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New 2023 FRS Legislation

SB7024 is making big changes to FRS members retirement benefits starting July 1st of this year. The bill will be making changes to both DROP interest rates, investment plan contributions, and an increase in benefits for the Health Insurance Subsidy for members of both the FRS pension plan and investment plan. 

So what specifically has changed? 

For Pension Plan members: DROP interest rates will increase from the current 1.3% annual rate of return up to 4.0%. This is still quite shy of the pre 2011 6.5% rate of return, but is still an improvement. Additionally, there is now the option to extend DROP for an additional 3 years.

For Investment Plan members: The employer contribution rates for investment plan members are going up 2% across the board for all risk classes. That takes the employer contribution for regular risk class members up to 8.3% from the previous 6.3%, for a total contribution percent of 11.3% with member contributions, and 14% up to 16% for special risk class for a total of 19%. This is the 2nd increase to investment plan employer contributions in the last year since we saw HB5007 increase contributions by 3% last year as well.

For All members: The Health Insurance Subsidy (HIS) is also seeing an increase from $5.00 per month for each year of credited service for retirees to $7.50 per month. A 50% increase in benefits, for a maximum benefit of $225.00 per month for retirees.

How does this affect you? Consider this scenario. In this example we will take a newly hired regular risk class FRS member earning an average of $50,000 per year who works 35 years in the FRS before retiring on both the pension plan, and the investment plan*

*Pension Plan example: After 30 years of service, the member's pension would be 30 x 1.6% (Years of service x risk class multiplayer) x $50,000 (average of 5-8 years of highest compensation) = a monthly pension of $24,000 per year. Additionally the member would then work 5 years in DROP at a 4% annual rate of return for an additional $159,191.41. If the member were to invest the DROP funds in retirement earning an average annual rate of return of 6%, the members income would be $2,000 per month from their pension, as well as an additional $795.95 per month from DROP income, for a total monthly benefit of $2,795.95 per month, or $33,551.48 per year (this does not account for beneficiary choices which would reduce pension benefits and DROP amount.)

*Investment Plan example: After 35 years of service with the newly established contribution rates, the total contributions from the employee and employer would equal $197,750, but with the founds growing at the same hypothetical 6% annual average rate of return we used for DROP, the member's balance at retirement would be $628,492.16. Using the same 6% as income in retirement would translate to an annual income of $37,709.52 per year, or $3,142.46 per month. This would be transferable to beneficiaries of the member's choosing, while paying over 10% more in income in retirement for the FRS member.

You should take some time to evaluate how these new legislative changes impact your retirement plans, and if you aren't sure about your plans, or have questions, you can click the link below to schedule a complimentary call with one of our representative who will be happy to assist you.

 

*This hypothetical example is for illustrative purposes only, and its results are not representative of any specific investment or mix of investments. Actual results will vary.

https://www.flsenate.gov/Session/Bill/2023/7024/?Tab=Amendments