Governor Cuomo has issued Executive Order 202.67, which extends the State Disaster Emergency that was originally declared by Executive Order 202 through November 3, 2020.

This is important to fire departments that may still be operating under restrictions due to the State Disaster Emergency, such as cancelling events or limiting at-risk volunteers from responding to calls. If this is still occurring locally, then firefighters would continue to lose opportunities to earn points that would have been earned for attending these cancelled activities. This was addressed in the recent amendment to the general municipal law allowing municipal sponsors to award up to five (5) points per month for each month that restrictions were in place. Since the awarding of these additional points is tied to restrictions imposed as a result of the Emergency, the extension of the Emergency also extends the period in which points can be awarded for cancelled events.

Even if the fire department is back to a typical activity level, there may be activities that were scheduled to be held after September 7, 2020 (the original expiration date of the Emergency), or even after November 3, 2020, that were canceled due to the planning involved in the activity. These events should be considered when the sponsor is determining the appropriate number of points to award.

Ultimately, the total number of points that are awarded by the municipal sponsor should be reflective of the events that were actually cancelled, and the missed opportunities to earn points for attending those events (or the chance to earn 25 points by responding to calls). Therefore, the extension of the Emergency should not automatically mean more points for the volunteers. We continue to suggest that the resolution adopted by the municipality include specific dates that tie to a specific number of points, thereby keeping some control over the total number of points being awarded. If an amending resolution is needed in the future, that could be done. We also continue to suggest that a municipality wait as long as possible to adopt the resolution, as the future of the State Disaster Emergency is cloudy at best.

Finally, no action should be taken by a fire department or municipality without getting advice from your local attorney. The volume and relative complexity of the number of Executive Orders requires insight from someone skilled and versed in these matters. Involving your LOSAP administrator in the discussion would be beneficial, but as with all legal matters this should be reviewed with your attorney before any action is taken.

The New York State tax law allows a taxpayer to exempt payments received from a length of service award program (or LOSAP) from New York State (NYS) income tax provided the following conditions are met:

1. The taxpayer must be over age 59 ½.
2. The payment must not be made in the form of a lump sum as defined in section 402(e)(4)(A) of the Internal Revenue Code and taxed under section 603 of the NYS tax law.
3. The payment must be from a service award program adopted pursuant to Article 11-A (fire department programs), Article 11-AA (ambulance squad defined contribution programs), Article 11-AAA (ambulance squad defined benefit programs) or Article 11-AAAA (supplemental service award programs).

All three of these requirements must be met in order to take the NYS income tax exemption. The result is that payments from a LOSAP are not universally exempt from NYS income tax, and a taxpayer must carefully review his/her unique situation when preparing his/her NYS tax return.

Each taxpayer is encouraged to review the instructions of NYS tax form IT-225, specifically subtraction S-130. Here is a link to the current version:
​
https://www.tax.ny.gov/pdf/current_forms/it/it225i.pdf

Firefly Admin Inc. cannot provide income tax advice, and this article is not intended to be such. Anyone reading this article is encouraged to forward it to your tax professional for review. 

If a village, town, city, or fire district elected to participate in the “State pension” in order to provide a retirement benefit to its employees, that municipality is participating in the New York State and Local Retirement System (NYSLRS). This system is actually comprised of two pension plans – the Employee’s Retirement System (ERS) and the Police and Fire Retirement System (PFRS).

While a LOSAP is not part of the NYSLRS, and the scale and scope of the NYSLRS is significantly greater than a LOSAP, it can be an interesting benchmark for comparison. How much larger is the NYSLRS than an average DB LOSAP? Based on information we received from the State on 256 defined benefit (DB) fire department LOSAPs, the average DB had $2 million in assets. We know that 256 DB plans is not representative of the total number in New York – the actual amount is likely between 475 and 500 based on other information that is available.  If all DB plans were considered, the average of $2 million per plan would certainly be different. Additionally, those values are now over two years old.

For our purposes, however, an average DB LOSAP in New York could be reasonably assumed to have an asset value of around $2 million. In general, each DB plan is individually managed by the sponsoring municipality. That $2 million being managed by a sponsor pales in comparison to the value of the assets held for the NYSLRS, which is $194.3 billion as of March 31, 2020. This means from an asset standpoint, the NYSLRS is about 100,0000 times larger than an average LOSAP! Therefore, drawing conclusions between the two can be misleading if the proper context is not kept. That said, it is interesting to see the financial condition of the NYSLRS and use some of the information provided as a comparison to a locally-administered LOSAP.

On September 3, 2020 the Office of the State Comptroller released the contribution rates for the NYSLRS. The rates for the ERS increased from 14.6% to 16.2% of payroll, and PFRS from 24.4% to 28.3% of payroll. That represents increases of about 11% and 16% respectively.

The funded ratio was reported to be 86.2%, a decrease from 96.1% as of 2019 and 98% as of 2018. You can read the press release here: https://www.osc.state.ny.us/press/releases/2020/09/nyslrs-announces-employer-contribution-rates-retirement-system-2021-22

The assumed rate of return on the Common Retirement Fund assets is 6.80%. The Fund earned -2.68% during the fiscal year that ended on March 31, 2020. The fiscal-year end of March 31 was bad timing this year, when the investment markets saw significant declines in March due to the onset of the COVID-19 pandemic. This was a significant factor in the increase in the contribution rates. As of March 31, 2020, the Fund had about 49% of the assets allocated to publicly traded equities, with another 11% in private equity. About 26% was in cash, bonds, and mortgages, 10% in real estate and real assets, and the remaining in alternative strategies.

Additional information about the Common Retirement Fund can be found in this press release: https://www.osc.state.ny.us/press/releases/2020/07/dinapoli-state-pension-fund-value-1943-billion

Each year, the Retirement Systems Actuary issues a report on the actuarial assumptions used to determine the employer contribution rates. Michael Dutcher is the Actuary and is very skilled and clear in his written communications.  We suggest you download and read the report, which is located here:
https://www.osc.state.ny.us/sites/default/files/retirement/documents/pdf/2020-09/actuarial-assumptions-2020.pdf

We suggest reading the Executive Summary and the section on the Investment Rate of Return found on pages 5 to 9. Mr. Dutcher does an excellent job walking the reader through the importance of the Investment Rate of Return Assumption and the process used to select it.

Some key takeaways from this information for LOSAP sponsors are:

• Funding a pension plan, or a LOSAP, is a long-term proposition and a longer-term view should be applied during analysis.
  
• A diversified portfolio, which includes exposure to equities, may be necessary to achieve certain rate of return goals over the long term.
  
• Short-term cost increases are a reality when short-term returns do not match the long-term goals.
  
• Funded ratios can and will fluctuate, as can be seen by the decrease in the NYSLRS funded ratio from 98% to 86%.
  
• Managing a pension shouldn’t be done in silos and by one person – having multiple inputs from the likes of the municipal board, municipal employees like the secretary and treasurer, actuary, administration, asset manager, accountant, attorney, and others, is valuable in making sound policy decisions.