on a contingency fee; for example, $yy multiplied by the number of ineligible persons removed?

I have seen it done but don't like it. The fees can get astronomical when charged a % of savings. Personally I wouldn't do it, I wouldn't want to start an audit not knowing if my postage and paper are going to be covered or not. I wouldn't see any problem putting labor and profit at risk or contingent but would want hard cost covered.

[My 2 cents]

Warning - not involved with health plans, but...

Wouldn't paying a bounty ("contingency fee") for identifying people as ineligible create a potential conflict of interest? Of course, only legitimately ineligible people would ever be identified as ineligible, but...