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Upcoming Changes to City of Troy Volunteer Firefighters Incentive Plan (VFIP)

Upcoming Changes to City of Troy Volunteer Firefighters Incentive Plan (VFIP)

The Troy Fire Department is a unique combination of 12 full-time staff members and more than 100 volunteer members.  Both full-time staff and volunteer members complete the Fire Fighter I & II training programs and are certified by the Michigan Fire Fighters Training Council. Firefighters assigned to each of the City’s six fire stations are on-call 24 hours a day.

The City created a volunteer firefighter incentive plan in 1979. The Plan was designed to retain and reward these unpaid volunteers for their service to the community. Each volunteer firefighter is a participant in the Plan.

In 2012, the City and volunteers began working together to establish a new plan and trust.  The trust allowed the incentive funds to be invested and protected. The funds may only be used to provide benefit payments to participants.

Both the plan and the trust were intended to be exempt from taxation.  However, the Internal Revenue Service (IRS) recently declared the plan has tax consequences for both the City and participants because the benefits provided are greater than those allowed by a tax-exempt Length of Service Award Program (LOSAP) for volunteer firefighters. Keeping the current plan in place would require many participants to begin paying income taxes on benefits when they vest and BEFORE they begin receiving payments.

Extensive efforts were made to challenge the IRS determinations but they were unsuccessful. As a result, the City determined the only viable solution is to close the current plan and replace it with a new plan.  The City will continue to devote significant financial resources to retaining and rewarding volunteer firefighters for their service to the community.

On April 17, 2023, the City Council will be asked to close the current plan effective April 30, 2023 and establish a new plan effective May 1, 2023. After the closure, current participants will receive a lump sum payment based on an April 30, 2023 value (as determined by an independent actuarial firm). The City intends to fully fund this obligation, which is expected to deplete the current trust (assets were approximately $13.9 million as of December 31, 2022) and also require the City to contribute approximately $5 million from its General Fund.

Visit this page for more information: https://apps.troymi.gov/boardsandcommittees/Volunteer%20Firefighter%20Incentive%20Plan%20Board

Additional information will be posted as it becomes available. In the meantime, questions may be directed to CityManager@troymi.gov.

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