To amend the Internal Revenue Code of 1986 to provide recruitment and retention incentives for volunteer emergency service workers.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Volunteer Emergency Services 
Recruitment and Retention Act of 2006''.

SEC. 2. ELECTIVE TREATMENT OF LENGTH OF SERVICE AWARD PROGRAMS AS 
              ELIGIBLE DEFERRED COMPENSATION PLANS.

    (a) In General.--Section 457(e) of the Internal Revenue Code of 
1986 (relating to other definitions and special rules) is amended by 
adding at the end the following new paragraph:
            ``(19) Special rules applicable to length of service award 
        plans.--
                    ``(A) In general.--The term `eligible deferred 
                compensation plan' shall include, at the election of 
                its sponsor, any length of service award plan. Any such 
                election shall be irrevocable. In the case of a length 
                of service award plan whose sponsor has elected to have 
                such plan treated as an eligible deferred compensation 
                plan, such plan shall be administered in a manner 
                consistent with the requirements of this section and 
                such sponsor shall be treated as an eligible employer 
                described in paragraph (1)(A).
                    ``(B) Length of service award plan.--For purposes 
                of this paragraph--
                            ``(i) In general.--The term `length of 
                        service award plan' means any plan paying 
                        solely length of service awards to bona fide 
                        volunteers (or their beneficiaries) on account 
                        of qualified services performed by such 
                        volunteers.
                            ``(ii) Bona fide volunteer.--An individual 
                        shall be treated as a bona fide volunteer if 
                        the only compensation received by such 
                        individual for performing qualified services is 
                        in the form of--
                                    ``(I) reimbursement for (or a 
                                reasonable allowance for) reasonable 
                                expenses incurred in the performance of 
                                such services, or
                                    ``(II) reasonable benefits 
                                (including length of service awards), 
                                and fees for such services, customarily 
                                paid by eligible employers in 
                                connection with the performance of such 
                                services by volunteers.
                            ``(iii) Qualified services.--The term 
                        `qualified services' means fire fighting and 
                        prevention services, emergency medical 
                        services, ambulance services, and emergency 
                        rescue services.
                    ``(C) Maximum deferral amount.--In the case of a 
                length of service award plan whose sponsor has elected 
                to have such plan treated as an eligible deferred 
                compensation plan, subsection (b)(2) shall be applied 
                by striking `the lesser of--' and all that follows and 
                inserting `the applicable dollar amount,'.
                    ``(D) Distribution requirements.--In the case of a 
                length of service award plan whose sponsor has elected 
                to have such plan treated as an eligible deferred 
                compensation plan, subsection (d)(1)(A)(ii) shall be 
                applied by deeming a severance from employment to have 
                occurred at the later of--
                            ``(i) the payment date under the terms of 
                        the plan, or
                            ``(ii) the date on which the plan 
                        participant ceases to perform qualified 
                        services.
                    ``(E) Limitation on accruals.--
                            ``(i) In general.--In the case of a length 
                        of service award plan that is a defined benefit 
                        plan (as defined in section 414(j)) whose 
                        sponsor has not elected to have such plan 
                        treated as an eligible deferred compensation 
                        plan, such plan shall be treated as not 
                        providing for the deferral of compensation if 
                        the aggregate amount of length of service 
                        awards accruing with respect to any year of 
                        service for any bona fide volunteer does not 
                        exceed $5,000. In the case of a length of 
                        service award plan described in the preceding 
                        sentence that is a defined benefit plan (as 
                        defined in section 414(j)), the limitation on 
                        the annual deferral 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.
                            ``(ii) Cost-of-living adjustment.--In the 
                        case of taxable years beginning after December 
                        31, 2007, the Secretary shall adjust the $5,000 
                        amount under clause (i) 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, 2006, and any 
                        increase under this paragraph that is not a 
                        multiple of $500 shall be rounded to the next 
                        lowest multiple of $500.''.
    (b) Conforming Amendments.--
            (1) Section 457(e)(11) of the Internal Revenue Code of 1986 
        is amended to read as follows:
            ``(11) Certain plans excluded.--Any bona fide vacation 
        leave, sick leave, compensatory time, severance pay, disability 
        pay, or death benefit plan shall be treated as not providing 
        for the deferral of compensation.''.
            (2) Section 3121(a)(5)(I) is amended by striking ``section 
        457(e)(11)(A)(ii)'' and inserting ``section 457(e)(19)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 3. EXEMPTION OF LENGTH OF SERVICE AWARD PROGRAMS FROM THE EMPLOYEE 
              RETIREMENT INCOME SECURITY ACT OF 1974.

    The Secretary of Labor shall issue guidance clarifying that a 
length of service award program described in section 457(e)(19) of the 
Internal Revenue Code of 1986 is not an employee pension benefit plan 
under section 3(2) of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1002(2)).

Summary: Volunteer Emergency Services Recruitment and Retention Act of 2006 - Amends the Internal Revenue Code to allow sponsors of certain deferred compensation plans to elect to include length of service award plans for bona fide volunteers providing fire fighting and prevention services, emergency medical services, and emergency rescue services.

Directs the Secretary of Labor to issue regulations exempting a length of service award program from treatment as an employee pension benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA).