"401-A, 401-K, 403-B, 457…." This is the jargon of financial planners as they talk about securing your retirement. The critical question is what does all of this mean to you as a member of the Florida Retirement System (FRS)? Most regular members of the FRS have previously had only one retirement plan - the FRS. It is a "defined benefit" plan, which means that you can predict what your retirement check will be, based on your years of service and average salary for your highest five years.
The Legislature authorized a new optional retirement program called a "defined contribution" plan, known as the Public Employee Optional Retirement Program (PEORP). What is a defined contribution (DC) plan? First and most important, it is optional! In other words, you may elect to stay in the defined benefit (DB) program, or go into the new DC program. It is also self-directed. In other words, a retirement account will be established for each member of the FRS who selects this option, and an employer contribution (9% of pay for regular class members, for example) will be directed to that individual account. You will then have the responsibility of selecting how this money is invested within the approved set of investment choices, and the ability to take it with you when you leave the FRS. Vesting for the DC option is defined as one year of service. For the DB option, vesting has been lowered from ten to six years of service.
The DB plan, or the traditional FRS retirement system, still remains in place and, for many employees, could well be the best choice. If you select the DC option, that present value amount could be transferred into your account so you can self-direct the investments.
The DC investment program has an appropriate and carefully selected number of investment choices so you can diversify your assets. When you are ready to retire or otherwise separate from government service, these assets, as impacted by investment gains and losses, can be withdrawn and utilized as you like. You must recognize, however, that while the money in your DC account accumulates on a tax-deferred basis, if you withdraw it instead of rolling it over to a retirement account, you must pay the full federal tax due.
