Volunteer Retirement Benefit Systems

Volunteer fire service leaders have worked hard to protect the legal status of LOSAP (length-of-service award program) and similar plans that provide nominal compensation to volunteers. They see these plans as important tools in the never-ending quest...


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Volunteer fire service leaders have worked hard to protect the legal status of LOSAP (length-of-service award program) and similar plans that provide nominal compensation to volunteers. They see these plans as important tools in the never-ending quest to recruit and retain active volunteers. But not every volunteer has access to such incentives, and incentive programs vary widely from state to state. Unfortunately, there appears to have been very little growth in the use of these programs in recent years.

According to a survey of state benefit laws conducted in 2003 by Penflex Inc., a firm that administers volunteer length-of-service award programs, only 30 states have established some sort of a retirement benefit. Fewer than 20% of all volunteers are covered, but Penflex reports that there have been few new programs in the past five years.

In its survey, Penflex found that 24 states have laws that allow state or local tax funds to be used to pay for volunteer retirement programs. In the remaining states that authorize the programs, but do not fund them with tax dollars, few volunteer departments have created any sort of retirement program for their volunteer members. Although these volunteer incentive programs appear to be retirement pensions, they are not because they differ in subtle, but legally important ways.

Initially, the plans were created as "defined-benefit" programs. Beneficiaries received a specific level of monthly payment, typically based on their age and number of years of active service. The age at which the pension can begin typically varies from 50 to 60 years old, although a few plans pay as soon as the volunteer earns the minimum years of credit. The formulas for determining whether a volunteer is active in a given year vary from the very simple (such as responding to a minimum number of calls) to very complex point systems that give credit for a variety of activities.

Defined-benefit plans are more attractive to the individual volunteer because they guarantee a certain benefit, but they can be very expensive to the sponsoring agency and costs may vary substantially from year to year. The fund is required to make the payments regardless of how well or poorly its investments have done. (As a note of full disclosure, I receive a monthly payment from a plan of this type operated by Montgomery County, MD.)

"Defined-contribution" plans have become more common in recent years. The plan sponsor puts a specific amount of money into a fund each year for every volunteer who earned credit for service. This money is allocated to each active volunteer's retirement account. The amount of the sponsor's obligation is based on the number of active volunteers. The funds are then distributed when the volunteer reaches "retirement" age according to a formula that is based on the size of the individual account.

Defined-contribution programs can be less attractive to individual volunteers since they assume the risk when the fund's investments do poorly. The size of pension that a volunteer receives depends on the value of the fund's investments, as well as upon his or her level of activity. The government agency or department that funds the program has no liability beyond the payments already made or promised to the fund.

A "flexible-contribution" plan is similar to the defined contribution in that funds are placed into each volunteer's account each year by the plan sponsor. However, instead of promising a specific contribution to each active volunteer each year, the sponsor guarantees that a specific amount of money will be contributed to the program, regardless of the number of volunteer participants. That money is then divided among the participants equally or by some formula. The sponsor has the greatest amount of control over its costs, but the volunteers potentially receive a different amount of contribution to their account each year. Like the defined-contribution program, the volunteer's pension is determined based on the size of the account at "retirement."

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