Prior to 2021, the maximum monthly benefit that could be earned in a defined benefit LOSAP in New York State was essentially $1,200. The statute states, in essence, that the monthly payment cannot exceed an amount equal to $30 for each year of service credit up to a maximum of forty (40) years of service credit. Then, in 2021, the statute was amended to allow a sponsor to extend the maximum years of service credit to fifty (50).
As a way to control costs, some plans were originally established with service credit maximums that were less than 40 years. We commonly see plans limit service to 30 years, and sometimes 25 or 20. Soon, we will see plans that were established on January 1, 1990 have participants earning their 40th year of service credit in 2024 (including 5 years of prior service). If these sponsors do not amend the program to extend the maximum years of service credit, participating volunteers with 40 years of credit will no longer be able to earn additional benefits.
A question we have been asked frequently is if participants reach the service credit maximum and in a future year the LOSAP is amended to extend the maximum years of service credit, can those participants receive credit for the “capped” years? For example, if a $20 defined benefit LOSAP was designed to limit service to 20 years, and a participant hit the 20-year cap in calendar year 2013, then the program was later amended effective January 1, 2024 to extend the maximum to 50 years, could participants receive service credit and a benefit for the 10 years from 2014 to 2023?
First and foremost, we are not attorneys, so it is best to review this blog post with your local attorney.
Second, in the example we provided, we don’t believe that the additional 10 years would be able to be credited retroactively in the true sense. Meaning, the service credit that would have otherwise been earned in 2014 would not be adjusted retroactive to January 1, 2015. We believe the law is clear that an amendment can be prospective only, so a sponsor would not be able to retroactively provide an additional benefit.
However, we do think it is reasonable that a sponsor could credit the 10 years of service credit effective on the date of the amendment – in our example on January 1, 2024. Of course, provided the participant actually earned 50 points and service credit in each of those years. Although the service credit was earned prior to the date of the amendment, the increased benefit is provided prospectively only. The cost of providing those additional years might dissuade a municipal sponsor from taking this approach.
The reasoning behind this opinion is the interpretation of whether or not participants who have earned the maximum service award continue to earn service credit and not just an additional benefit. In our sample LOSAP, a participant could be viewed as having earned a 21st year of service credit, but just not be able to earn more than the maximum benefit of $400 ($20 x 20 years of service credit).
As a reminder, the statue actually stipulates the maximum benefit that can be accrued, with that benefit based on years of service credit. In our sample LOSAP with a maximum benefit of $400, once a participant earns 20 years of service credit, it could be interpreted that the participant can continue to earn points and service credit, just not an additional benefit. Then, if the sponsor increases the maximum benefit to $1,000 ($20 x 50 years of service credit) on January 1, 2024, the amendment could stipulate that on January 1, 2024 the years of service credit earned in excess of 20 years will be used to determine a participant’s service award as of January 1, 2024. Again, in our example, this would result in some participants going from a $400 monthly benefit to a $600 monthly benefit on January 1, 2024, provided they earned service credit each year for those 10 years. Since this provides just for a prospective increase in benefit, we believe this can be authorized under the statute.
This is not typically how programs are amended – usually once a firefighter hits the maximum benefit (or maximum years of service credit) they are deemed to no longer be eligible to earn additional benefits or service credit. Then, when the amendment becomes effective, the participants at the maximum are able to earn additional service credit and benefits going forward from the date of the amendment. That is for various reasons, including cost or recordkeeping of those years that were capped. However, we think the law can be read to support this type of amendment.
It would be very important to work with your attorney and TPA to craft the language of the resolution and proposition to be clear about how the amendment will be administered and the associated increase in contributions.