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The FRS Investment Plan is a defined contribution plan for plan members. The plan works by both member and employer contributions. You pay 3% of your total pre-tax annual compensation into the plan and your employer contributes 14%. From there the contributions are placed into your FRS Investment Plan account where you are responsible for choosing the investments you would like your contributions invested into. There are currently 19 default funds called the "core" funds, and there is also a Self-Directed Brokerage Account (SDBA) which has thousands more options to choose from. You can contact the FRS directly for guidance and advice on the 19 core funds, but unfortunately they are unable to provide that same assistance for the options available in the (SDBA). At retirement age, typically at age 55 or 60 depending on each individual, the member is then able to retire and draw income from the account, or roll the funds over into another qualified plan.
One of the most important factors of the FRS Investment Plan is the investment portfolio choice. To illustrate the importance of this, lets look at the below illustration.
Imagine your annual compensation is $75,000 annually, and you work in your position for 25 years. Your annual 3% contribution would be $2,250. Your employer's 14% contribution would be $10,500. The total annual contribution would be $12,750. Over 25 years, the total contribution amount from you and your employer would equal $318,750.
Now let's assume that over your 25 year career, your investment fund you have chosen earns an average 6% annually. At retirement, your total account value would be $699,193.34. That means $385,615.96 of your total account value, or the majority 55% of your total retirement benefit would come from interest growth, and not contribution. Knowing how and where your investment plan funds are invested can be a critical part of the income planning process. If you have questions about how your investment funds are allocated, schedule a 15 minute meeting with one of our financial professionals who can help you learn more about your specific goals and investments.
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