When LOSAP was first adopted in New York State, generally it was administered like a pension plan, where once a participating volunteer reached the entitlement age and collected a benefit, the volunteer was no longer able to earn benefits. In a traditional pension plan, a person generally is not “retired” and “working” at the same time. It is fully understood now that it is age discrimination to prevent volunteers over the entitlement age from participating and earning additional benefits.
While we would call this post-entitlementparticipation or post-EA (for entitlement age), another term has worked into the lexicon of NYS LOSAP administration – LOSAP II or Part B. The idea being the benefits earned prior to the entitlement age being the regular LOSAP or Part A, and benefits earned after the entitlement age being LOSAP II or Part B.
This distinction is generally being made because the form of payment for LOSAP II benefits is usually different, particularly for a defined benefit (DB) program. However, it is important to note that it is not a second LOSAP, but simply and extension of the benefits being provided by the total program. This is mainly important for the determination of the maximum years of service credit that can be earned. For example, if a LOSAP limits total service credit to 30 years, a volunteer who earned 20 years prior the entitlement age can only earn 10 more years of service credit after the entitlement age; or, 10 more LOSAP II benefits.
To illustrate how LOSAP II is administered, consider a DB plan that provides a $20 monthly service award payable at an entitlement age of 60, with a maximum years of service credit of 40 years. In this plan, for each year of service credit (50 points) earned, the volunteer earns a $20 lifetime monthly payment at the entitlement age. For all volunteers that are under age 60 at the time the service credit is earned, they have to wait to be paid that $20 monthly benefit.
But for anyone over age 60 at the time service credit is earned, that volunteer earns an additional $20 monthly benefit effective the January 1st following the year. Take for example a volunteer who turns age 60 and starts collecting a $700 monthly benefit on 3/1/2022 based on 35 years of service credit earned as of 12/31/2021. If that firefighter earns service credit for 2022, that volunteer then earns an additional $20 monthly payment effective January 1, 2023, which means his payments would be effectively increased to $720 on January 1, 2023. This administrative practice is how a significant majority of DB LOSAPs are administered.
What LOSAP II does differently is rather than pay the additional $20 per month, it converts that amount into a different form of payment. Therefore, the benefit being paid by LOSAP I, or the original LOSAP, or Part A (pick your favorite) does not change. The participant in our example will continue to be paid $700 for the rest of his lifetime, and that benefit will not be impacted by service credit earned after age 60.
There are generally two ways that LOSAP II are administered:
- Lifetime Annual Payments: Under this approach, rather than paying the $20 every month as an increase to the monthly benefit, the volunteer is paid an annual amount of $240 for the rest of his lifetime. Essentially the $20 monthly benefit is converted to an annual amount (12 x $20) and pre-paid for the year. This annual payment is then paid for the rest of the volunteer’s lifetime. Using the previous example, our firefighter would be paid $700 per month, plus a $240 annual payment, with the first annual payment made in 2023. If the firefighter earned service credit again in 2023, he would then be paid $480 each year beginning in 2024. This process would continue until the firefighter earned a total of 40 years of service credit, since that is the maximum allowed in our sample plan. This means the maximum LOSAP II benefit he could earn would be $1,200 for five (5) years of service credit.
- Actuarially Equivalent Lump Sum: With this approach, the additional $20 lifetime monthly benefit is converted to an actuarially equivalent lump sum. When that lump sum is paid, it represents full settlement of the obligation to pay those $20 lifetime payments. There would be nothing additional due to be paid for that one year of service credit. The lump sum would be calculated using a specific interest rate assumption and mortality assumption, typically called actuarial equivalence assumptions. These assumptions vary from plan to plan, so there is not a lot of administrative consistency from plan to plan. For our sample firefighter, he might receive a one-time lump sum of $3,212 in 2023 for his service credit earned in 2022. If he earned service credit in 2023, his payment in 2024 might be $3,152, which is about $60 less. Here is a chart of sample lump sums this firefighter would receive:
|2022 SVC (Paid in 2023)|
2023 SVC (Paid in 2024)
2024 SVC (Paid in 2025)
2025 SVC (Paid in 2026)
2026 SVC (Paid in 2027)
$3,152 ($60 decrease)
$3,090 ($62 decrease)
$3,025 ($65 decrease)
$2,959 ($66 decrease)
|The reason the lump sum decreases each year is because it is determined based on the volunteer’s life expectancy, which is lower each year. The decreases year-over-year will usually get larger as life expectancy decreases. Again, since our firefighter earned 35 years of service credit prior to the entitlement age, he could only earn five (5) years of LOSAP II. In 2028 and beyond he would still be paid the $700 monthly benefit, but would not receive any more LOSAP II payments since he cannot earn additional service credit.|
There are pros/cons to these different administrative practices, but reviewing those are not the purpose of this post. Please contact us if you’d like to have a more detailed discussion about your specific LOSAP. The examples given herein should be treated as such and may not reflect the administrative practice of your LOSAP or all LOSAPs.