For over 85 years, Troy relied on volunteer firefighters to protect our families, our businesses, and our neighborhoods. Then City Hall took a sledgehammer to the very tool that kept the volunteer system alive, the Volunteer Firefighter Incentive Program (VFIP), and tried to sell the public a simple story:
“The IRS made us do it.”
That story is convenient. It’s also deeply misleading.
Because the real issue was plan design and policy choices, not “volunteer firefighter pensions are illegal.” And one city right down the road, Clawson, proves it. This isn’t about political spin. It’s about facts, documents, and what residents are being told.
1) The Claim Troy Sold the Public
Troy publicly framed VFIP’s collapse as something forced from the outside: the IRS ended it; the IRS made it taxable; there was no choice. Even Troy’s own official City communication describes VFIP as a long-running incentive plan and explains that the City worked with volunteers to create a trust for the funds.
City of Troy
And local media coverage amplified that message, often repeating that the IRS was “ending” or rejecting the plan’s tax treatment. But here’s what gets skipped: the IRS didn’t ban volunteer firefighter retirement benefits. The IRS said Troy’s structure didn’t qualify for one specific tax exception because the benefit levels exceeded a federal limit.
That difference matters.
2) What the IRS Actually Said (and What It Did Not Say)
The IRS private letter ruling that Troy points to (published as IRS Written Determination 201538011) is not a dramatic “shut it down” order. It’s a technical determination about tax classification and limits. In plain English, the IRS notes that the “incentive plan component” fails the $3,000 annual accrual limit in IRC §457(e)(11)(B)(ii), which means it does not qualify for the exception that would treat it like a tax-exempt volunteer LOSAP-style program.
That’s not the IRS saying:
- volunteer firefighter pensions are illegal
- cities can’t offer retirement incentives
- benefits must be eliminated
- a city can’t redesign the program
It’s the IRS saying: if you exceed this limit, you don’t get that specific tax treatment
That is a design/funding problem, not a “nothing is possible” problem.
3) Troy’s Own VFIP Documents Show This Was Never a “Normal Pension”
Troy’s own VFIP plan and trust documents show that City Hall carefully avoided calling it a “pension” in the traditional sense and treated it as an “incentive” plan funded through a trust established under IRC §115. In other words: Troy wasn’t operating a classic municipal pension system for volunteers. It built an incentive trust structure, and when the IRS challenged its tax treatment (especially with benefit levels above the federal volunteer program limit), Troy decided the simplest route was to end it instead of to fix it.
And that decision has consequences far beyond the firefighters themselves.
4) The “Tax” Talking Point Troy Uses to Scare People
Here’s the scare line residents keep hearing in different forms: “If we keep a plan like this, firefighters will owe tax.”
That statement is only true in the way Troy uses it if the plan is structured so that tax is triggered earlier than payout (for example, because benefits are treated as currently taxable compensation or because they don’t qualify for a particular deferral exception).
But this is the part City Hall never says out loud: Clawson firefighters still pay tax, just at the normal time.
Meaning: when they actually receive retirement benefits. Which is how pensions typically work.
Troy uses “tax” as a weapon, as if tax automatically means “illegal” or “impossible.” It doesn’t.
5) What Clawson Does, Explicitly, in Its Ordinance
Clawson’s code of ordinances lays out a straightforward retirement benefit formula: a monthly pension benefit calculated based on completed years of service, payable over time (not “an account you own today”). And here’s the detail Troy residents need to understand:
Clawson increased its monthly pension multiplier (2024)
Clawson amended its ordinance so that for retirement dates on or after July 1, 2024, the monthly benefit is $85.00 per month × years of service. That is not “the IRS banned it.” That is a city making a decision to retain and reward firefighters.
Clawson didn’t pretend it was impossible. They didn’t say “we can’t.” They acted.
Clawson also publishes a plan summary annual report describing plan funding and administration like a real retirement plan, again, not a “we had no choice” narrative.
6) So Why Does Troy Say “Tax” Like It’s a Death Sentence, but Clawson Doesn’t?
Because Troy and Clawson are talking about different tax timing caused by different plan structures. Troy’s plan ran into federal rules tied to volunteer LOSAP-style exceptions and the $3,000 annual accrual limit under IRC §457(e)(11).
Once you’re outside that exception, you must either:
- redesign the plan so it qualifies for a lawful, workable structure, or
- accept that the tax treatment changes and manage it accordingly
Troy chose a third path: end it, then tell the public it was “forced.”
Clawson’s approach
Clawson uses an ordinance-based retirement plan structure: a defined monthly benefit payable at retirement (https://library.municode.com/mi/clawson/codes/code_of_ordinances?nodeId=PTIICOOR_CH2AD_ARTVIIBOCOAU_DIV2LOOFCOCO_S2-334IMRECHPR). That does not magically eliminate taxes. It avoids the panic narrative Troy uses by structuring the benefit as a true retirement payment rather than an “accruing account benefit” that triggers tax early.
7) The Real Victims: Residents and Public Safety
This isn’t just about firefighters. It affects every resident because volunteer departments are fragile systems:
- When you gut retention incentives, you lose experienced responders.
- When you lose experienced responders, response capacity drops.
- When response capacity drops, insurance ratings, mutual aid reliance, and outcomes change.
- And when staffing collapses, the only “solution” City Hall will pretend exists is: “We must go full-time.”
That’s the trap.
And Troy residents should be furious, because full-time conversion is massively expensive and, for many cities, politically impossible without tax increases. Troy had a working model: reward volunteers for staying. Then Troy broke it and tried to sell everyone a story.
8) What Troy City Council Should Be Forced to Answer, Publicly
If City Hall insists “the IRS made us do it,” then City Hall should be forced to answer these questions in plain English:
- Where does the IRS say volunteer firefighter retirement incentives are illegal?
- Where does the IRS say the plan must be terminated instead of redesigned?
- Why does Clawson have an ordinance-based retirement benefit, and even increased it in 2024, if this is “impossible” (Source: https://library.municode.com/mi/clawson/codes/code_of_ordinances?nodeId=PTIICOOR_CH2AD_ARTVIIBOCOAU_DIV2LOOFCOCO_S2-334IMRECHPR)?
Municode Library - Why did Troy choose elimination and payout chaos instead of a structured replacement that keeps firefighters whole and keeps the volunteer system stable (https://troymi.gov/news_detail_T19_R101.php)?
These are not gotcha questions. These are governance questions.
9) Conclusion: This Was a Choice, Not a Mandate
Troy’s story is designed to shut down debate: “The IRS made us.”
But the documents tell a different story: The IRS issue was about limits and tax treatment (especially the $3,000 accrual limit), not “volunteer retirement incentives are prohibited.” LINK
Troy describes VFIP as an incentive plan/trust structure that ran into compliance/tax problems, and then Troy chose elimination. Source: https://troymi.gov/news_detail_T19_R101.php
Clawson openly operates an ordinance-based retirement benefit formula and even increased the monthly multiplier in 2024 (source: https://library.municode.com/mi/clawson/codes/code_of_ordinances?nodeId=PTIICOOR_CH2AD_ARTVIIBOCOAU_DIV2LOOFCOCO_S2-334IMRECHPR) That’s why Troy residents should not accept the “helpless victim” narrative.
City Hall wasn’t helpless.
City Hall made a choice.
And firefighters, and the public, are paying for it.