LOSAP CAP Act

To amend the Internal Revenue Code of 1986 to modify the rules applicable to length of service award plans. 1. Short title This Act may be cited as the Length of Service Award Program Cap Adjustment Priority Act LOSAP CAP Act 2. Modification of rules applicable to length of service award plans (a) Maximum deferral amount Clause (ii) of section 457(e)(11)(B) $3,000 $6,000 (b) Cost of living adjustment Subparagraph (B) of section 457(e)(11) of such Code is amended by adding at the end the following: (iii) Cost of living adjustment In the case of taxable years beginning after December 31, 2017, the Secretary shall adjust the $6,000 amount under clause (ii) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2016, and any increase under this paragraph that is not a multiple of $500 shall be rounded to the next lowest multiple of $500. . (c) Application of limitation on accruals Subparagraph (B) of section 457(e)(11) of such Code, as amended by subsection (b), is amended by adding at the end the following: (iv) Special rule for application of limitation on accruals for certain plans In the case of a length of service award plan that is a defined benefit plan (as defined in section 414(j)), the limitation on the annual deferral under clause (ii) shall apply to the actuarial present value of the aggregate amount of length of service awards accruing with respect to any year of service. Such actuarial present value shall be calculated using reasonable actuarial assumptions and methods assuming payment shall be made under the most valuable form of payment of the length of service award under the program with payment commencing at the later of the earliest age at which unreduced benefits are payable under the program or the participant’s current age. . (d) Effective date The amendments made by this Act shall apply to taxable years beginning after December 31, 2017.

Summary: Length of Service Award Program Cap Adjustment Priority Act or the LOSAP CAP Act This bill amends the Internal Revenue Code, with respect to deferred compensation plans, to increase the limit on accruals that is required for length of service award plans (LOSAPs) for bona fide volunteers to be exempt from treatment as a deferred compensation plan. (Under current law, plans paying solely length of service awards to bona fide volunteers or their beneficiaries on the account of firefighting and prevention services, emergency medical services, and ambulance services performed by the volunteers are not treated as deferred compensation plans if they meet certain requirements. One of the requirements is a limit on the aggregate amount of length of service awards that may accrue with respect to any year of service for any bona fide volunteer.) The bill modifies the limit on accruals to: (1) increase the limit from $3,000 to $6,000; (2) provide for a cost-of-living adjustment to the limit after 2017; and (3) specify that, in the case of LOSAPs that are defined benefit plans, the limit applies to the actuarial present value of the aggregate amount of length of service awards accruing with respect to any year of service.