The Merriam-Webster dictionary defines vesting as follows:
the conveying to an employee of inalienable rights to money contributed by an employer to a pension fund or retirement plan especially in the event of termination of employment prior to the normal retirement age
The term "vest" or "vesting" does not appear in Article 11-A. Instead, it uses the term "nonforfeitable" which is defined as follows:
"Nonforfeitable” means the unconditional and legally enforceable right to receive benefits attributable to service as an active volunteer firefighter under the program that will begin at the entitlement age specified in the program.
The statute goes on further to state that a participant shall have a 100% nonforfeitable right to the service award when the participant earns five (5) or more years of service credit. If the participant has less than five (5) years, the participant has a 0% nonforfeitable right. The statute then continues on to say the following:
Notwithstanding the preceding table, a participant shall have a one hundred percent nonforfeitable right to his service award upon his attainment of the entitlement age under the program.
The above text was broken into three sections for clarity. First, note that a participant has a 100% nonforfeitable right upon the attainment of the entitlement age. Therefore, if you have a member who joins later in life and reaches the designated entitlement age before earning five (5) years of service credit, the participant still becomes "vested". Once vested, the participant is eligible to start collecting a service award. This is a quirk in the statute that many are not aware exists.
Second, note that a sponsor can lower the service credit requirement to obtain a nonforfeitable right to something less than five (5) years. In our experience, the overwhelming majority of sponsors choose five (5) years, but we have seen several variations. In addition, sponsors use this provision to handle vesting at death, which will be explained further on.
Last, notice that any forfeited service awards are used to reduce the sponsor contribution, rather than being distributed to the remaining participants.
In addition, the statute provides that if a participant becomes totally and permanently disabled, that the participant can be paid his/her accrued service award regardless of age or length of service. Therefore, total and permanent disability becomes another "vesting trigger" - meaning, a participant becomes 100% vested upon becoming totally and permanently disabled.
Then comes another quirk in the statute:
.A volunteer firefighter’s retirement income plan may provide that, in the event of the death of an active volunteer firefighter who has a right to a nonforfeitable percentage of retirement income pursuant to subdivision (b) of this section, the designated beneficiaries of such active volunteer firefighter (or his estate if no beneficiary is so designated) shall be entitled to receive death benefits under the service award plan
The first quirk is the different terminology - the use of "retirement income plan" and "service award plan". These two terms are only used in the death benefit sections of the statute in §218 and §219. No where else in the statute does it reference these terms. Interesting.
Regardless, the key thing here is the statue provides that a death benefit would only be payable if a firefighter dies having attained a nonforfeitable percentage. So if the firefighter is totally and permanently disabled, there would be a death benefit payable, but if that firefighter dies, there would be none. How most sponsors handle this seemingly odd juxtaposition is by adopting a vesting schedule that provides a participant becomes 100% vested upon death. This is acceleration in the vesting schedule is allowed, as noted above, and then allows a death benefit to be paid even if a participant had earned less than five (5) years of service credit at the time of death.
Now, with all of this said, the definition of nonforfeitable, in particular the phrase "unconditional and legally enforceable right", would seem to imply that once a participant becomes 100% vested, a benefit must be paid. It would further imply that the benefit that must be paid is the benefit that was accrued. However, there are some other sections of the statute that would need to be considered, which we'll address in a future post.
Sharing my thoughts and insights on LOSAP, and occasionally other topics.