457(e)(11) Length of Service Award Plan

[Guest A Montez]

Does anyone have experience with establishing or administering length of service plans for volunteer firefighters permitted under section 457(e)(11)? The statute indicates the criteria and $3000 deferral limit, but I was wondering whether these plans otherwise would function like eligible 457 plans (or 457(f) plans) for purposes of plan administration?

[Guest tkellogg]

While I am relatively new to administering this type of plan, my interpretation of this provision is that the value of the annual employer contribution cannot exceed the $3,000 limit. I believe this provision was put in place to clarify that LOSAP benefits could be provided to volunteers so that they would not be construted to be employees. FYI, the LOSAP that I administer functions like a DB plan.

[Guest A Montez]

Thanks for your response. Do you (or does anyone) know whether a LOSAP could be operated as a participant-directed DC plan with features like emergency withdrawals and loans, or would this result in amounts being taxable to the participants? Would it make a difference if the LOSAP assets were held in trust?

[Guest SVP]

It's been awhile since your question was posted so I don't know if you are still checking. We administer close to 300 LOSAP's. It is my understaning that if you confom with the section of 457 which limits the amount of the annual accrual to $3,000, the program is exempt from 457. So generally a LOSA is not a 457 which pretty much leaves them as orphans under the code. We had a benefits attorney review our programs and concluded that LOSAP's are plans of deferred payment (not compensation because the participants are non-compensated volunteers). The sponsors of the plan's we administer hold assets in rabbi trusts. We have just a handful of DC plans that permit participant direction. We are treating the benefits as taxable when received but I would not say that I am 100% confident on that one not having done the research on that conclusion personally.