Do you have enough money for retirement? Do you know how much you’ll need for retirement? If your answer is “no” or “I don’t know”, it’s time to change that. Whether you have a personally-funded retirement account such as an IRA, employer-sponsored 401(k) or 403(b), or employer-sponsored pension plan, you need to understand how it works, how the money grows, and how much you’ll have when it’s time for retirement.
State employees in Florida are part of the Florida Retirement System (FRS) Pension Plan which guarantees you benefits at retirement if you meet certain criteria. If you’re employed by the state of Florida or are considering a state job in Florida, read on to learn more about the FRS Pension Plan.
What Is the FRS Pension Plan?
The Florida Retirement System Pension Plan is for state employees. Upon retirement, you receive a guaranteed benefit if you meet the program’s criteria. The amount of your benefit is calculated using your earnings, length of service with the state, membership class, any cost of living increases that happen each July.
The cost of living adjustment (COLA) is only for employees enrolled in the pension plan on or after July 1, 2011. If you were enrolled prior to this date, you do not get a cost of living adjustment after you retire.
The funds available in the plan are contributed by your employer (and you also contribute a percentage of your salary). The funds are invested and are impacted by market conditions and investment choices.
New hires are eligible for the FRS Pension Plan. When you start working, you have to choose between two plans: the investment plan or the pension plan. When you choose the pension plan, you begin contributing to it. Your employer also contributes to it, and when it is time to retire, you get a guaranteed monthly benefit.
The state manages the fund and you do not have individual control over how they invest it. Once you have been working for a certain number of years, you are fully vested and you are guaranteed a benefit when you reach retirement age. The vesting period is 6 years if you were hired before 7/1/2011 and 8 years if you were hired on or after 7/1/2011.
Retirement age depends on your employee class and when you were hired. If you were hired before 7/1/2011, your regular retirement age is 62 or after 30 years of service. If you were hired on or after 7/1/2011, your regular retirement age is 65 or after 33 years of service.
If you are a special risk employee hired before 7/1/2011, your retirement age is 55 or after 25 years of service. If you were hired on or after 7/1/2011, your retirement age is 60 or after 30 years of service.
Special risk employees include:
- Law enforcement officers
- Corrections officers
- Probation officers
- Paramedics or EMTs
- Certain healthcare workers employed by the Department of Corrections and the Department of Children and Family Services
- Certain forensic employees employed by the Florida Department of Law Enforcement, Division of State Fire Marshall, local law enforcement agencies, or the Medical Examiner’s office
- Special risk class employee who suffered a line-of-duty injury and returned to work in a non-special risk class position
Amount of Benefit
You are required to contribute 3% of your salary to your FRS pension plan. You cannot contribute more or less than this. Your employer also contributes a percentage of your salary. The percentage depends on the employment class that you are in.
When it’s time to retire, the amount that you get is calculated based on your age, how long you worked in an FRS position, your average final compensation, and your employment class. There are different Florida retirement system calculators to help you determine what your benefit might be.
The average final compensation (AFC) is the average of the five highest years of salary earning during your relevant employment if you were hired before 7/1/2011. If you were hired on or after 7/1/2011, your highest 8 years of salary are averaged to determine your AFC.
There are different options for receiving your retirement benefit. You can choose option 1, which gives you a monthly benefit for your lifetime but does not continue for a beneficiary after your death. Option 2 gives you a reduced monthly benefit and a guarantee that your beneficiary will receive continuing benefits for 10 years from the date you retire.
Option 3 gives you and your joint annuitant the same amount for as long as you or they are living and option 4 gives a monthly adjusted benefit to your and your joint annuitant, which is reduced if either one of you dies.
If you die before you retire, your vested benefits are paid to your named beneficiary. If there is none, they will be paid in accordance with Florida law to whoever is eligible to receive proceeds from your estate.
What If I Change Employers?
If you leave your FRS employer before you are vested, you are only entitled to a refund of contributions that you made into the pension plan. If you leave your employer after you are vested, you will receive those funds as a monthly benefit when you retire.
Understanding the FRS Pension Plan
Now that you have your FRS questions answered, you can make an informed decision on whether the FRS Pension Plan is the best option for you. If you are unsure, a professional financial planner can help you to make sense of your options as well as consider your other financial obligations to determine what’s best for your situation.
If you are in need of financial planning, contact us at Freedom Insurance Financial today to learn more about how we can help you.