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Benefit Coverage Provided By Volunteer Firefighter Relief Associations

In General. In Minnesota, most firefighters are volunteer firefighters. Pension coverage for volunteer firefighters in this state is provided by volunteer firefighter relief associations, and either is the only compensation or is an important component of the compensation package provided to volunteer firefighters.

The primary benefit payable from a volunteer fire relief association is a service pension. Most volunteer fire relief associations provide a lump sum service pension, with a minority providing a monthly benefit service pension (some with an alternative lump sum service pension). Service pensions are not payable before age 50, and usually are payable in full only with 20 years of service. Some volunteer fire relief associations have casualty (disability and death) benefit coverage if a service pension is not otherwise payable.

The state law regulating the benefit coverage provided to volunteer firefighters by volunteer firefighter relief associations from the relief association special fund is primarily Minnesota Statutes, Sections 424A.02, 424A.03, and 424A.10. Minnesota Statutes, Chapter 424A, was enacted in 1979, which was the last time the Legislature undertook a significant general review and analysis of volunteer fire benefit coverage.

Unlike most public employee pension coverage, where state law specifies all or most aspects of the benefit plan, the statutory regulation of volunteer firefighter relief associations largely consists of specifying certain minimum eligibility requirements and certain benefit maximums, with the actual benefit plan assembled in the articles of incorporation or the bylaws of the particular volunteer firefighter relief association. The primary benefit coverage provided by a volunteer firefighter relief association is the service pension coverage, and most minimum eligibility requirements and benefit maximums relate to the service pension coverage.

Service Pension Eligibility Requirements. Minnesota Statutes, Section 424A.02, Subdivision 1, authorizes a volunteer firefighter relief association to provide a service pension to a member of the relief association if certain conditions are met by the volunteer firefighter. The volunteer firefighter must meet the following conditions:
1. Terminate Active Service. The person must separate from active service as a firefighter with the fire department, defined as the cessation of the performance of fire suppression duties and the cessation of the supervision of fire suppression activities. In 2000, the definition of "separation from active service" (for purposes of benefit entitlement) was clarified by specifying that the separation must be permanent and if a firefighter resumes service, no additional service pension accrues and the individual must repay any previously received service pension. In 2002, certain retirees were authorized to receive and retain a volunteer firefighter pension although subsequently employed full-time within the fire department by the applicable city or independent nonprofit firefighting corporation, providing that the employer determines the position would be difficult to fill with another similarly qualified applicant, and providing the relief association bylaws permit it.
2. Attain at Least Age 50. The person must reach at least age 50.
3. Have Credit for At Least Five Years Fire Department Service. The person must have credit for at least five years of service as an active member of the fire department with which the relief association is associated.
4. Have Credit for At Least Five Years Relief Association Membership. The person must have credit for at least five years of active membership in the relief association before separating from service (open to modification for a new relief association covering an existing volunteer fire department, with firefighters having prior service).
5. Compliance with Additional Conditions. The person must comply with any additional age, service, or membership conditions prescribed in the relief association bylaws.
Partial Vesting With Less Than 20 Years Service Credit. Volunteer firefighter relief associations have traditionally required 20 years of service for a person to become eligible to receive a service pension. Between 1979 and 1989, ten years of service were required as the minimum service requirement for entitlement to a partial service pension. In 1989, the ten-year service requirement was reduced to five years.
Nonforfeitable Portion of Service Pension. Under state law, the maximum service pension payable with less than 20 years of service is limited to a portion of the service pension earned or accrued. The applicable statutory provision is Minnesota Statutes, Section 424A.02, Subdivision 2. As last revised in 2004, the percentage of the accrued or earned benefit must be set forth in the articles of incorporation or the bylaws of the relief association, but cannot exceed the following for lump sum plans, monthly plans, or combination monthly/lump sum plans:

Completed Years of Service	Nonforfeitable Percentage of Pension Amount
5	40 percent
6	44 percent
7	48 percent
8	52 percent
9	56 percent
10	60 percent
11	64 percent
12	68 percent
13	72 percent
14	76 percent
15	80 percent
16	84 percent
17	88 percent
18	92 percent
19	96 percent
20 and thereafter	100 percent

For a volunteer firefighter relief association that pays a defined contribution service pension, the nonforfeitable percentage of pension amounts are as follows:

Completed Years of Service	Nonforfeitable Percentage of Pension Amount
5	40 percent
6	52 percent
7	64 percent
8	76 percent
9	88 percent
10 and thereafter	100 percent

Flexible Service Pension Maximums. Volunteer firefighter service pensions have always been subject to a benefit maximum, either under Minnesota Statutes, Section 69.06 (1905-1979), or Minnesota Statutes, Section 424A.02, Subdivision 3 (1979 to present). Before 1957, the maximum service pension payable to a retiring volunteer firefighter was a $40 monthly benefit (plus two dollars per month per year of service beyond 20 years to a maximum of $60 per month) or $100 per year of service credit lump sum benefit. In 1957, the lump sum benefit maximum was increased to $200 per year of service credit. In 1973, the lump sum benefit maximum was increased to $300 per year of service credit. In 1976, the monthly benefit maximum was increased to $80 per month (plus four dollars per month per year of service beyond 20 years to a maximum of $120 per month) or $600 per year of service credit lump sum benefit.

In 1979, with the passage of Minnesota Statutes, Chapter 424A, recodifying the law governing volunteer fire pension coverage, the single dollar amount service pension maximums were eliminated in favor of flexible service pension maximums. The flexible service pension maximums established a sliding scale of benefit maximums based on the level of funding per firefighter for the previous three-year period.

The service pension can be a monthly benefit service pension (a specified dollar level per month per year of service credit, payable for life) or a lump sum service pension (a specified dollar level per year of service credit, payable in a lump sum or in a number of installment payments). If a relief association provides both a monthly benefit service pension and a lump sum service pension as an alternative, the amount of each type of service pension must comply with the applicable flexible service pension maximum for that benefit type. The funding amount on which the flexible service pension maximum scale is based is the amount of funding available per firefighter, computed on a three-year average. The funding used in the computation is the amount of fire state aid received, the amount of any municipal funding provided, and one-tenth of the amount of any funding surplus (assets in excess of actuarial accrued liability).

The flexible service pension maximums in current law for monthly volunteer fire pension plans, last amended in 2003, are as follows:

Minimum Average Amount of Available Financing per Firefighter	Maximum Service Pension Amount Payable per Month for Each Year of Service
$......	$.25
42	.50
84	1.00
126	1.50
168	2.00
209	2.50
252	3.00
294	3.50
335	4.00
378	4.50
420	5.00
503	6.00
587	7.00
672	8.00
755	9.00
839	10.00
923	11.00
1,007	12.00
1,090	13.00
1,175	14.00
1,259	15.00
1,342	16.00
1,427	17.00
1,510	18.00
1,594	19.00
1,677	20.00
1,762	21.00
1,845	22.00
1,888	22.50
1,929	23.00
2,014	24.00
2,098	25.00
2,183	26.00
2,267	27.00
2,351	28.00
2,436	29.00
2,520	30.00
2,604	31.00
2,689	32.00
2,773	33.00
2,857	34.00
2,942	35.00
3,026	36.00
3,110	37.00
3,194	38.00
3,278	39.00
3,362	40.00
3,446	41.00
3,530	42.00
3,614	43.00
3,698	44.00
3,782	45.00
3,866	46.00
3,950	47.00
4,034	48.00
4,118	49.00
4,202	50.00
4,286	51.00
4,370	52.00
4,454	53.00
4,538	54.00
4,622	55.00
4,706	56.00

The current law flexible service pension maximums for relief associations paying a lump sum pension are as follows:

Minimum Average Amount of Available Financing per Firefighter	Maximum Lump Sum Pension Amount Payable for Each Year of Service
$......	$10
11	20
16	30
23	40
27	50
32	60
43	80
54	100
65	120
77	140
86	160
97	180
108	200
131	240
151	280
173	320
194	360
216	400
239	440
259	480
281	520
302	560
324	600
347	640
367	680
389	720
410	760
432	800
486	900
540	1,000
594	1,100
648	1,200
702	1,300
756	1,400
810	1,500
864	1,600
918	1,700
972	1,800
1,026	1,900
1,080	2,000
1,134	2,100
1,188	2,200
1,242	2,300
1,296	2,400
1,350	2,500
1,404	2,600
1,458	2,700
1,512	2,800
1,566	2,900
1,620	3,000
1,672	3,100
1,726	3,200
1,753	3,250
1,780	3,300
1,820	3,375
1,834	3,400
1,888	3,500
1,942	3,600
1,996	3,700
2,023	3,750
2,050	3,800
2,104	3,900
2,158	4,000
2,212	4,100
2,265	4,200
2,319	4,300
2,373	4,400
2,427	4,500
2,481	4,600
2,535	4,700
2,589	4,800
2,643	4,900
2,697	5,000
2,751	5,100
2,805	5,200
2,859	5,300
2,913	5,400
2,967	5,500
3,021	5,600
3,075	5,700
3,129	5,800
3,183	5,900
3,237	6,000
3,291	6,100
3,345	6,200
3,399	6,300
3,453	6,400
3,507	6,500
3,561	6,600
3,615	6,700
3,669	6,800
3,723	6,900
3,777	7,000
3,831	7,100
3,885	7,200
3,939	7,300
3,993	7,400
4,047	7,500

Defined Contribution Lump Sum Service Pension Coverage. Minnesota Statutes, Section 424A.02, Subdivision 4, allows a volunteer firefighter relief association to provide a defined contribution (or split-the-pie) service pension in lieu of a defined benefit monthly benefit or lump sum service pension. The defined contribution service pension coverage necessitates that the volunteer firefighter relief association establish a separate account for each member, to which an equal share of any fire state aid, municipal contributions or turnover gain (forfeited amounts upon early terminations under Minnesota Statutes, Section 424A.02, Subdivision 2) must be credited to each individual account. Investment income based on the account balance also must be credited to each individual account.
Benefit Calculation Uniformity. Minnesota Statutes, Section 424A.02, Subdivision 6, provides that the method of calculating service pensions must be applied uniformly for all years of active service. It also provides that credit must be given for all years of service other than the partial early vesting provisions. The provision also prohibits the payment of a service pension to a person who remains an active firefighter, prohibits the payment of other special fund benefits to a person receiving a service pension, exempts volunteer firefighter relief association pensions and benefits from garnishment, judgment, execution or legal process other than marriage dissolution or child support obligations, and prohibits the assignment of any service pension or benefit from a volunteer firefighter relief association.
Deferred Service Pensions. For a volunteer firefighter who has completed the length of service credit required for vesting, has at least five years of relief association active membership, but separates from active volunteer firefighter service and volunteer firefighter relief association membership before age 50, Minnesota Statutes, Section 424A.02, Subdivision 7, provides for a deferred service pension payable when the former firefighter reaches at least age 50. The service pension is calculated based on the law in effect when active service terminated, but a lump sum service pension may be credited with actual five percent interest. Alternatively, if provided in the bylaws, a deferred pension may accrue interest at the actual rate earned on the assets for the deferral period if the deferred assets are in a separate account or investment vehicle maintained by the relief association and if the deferred retiree bears the full investment risk for the deferred account. Another option, if the assets are not in a separate account, is to pay interest based on the actual return of the special fund, as computed by the state auditor, but not to exceed five percent.
Installment Payments for Lump Sum Service Pensions. Volunteer firefighter relief associations that pay lump sum service pensions are authorized by Minnesota Statutes, Section 424A.02, Subdivision 8, to pay the lump sum service pension in installments. No limit in the number of installments is specified. The installments are to have the same present value as the lump sum service pension, based on a five percent interest assumption.
Conversion of Lump Sum Service Pensions Into Annuities Through Single Premium Insurance Annuity Purchase. Minnesota Statutes, Section 424A.02, Subdivision 8a, allows a volunteer firefighter relief association that pays a lump sum service pension to purchase a single premium insurance annuity for the retiring volunteer firefighter from an insurance company approved to do this type of business by the state commerce commissioner.
Ancillary Benefit Limits. Minnesota Statutes, Section 424A.02, Subdivision 9, places limits on ancillary retirement benefit coverage. Ancillary benefits are those benefits provided by a volunteer firefighter relief association other than the service pension, such as disability benefits, death benefits, or survivor benefits. The limitations are needed to protect the financial solvency regulation of volunteer firefighter relief associations, which is built around determining the accrued liability and financial requirements for the level of the service pension coverage provided by the volunteer firefighter relief association. The limitations are:
1. No Post-Retirement Benefit Beyond the Lump Sum Service Pension. Volunteer firefighter relief associations that provide lump sum service pensions are prohibited from paying any additional benefit to a retired firefighter or on behalf of a retired firefighter once payment of the service pension commences; and
2. Maximum Ancillary Benefit Available. All volunteer firefighter relief associations are limited in the payment of pre-retirement and post-retirement ancillary benefits to the amount of the accrued service pension of the volunteer firefighter, except that the survivor benefit payable on behalf of a deceased short-service firefighter may be based on a five years of service accrued benefit if that produces a larger accrued service pension amount.
Post-Retirement Increases. A volunteer firefighter relief association paying a monthly service pension may, if it chooses, provide a post-retirement increase to service pension and benefit recipients if approved by the municipality and the bylaws are appropriately amended under Minnesota Statutes, Section 424A.02, Subdivision 9a.
Municipal Approval of Benefit Changes; State Filing Requirements. Minnesota Statutes, Section 424A.02, Subdivision 10, requires municipal approval of any benefit changes or amendments to the relief association articles of incorporation or bylaws impacting on benefits if an association does not have surplus assets and municipal support is required. The benefit change approval request must be accompanied by an estimate of the actuarial impact of the benefit change. Upon making a benefit change, any volunteer firefighter relief association must file a copy of the revised articles of incorporation or bylaws with the state auditor in order to retain eligibility for fire state aid.