How Does The FRS Pension Plan Work?

The FRS Pension Plan is a defined benefit plan that uses your income, years of service, and a 1.6% 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 1.6% 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 $50,000, and work for the FRS for 30 years. Your retirement benefit could be calculated like this: 30 Years x 1.6% = 48% of $50,000 average income = $24,000 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 2023 actuarial report of $184.2 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 2023 is up to $226.2 billion, leaving a $42 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/2023_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 $2,000 per month, then your pension will lock in at this point, and as you continue working next month, the $2,000 you would normally receive as a pension will instead be added to your DROP lump sum. At the end of the year, that $2,000 for each of the 12 calendar months of the year would accumulate to $24,000. Additionally, your DROP funds would earn 4% interest, and your total in DROP at that point would be $24,960

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 even realize that in some scenarios the investment plan can actually pay and sustain a higher monthly income in retirement, while providing increased liquidity, flexibility, and beneficiary options over the pension plan. It isn't for everyone, but everyone should know what they are entitled to.

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.

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 $30,000 pension ($2,500 per month) at the beginning of their retirement in 2024 would now have just over a $44,000 pension (over $3,600 per month). This helps the member combat inflation and the rising cost-of-living around the country. Let's compare this to actual inflation data. Average inflation in the US since 1960 has gone up by an average of 3.8% per year. This means that in the same timeline we used for 2011 to 2024, what felt like $30,000 in 2011, would actually cost over $48,000 in 2024. So even with the old 3% COLA from the FRS, inflation could still be a problem, as it exceeds our retired member's pension by over $4,000. 

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%.

So if we use the same example of a $30,000 pension, earning 1.5% COLA, in the same 13 year timeline. The member's pension would be just over $36,000 per year, meanwhile if inflation stays at 3.8% like it has for the past 60+ years, the "feels like" cost of living would grow from $30,000 to over $48,000. The inflation difference of over $1,000 per month.

**The examples in this article are hypothetical and for illustrative purposes only. They assume a steady 1.5% 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. 

https://www.worlddata.info/america/usa/inflation-rates.php#google_vignette

Source: MyFRS.com