The FRS Investment Plan is a defined contribution plan, in which employer contributions are defined by law, but your ultimate benefit depends in part on the performance of your investment funds.
The FRS Investment Plan is funded by employer contributions that are based on your salary and your FRS membership class (Regular Class, Special Risk Class, etc.). The Investment Plan directs contributions to individual member accounts, and you allocate your contributions and account balance among various investment funds. (Participant contributions are not allowed.)
Your Investment Plan retirement benefit is the value of your account at termination. Unlike the Pension Plan, there is no fixed benefit level at retirement.
The Investment Plan has been offered to FRS employees since 2002 and is similar to other defined contribution plans that have been offered to select groups of FRS employees for about 20 years. It is primarily designed to serve shorter-service and mobile employees. Other employees that might find the Investment Plan appealing are older employees that don't expect to work at least 6 years or employees that want greater control over their retirement plan.
In the Investment Plan, benefits are earned more or less evenly over your career (subject to fluctuations in the financial markets and your investment strategy). This is different from the Pension Plan, in which you accumulate benefits slowly at first and then at a faster rate the longer you stay.
So, if you don't stay with FRS employers for most of your career or for the final years of your career, you're more likely to receive a greater benefit under the Investment Plan.
You will be vested (that is, you will own the assets in your Investment Plan account) when you complete one year of service in the FRS Investment Plan. If you transfer from the FRS Pension Plan to the FRS Investment Plan, you will be able to count your Pension Plan service toward the one-year vesting requirement.
(If you transfer the present value of your FRS Pension Plan benefit to your FRS Investment Plan account, you need to complete six years of service before you "own" this money. Service in the FRS Investment Plan will count toward the six-year FRS Pension Plan vesting requirement for the transferred value of your FRS Pension Plan benefit.)
Under the Investment Plan, your retirement benefit is based on your account balance at termination of employment, which consists of any cumulative employer contributions, dividends and interest, and investment gains or losses, less expenses. The amount of your benefit payments is affected by the retirement income option you choose.
Basic Elements of the Deferred Retirement Option Program
The Deferred Retirement Option Program (DROP) is a program that allows you to retire without terminating your employment for up to 5 years while your retirement benefits accumulate and earn interest compounded monthly at an effective annual rate of 6.5%. (1.3% for newly enrolled members after July 1, 2011) This program is available to eligible members of the Florida Retirement System who are in the FRS Pension Plan; it is also available to eligible members of the Teachers' Retirement System (TRS) and the State and County Officers and Employees' Retirement System (SCOERS) — defined benefit plans that were closed to new members when the FRS was created in December 1970.
Your participation in DROP does not change your conditions of employment. When your DROP period ends, you must terminate employment (special provisions apply to elected officers). At that time, you will receive your accumulated DROP benefits and begin receiving your monthly retirement benefit (as calculated when you retired and entered DROP, plus any applicable cost-of-living increases).
As an eligible member of the FRS Pension Plan, TRS, or SCOERS, you may participate in DROP when you are vested and have reached your normal retirement date. Your “normal retirement date” is the earliest date at which you become eligible for full, unreduced benefits based upon your age and/or service. In most cases, you reach your normal retirement date when you are vested and reach age 62, or when you complete 30 years of service, regardless of your age (age 55 or 25 years of service for special risk members).
If you enter DROP when you first become eligible, you may participate in DROP for a maximum of 60 months.
DROP accounts earn interest compounded monthly at an effective annual rate of 6.5% (1.3% for newly enrolled members after July 1, 2011) Your retirement benefits paid into DROP are also increased by the 3% annual cost-of-living adjustment (COLA) each July 1. (If you are in DROP for less than a full year on July 1, your first COLA will be a prorated percentage based upon the number of months you were in DROP before July 1.) When you terminate employment, the proceeds of your DROP account will be distributed to you in one of three ways:
· By a lump sum payment; · By a direct rollover; or · By a combined partial lump sum payment and rollover