Business of Benefits Bob and Conni Toth

What I thought may be useful to discuss is what happens when an employer chooses NOT to offer the CRD relief under the CARES Act. A surprising number of employers have taken this approach. But the employer's decision is not the final word on this matter, because the statute grants participants specific tax befits regardless of the sponsor's choice. So what does this actually mean for participants?

What is the CARES impact on LOSAPs: None.
LOSAPS. They act as a sort of gratuitous payment arrangement which local fire districts adopt under either state or local laws the deferral of a payment of up to $6,000 per year for volunteers providing fire fighting and prevention services, emergency medical services, and ambulance services. They really are odd programs, a sort of amalgamation of a number of different rules. Cheryl Press authored a very useful PLR (https://www.irs.gov/pub/irs-wd/201508001.pdf)on these programs, which I invite you to review. I’m also providing a link to one of the leading LOSAP programs which is available nationally, at LOSAP.com
So now, as COVID-19 inexorably moves out of the large cities to smaller and rural communities, it is these volunteers who will be faced with the extraordinary tasks arising from handling people affected by the virus. These volunteer departments have minuscule budgets, and are unlikely to have the resources to get all of the equipment they will need to handle COVID.
It follows that these volunteers will be impacted, some seriously so. The typical LOSAP will permit a withdrawal for “unforeseen emergencies.” Yet the new CARES Act distribution rules provides no relief for these distributions. The CARES Act does not allow the tax on LOSAP distributions to be spread over three years, like it does for the tax on distributions from other kinds of retirement plans. There is also no ability for the firefighter to repay the amount of those distributions back to the plan, as the CARES Act allows to be done for other types of retirement plans.
LOSAPs have existed under the radar for years. But these volunteers are about to be in the forefront now, and so will their LOSAP programs.

The Podcast Version of the April 17, 2020 Business of Benefits Blog