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Frequently Asked Questions Regarding Volunteer Firefighters Incentive Plan Transition

Frequently Asked Questions (FAQs) Regarding Volunteer Firefighters Incentive Plan Transition

On January 11, 2023, the City of Troy (“City”) announced its intent and provided official notice to the Voluntary Incentive Committee of its intent to close out the current City of Troy Incentive Plan for Volunteer Firefighters (“Current VFIP”) and associated City of Troy Incentive Trust for Volunteer Firefighters (“Current Trust”) and establish a replacement firefighters incentive plan and associated trust (“Replacement FIP” or “Replacement Trust”, as applicable).  The Current VFIP requires the City to provide the Voluntary Incentive Committee with at least ninety (90) days advance notification that termination will be submitted to the City Council for consideration.  During the January 11, 2023 meeting, the City also provided the Voluntary Incentive Committee with a draft of a Replacement FIP to demonstrate the City’s desire to retain current volunteer firefighters and continue to incentivize them for their essential function within the City.

The Internal Revenue Service (“IRS”) recently determined that the Current VFIP is not a length of service award plan (“LOSAP”) (as intended) because the benefits are greater than those allowed by the Internal Revenue Code (“Code”). This means that the Current VFIP has unintended tax consequences for both the volunteer firefighters and the City. The City made extensive efforts to challenge the IRS determination, but those comprehensive efforts were ultimately unsuccessful with respect to altering the IRS’s declaration that the Current VFIP is not a LOSAP.  Accordingly, in order to avoid the imposition of unintended tax consequences on the volunteer firefighters and the City, and continue to reward the valuable service of the volunteer firefighters, the City plans to close out the Current VFIP and Current Trust and replace them with a new plan and trust.  The process associated with the closeout of the Current VFIP and Current Trust and establishment of a Replacement FIP and Replacement Trust is referred to herein as the “Transition.”

The City created its first volunteer firefighter incentive plan in 1979. Since then, the City and volunteer firefighters have had a long history of cooperation to ensure the incentive plan remains mutually beneficial.  The City acknowledges that due to the confidential nature of the IRS audits, the volunteer firefighters were not aware of the City’s efforts to reach an agreement with the IRS until January 11, 2023 (when the Voluntary Incentive Committee was notified of the proposed Current VFIP termination).  However, the City is committed to keeping the volunteer firefighters apprised on developments in the Transition process.  To this end, the City and the Volunteer Incentive Committee will be meeting next week to discuss the Transition and further explore the terms of a Replacement Plan. 

VFIP FAQs- January 20
VFIP FAQs- January 27

Visit the VFIP Board page for more information.

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

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