Impact of the CARES Act on Volunteer First Responders’ 457(e)(11) LOSAP Plans

What is a Length of Service Awards program (LOSAP)? It is a retirement-type of arrangement under Internal Revenue Code Section 457(e)(11). They act as a sort of gratuitous payment arrangement which local fire districts adopt under either state or local laws the deferral of a payment of up to $6,000 per year for volunteers providing firefighting and prevention services, emergency medical services, and ambulance services. They really are odd programs, a sort of amalgamation of a number of different rules. Cheryl Press authored a very useful private letter ruling (PLR) on these programs, which I invite you to review. I’m also providing a link to one of the leading LOSAP programs which is available nationally, at LOSAP.com.

So now, as COVID-19 inexorably moves out of the large cities to smaller and rural communities, it is these volunteers who will face the extraordinary tasks arising from handling people the virus affects. These volunteer departments have minuscule budgets, and are unlikely to have the resources to get all of the equipment they will need to handle COVID.

 

It follows that these volunteers will be affected, some seriously so.

 

The typical LOSAP will permit a withdrawal for “unforeseen emergencies.” Yet the new CARES Act distribution rules provide no relief for these distributions. The CARES Act does not allow the tax on LOSAP distributions to be spread over three years, as it does for the tax on distributions from other kinds of retirement plans. There is also no ability for the firefighter to repay the amount of those distributions back to the plan, as the CARES Act allows to be done for other types of retirement plans.

 

LOSAPs have existed under the radar for years. But these volunteers are about to be in the forefront now, and so will their LOSAP programs.