FRS Pension Plan for Special Risk Class

The FRS Pension Plan is a defined benefit plan that uses your income, years of service, and a 3% multiplayer to determine a monthly benefit in retirement. Plan differences will vary slightly based on hire date, but the basics computation of the plan is as follows:

*Years of Service x 3% of Average annual compensation for highest 5 years of salary during tenure = Annual benefit amount.

**For example, Imagine you were to earn an average highest five years of compensation of $80,000, and work for the FRS for 25 years. Your retirement benefit could be calculated like this: 25 Years x 3% = 75% of $80,000 average income = $60,000 annual retirement benefit.

It is also important to note that years worked prior to 2011 will also include an annual cost of living adjustment towards your annual benefit in retirement.

*For members hired after July 1st 2011, your average final compensation will be based on your highest 8 years of compensation.

**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

How Is The FRS Able To Pay Me For Life?

The FRS Pension Plan Fund is managed by the SBA (State Board of Administration) with total plan assets being as of the July 1st 2024 actuarial report of $191.5 billion. This balance comes from member and employer contributions, as well as growth from how the funds are invested. The total liabilities of the plan as of July 1st 2024 is up to $237.3 billion, leaving a $45.8 billion dollar shortage in the pension fund. This is a result of contributions from active employees and employers with growth being less than total cumulative payments to retired members collecting pensions.

Source: https://frs.fl.gov/forms/2024_Valuation.pdf

What Is DROP?

Another benefit of the pension plan is DROP (Deferred Retirement Option Program). DROP is a continuation of service for up to 8 (Updated July 2023) years after a member enters the program. When entering DROP, the member's pension credits are stopped and calculated, and the monthly benefit is started. Instead of paying this benefit to the member directly, the funds are placed into the FRS trust fund where they accumulate tax deferred until the member retires from the DROP program where they are then paid to the member or can be rolled over.

**For example, let's say you were to enter DROP today. If your pension today if you were to retire were $5,000 per month, then your pension will lock in at this point, and as you continue working next month, the $5,000 you would normally receive as a pension will instead be added to your DROP lump sum. At the end of the year, that $5,000 for each of the 12 calendar months of the year would accumulate to $60,000. Additionally, your DROP funds would earn 4% interest, and your total in DROP at that point would be $62,400

The examples in this article are hypothetical and for illustrative purposes only. They assume a steady 4% annual rate of return, which does not represent the return on any actual investment and cannot be guaranteed. Moreover, the examples do not take into account fees and taxes, which would have lowered the final results.

Additionally, when you join DROP, you no longer contribute 3% to the FRS pension plan while you continue to work for your FRS employer.

Are You Considering DROP? If so, click below to learn more about request a copy of our Pre-DROP Report

Are You Already In DROP? Click below to learn more about how to leave DROP, and your options when you retire.

Have You Ever Compared the FRS Pension Plan to the Investment Plan? 

Ever heard the expression "Don't knock it until you've tried it?" We aren't saying you should try the Investment Plan, but we are saying you should understand it before you rule it out as "too risky" or not a good option. Many FRS members don't realize that in some scenarios based on investment strategies and performance, it is possible for the investment plan to pay a sustainable monthly income like the pension plan while providing increased liquidity, flexibility, and beneficiary options. It isn't for everyone, but everyone should know what they are entitled to. This can come with market risk and the need to create a budgeting strategy, but is an option nonetheless that may be worth a look before ruling out entirely.

Click below to learn more about comparing both plans and you might find they are more similar than you think!

Learn More About Comparing the Plans

What About My Beneficiaries?

There are up to 4 pension plan beneficiary options. Here is a summary of them below.

Option 1- The benefit covers ONLY the member and for life.

Option 2 - For a small reduction to the member's monthly benefit the member can cover an additional beneficiary for up to 10 years into retirement. The member still receives benefit for life. Only the beneficiary is restricted to the first 10 years of the members retirement.

Option 3 - This joint benefit comes at a larger reduction, but covers the member and there joint beneficiary for life for a spouse.

An additional consideration for members considering option 3 is to "self insure". If the cost of purchasing sufficient life insurance is less than the reduction in benefits of choosing pension option 3 over option 1, it is possible that self insuring with life insurance could potentially be cheaper and more flexible

Option 4 - This option is similar to option 3, but instead of the larger reduction at the beginning of the member's retirement, the reduction is smaller, but then is decreased by 1/3 once either the member OR their surviving spouse passes away.

To learn more about your beneficiary options you can click the link below to download a free copy of our Pension Plan beneficiary report.

What About The Cost-Of-Living-Adjustment (COLA)?

In 2011, the FRS made many changes to the pension plan, and one of them was freezing the COLA benefit. Prior to the freeze, FRS members received an annual raise of 3% on their pension each year in retirement that compounded. This was an important part of the pension plan's benefit as it helped retired member's pension's keep pace with inflation. For example. An FRS member who retired in 2011 with a $60,000 pension ($5,000 per month) at the beginning of their retirement in 2025 would now have just over a $90,000 pension (over $7,500 per month). This helps the member combat inflation and the rising cost-of-living around the country. This is an especially important topic for Special Risk FRS members as they typically retire younger than the average American. This means their pension is subject to more years of inflation risk

Today, FRS members who worked prior to 2011 still have a COLA, it is just much less than 3%. The new formula or the cola is: Years of service earned prior to July 2011 divided by total years of service at the time of retirement or DROP, multiplied by 3%. So, for example, if you were hired in 1996, and are planning to retire in 2026, you will have 15YOS prior to 2011 divided by 30YOS total which equals 0.5. We then multiply this by 3% to equal a cola of 1.5%.

We often hear special risk members discuss how their unions plan to fight to bring back the COLA, and for 3 years in a row we have seen legislation put in front of legislatures to reinstate the COLA or a new version of the COLA in the 23,24, and 25 legislative sessions, but in every year the bill has failed. One of the main reasons is cost. With the pension plan's liabilities growing, the added cost of reinstating the COLA is a costly change.

Source: MyFRS.com

Special Benefits for Special Risk Class

There are a few special perks to being in the special risk class and becoming a qualified public safety officer such as listed below:

• The $3,000 annual tax free withdrawal for health insurance
  
  
• The ability to retire under age 50 without early withdrawal tax penalties

There are many intricacies that should be considered for retirement planning for special risk members because of the tendency to retire younger than most Americans. Planning for increased health care costs, prolonged retirement, and special beneficiary concerns are just a few of the many. We have been working with Special Risk members for almost 2 decades and are happy to help address your specialized questions an opportunities available to qualified public safety officers.