Mich. city devising incentives for volunteer firefighters after IRS rejected old plan
Troy uses incentives to help with retention and tries to compensate the unpaid firefighters, said Mayor Ethan Baker
By Anne Runkle
The Oakland Press
TROY, Mich. — Troy city officials are devising a new incentive plan for volunteer firefighters after the Internal Revenue Service ruled that a previous plan didn’t meet the requirements for tax-exempt status.
City officials want to come up with a plan that meets the IRS’ requirements, limits the city’s financial obligations and fairly compensates the unpaid firefighters, said Mayor Ethan Baker.
“There’s a lot of moving parts to this. We have a wonderful group of volunteer firefighters. They put in a lot of time and risk their lives,” Baker said.
The city has about 140 volunteer firefighters and 12 full-time paid staff in the Fire Department.
Most volunteers join the Fire Department because they want to serve their community; they aren’t even aware of the incentive, Baker said. But the city is using the incentive to help retain volunteers, he said.
Volunteers are vested after 10 years but many devote decades of service, Baker said. They collect the incentive when they retire.
Troy has had a volunteer fire department for about 80 years, before it became a city. The city created the incentive plan in 1979.
The IRS had been questioning the plan for several years. It recently ruled the plan has tax consequences for both the city and volunteers because the benefits provided are greater than those allowed by a tax-exempt Length of Service Award Program for volunteer firefighters, according to a statement on the city’s website.
The city unsuccessfully challenged the IRS ruling, Baker said. City officials determined that closing the current plan and replacing it was the best option.
The city will close the current plan April 30 and open a new one, effective May 1. Officials are still working out the details.
“After the closure, current participants will receive a lump sum payment based on an April 30 value (as determined by an independent actuarial firm),” the statement said.
The city will fund this obligation, which is expected to deplete the current fund of $13.9 million, built over the years with the city’s general fund dollars, Baker said. The city has to contribute an additional $5 million from the general fund, he said.
The IRS ruling had tax implications for both the city and the firefighters; the city voluntarily paid the firefighters’ share, Baker said.
Baker acknowledged that it is unusual for a city the size of Troy to have a volunteer fire department. City officials are aware of only one city in the nation that is larger than Troy and has a volunteer fire department. But Baker doubts the incentive fund dilemma will result in the city moving to a paid fire service.
He has talked to “a ton of firefighters” and doesn’t know of any who are quitting because of the IRS ruling.
The volunteers are certified by the Michigan Fire Fighters Training Council and are on call 24 hours a day, according to the city’s statement.
In addition to responding to fires, traffic crashes and other emergencies, the firefighters regularly commit time to training exercises.
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