Relief Association Plan Types

Questions occasionally arise regarding the type of pension plan that a relief association administers. A relief association’s plan type is characterized by how the plan is funded. Relief associations can either be defined benefit retirement plans or defined-contribution retirement plans. A defined-benefit retirement plan provides a retirement benefit that is predetermined based on a formula. The unknown variable for a defined-benefit retirement plan is the amount of funding needed to support the predetermined benefits. Benefits are primarily funded through a combination of fire state aid, municipal contributions, and investment earnings. When revenue from one of these funding sources decreases, pressure may be put on the other funding sources to make up the difference. 

Relief associations electing to administer defined-benefit retirement plans are further characterized by how benefits are paid. Defined-benefit retirement plans may either pay benefits as a one-time lump-sum payment or as a monthly payment made from the time of retirement until the member’s death.

A defined-contribution retirement plan provides a retirement benefit with a predetermined amount of funding. The unknown variable for a defined-contribution retirement plan is what a member’s benefit amount will be at retirement. The benefit amount is equal to the member’s individual account balance at the time of retirement. Members of defined-contribution plans receive equal shares of state and municipal contributions and prorated shares of investment earnings. Account balances vary from year to year based on the relief association’s investment performance, revenues, and expenses. Members of a defined-contribution plan receive a one-time lump-sum payment when they retire.

Published last in the September 2020 Pension Newsletter