The bill amends the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act (ERISA) to prevent a governmental pension plan from losing its ‘governmental plan’ status solely because it allows participation by employees of certain public safety agencies. Those employees are defined by reference to the Homeland Security Act of 2022 as emergency response providers whose work is principally firefighting or out-of-hospital emergency medical services performed for a political subdivision under contract.
Practically, the change clears a legal obstacle that has discouraged local governments and nonprofit public safety agencies from using existing governmental pension arrangements for contracted emergency responders. By preserving tax-exempt and ERISA-exempt treatment in these situations, the bill creates a pathway for parity in retirement benefits between municipal employees and contracted first responders, while raising new implementation and actuarial questions for plan sponsors and oversight agencies.
At a Glance
What It Does
The bill inserts a new sentence into IRC section 414(d) and ERISA section 3(32) saying a plan does not cease to be a governmental plan merely because it allows participation by employees of a public safety agency that are emergency response providers performing firefighting or out-of-hospital EMS under a contract with a political subdivision. It adds conforming changes to several ERISA and IRC cross-references.
Who It Affects
Local governments that contract fire or EMS to tax-exempt public safety agencies, the nonprofit or quasi-governmental agencies providing those services, the firefighters/EMTs/paramedics they employ, and plan sponsors and administrators who manage governmental pensions.
Why It Matters
Removing this barrier lets more contracted first responders access governmental pension plans without triggering private-plan tax or ERISA status, potentially increasing retirement coverage and shifting actuarial and administrative responsibilities onto governmental plans and sponsoring entities.
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What This Bill Actually Does
The bill targets a narrow but practically important qualification rule: when a pension plan is ‘‘governmental’’ for tax and ERISA purposes. Currently, plans that cover employees of non-government entities or certain contractor arrangements risk losing governmental-plan status, which changes tax treatment and ERISA coverage.
This bill says: don’t strip that status if the only nontraditional participants are employees of a public safety agency — as defined by the IRC reference to 501(c) tax-exempt organizations — and only to the extent those employees are emergency response providers whose work is principally firefighting or out-of-hospital EMS under a contract with a political subdivision.
Operationally, the statute references the Homeland Security Act of 2022’s definition of ‘‘emergency response providers’’ rather than creating a new occupational test. That locks eligibility to the federal definition but confines the rule to employees whose services are ‘‘substantially all’’ firefighting or out-of-hospital EMS performed under a contract.
The effect is limited participation: entire agencies do not automatically qualify; only the worker categories that meet the defined duties and contractual relationship do.The bill also threads this change through ERISA and the Internal Revenue Code with conforming edits to cross-references that affect benefit limits, PBGC treatment, and other technical provisions. Those edits mean governmental plan sponsors can accept these participants without triggering disqualification under IRC 414(d) or ERISA 3(32), but administrative steps remain.
Plan sponsors will need to document the contractual relationship, verify that employees meet the ‘‘substantially all’’ services test, and reconcile the agency’s tax-exempt status with plan eligibility rules.Because the change applies to plan years beginning after enactment, sponsors have a short runway to amend plan documents, notify actuaries, and update reporting systems. The statute leaves substantive pension design unchanged — it does not mandate contribution levels, vesting, or portability — but it changes which workers may be eligible to participate in governmental arrangements and therefore which obligations and liabilities fall on governmental plans.
The Five Things You Need to Know
The bill amends IRC section 414(d) and ERISA section 3(32) to preserve ‘‘governmental plan’’ status when a plan allows participation by certain public safety agency employees.
Eligibility is limited to employees who are ‘‘emergency response providers’’ as defined in the Homeland Security Act of 2022 (6 U.S.C. 101) and who perform substantially all firefighting or out-of-hospital EMS under a contract with a political subdivision.
The statutory text ties the public safety agency to organizations described in section 501(c) of the IRC and exempt under section 501(a), targeting tax-exempt public safety entities (for example, many volunteer or nonprofit fire/EMS agencies).
Conforming amendments adjust ERISA section 4021(b)(2) and IRC section 415(b) cross-references, which affect PBGC, benefit limit, and full-time employee rules, so the change interacts with benefit-limit and PBGC-treatment mechanics.
The effective date covers plan years beginning after enactment, giving plan sponsors an implementation window but no retroactive coverage.
Section-by-Section Breakdown
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Short title
Establishes the act’s name as the "First Responders Retirement Parity Act." This is purely captioning but signals the bill’s policy focus on parity for first responders between contracted-service employees and municipal employees.
Permits certain public safety agency employees to participate without disqualifying governmental-plan status
The new sentence inserted into IRC 414(d) prevents a plan from losing its governmental-plan characterization solely because it permits participation by employees of a public safety agency (as described in IRC 501(c) and exempt under 501(a)) when those employees are emergency response providers and perform substantially all of their services as firefighting or out-of-hospital EMS for a political subdivision under contract. Practically, plan sponsors should expect to document the agency’s tax-exempt status, the existence and terms of the contract with the political subdivision, and job duties showing the ‘‘substantially all’’ threshold is met.
Mirrors the IRC change for ERISA plan classification
By adding the same protective sentence to ERISA’s definition of ‘‘governmental plan,’’ the bill ensures that ERISA’s coverage and preemption analysis aligns with the tax-code change. That means ERISA’s exemptions and PBGC rules that hinge on a plan’s governmental status will treat these participant groups as part of governmental plans rather than as private-plan participants, with consequences for enforcement, fiduciary rules, and PBGC exposure.
Adjusts cross-references affecting PBGC and benefit-limit mechanics
The bill amends ERISA section 4021(b)(2) and IRC sections 415(b)(2)(H)(ii)(I) and 415(b)(10)(A) to reference the newly eligible public safety agency employees. Those edits prevent benefit-limit tests and PBGC-related language from treating these participants as non-governmental employees. Administrators should review actuarial assumptions, benefit-limit calculations, and any PBGC reporting to ensure correct treatment under the adjusted cross-references.
Applies to plan years beginning after enactment
The rule applies prospectively to plan years starting after the statute is enacted. That creates a discrete implementation window in which plan documents, participant communications, actuarial valuations, and vendor systems may need updating. The prospective scope avoids retroactive qualification issues but requires administrative coordination ahead of the next plan year.
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Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Contracted firefighters, EMTs, and paramedics employed by 501(c) public safety agencies — they can gain access to governmental pension plans that often have broader coverage and more secure benefits than some private plans.
- Local governments and political subdivisions — they can contract with tax-exempt public safety agencies without creating a retirement-plan classification problem that would force separate private plans or tax consequences.
- Tax-exempt public safety agencies (e.g., nonprofit fire or EMS organizations) — the agencies can offer competitive retirement access to recruit and retain personnel when working under municipal contracts.
- Municipal plan sponsors and employees — broader participation may improve retirement coverage metrics and labor relations when contracted workers receive parity with municipal colleagues.
Who Bears the Cost
- Governmental plan sponsors and taxpayers — new participants can change plan demographics and liabilities, potentially increasing required contributions or accelerating costs for sponsoring entities and, ultimately, taxpayers.
- Plan administrators and actuaries — they must verify eligibility, revise plan documents, update contribution and benefit models, and handle additional compliance and reporting tasks.
- Small public safety providers — while eligible, smaller or loosely organized providers may face legal and administrative burdens to document exemption status, contracts, and job-duty proofs necessary to enroll employees.
- Federal oversight agencies (IRS, DOL, PBGC) — the agencies may see increased enforcement and interpretive questions about the ‘‘substantially all’’ test and the interplay between tax-exempt status and plan classification, requiring guidance and resources.
Key Issues
The Core Tension
The central dilemma is between extending retirement parity to contracted first responders — advancing recruitment and benefits equity — and protecting the legal/financial boundary that separates governmental pension obligations from private entities; granting access solves a coverage gap but shifts actuarial risk and administrative burden onto governmental plans without prescribing how those costs should be allocated.
The bill solves a narrow classification problem but leaves several implementation questions unresolved. The ‘‘substantially all’’ standard is fact-dependent and may generate disputes: plan sponsors, local governments, and agencies will need clear, contemporaneous documentation of job descriptions, time-in-duty records, and contract scope to support eligibility.
Relying on the Homeland Security Act definition of ‘‘emergency response providers’’ limits ambiguity on job categories but creates a dependency on that statutory definition and any administrative interpretation of it.
Another unresolved area is actuarial and fiscal allocation. Allowing contracted employees into governmental plans changes the participant pool without prescribing contributions, vesting, or benefit parity mechanics.
That may prompt negotiations over employer contribution rates, cost-sharing, or separate accounting for contracted staff. Finally, because the bill targets tax-exempt public safety agencies described in IRC 501(c), questions will arise where providers are quasi-governmental, municipally owned, or organized under different state modalities — those boundary cases will invite audits, litigation, or administrative guidance.
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