We've recently been discussing the ramifications of the fact that the assets of a LOSAP are not participant assets, but municipal assets.
Another ramification is that the benefits paid cannot be rolled over to an IRA. There are other tangential reasons as well, but a main reason why is that the assets are not the participants to control.
Let's consider a defined contribution plan to keep it simple. A firefighter has accumulated a $20,000 balance. This firefighter turns the entitlement age and is eligible to be paid this $20,000 on 1/1/2019. Therefore, on 1/1/2019 the $20,000 is made available to the participant, and so it is taxable (we are just tackling Federal income tax for now). Thus, it is distributed to the participant. Prior to 1/1/2019, the $20,000 was not taxable because it was municipal assets and subject to forfeiture (if the municipality were to become insolvent, or bankrupt).
In a rollover situation, a participant transfers his/her own account balance (one that the participant owns 100%) to another qualified retirement plan. But since the LOSAP account is not owned by the participant, this type of transfer cannot take place - it is not from a participant-owned pre-tax account to another participant-owned pre-tax account.
There are similar situations in the qualified plan world. For example, if you inherit an IRA from someone other than your spouse, you are not allowed to roll it over into your own IRA. In addition, required minimum distributions are not eligible for rollover.
Please consult with your own tax adviser about the taxation of receiving your LOSAP distribution. This article is not legal or tax advice.