Take your pension now or stay in the fund?

In light of the current economic and political environment, you may be concerned that your pension is going to be reduced. You may be wondering if you should take the pension that is available now or stay and subject yourself to whatever reductions may come in the future.

In our view, you have three options:

  • Stay with the pension plan
  • Go with the Deferred Retirement Option Program (DROP)
  • Roll your money into a self-directed IRA

The Deferred Retirement Option Program (DROP)
DROP provides you with an alternative method for payment of your retirement benefits for a specified and limited period if you are an eligible Florida Retirement System (FRS) Pension Plan member.

Under this program, you stop earning service credit toward a future benefit, have your retirement benefit calculated at the time your DROP period begins and your monthly retirement benefits accumulate in the FRS Trust Fund earning monthly interest equivalent to an annual rate of 6.5% while you continue to work for an FRS employer.

When you stop working, your DROP account is paid to you as a lump sum payment, a rollover or a combination partial lump sum payment and rollover. Monthly benefits are paid to you in the amount as calculated upon your entry into DROP, plus cost-of-living adjustments for intervening years.

The information provided is based on our interpretation and may be subject to change. Refer to Chapter 121, Florida Statutes, Chapter 60S, Florida Administrative Code, and the Internal Revenue Code for details.

Roll your money into a self-directed IRA (SDIRA)
An SDIRA is a retirement account in which the individual investor is in charge of making all investment decisions. IRS regulations require a qualified trustee or custodian to hold the IRA assets on behalf of the owner.

The trustee or custodian will maintain the assets, all transactions and pertinent records, file the required IRS reports, issue client statements, help clients understand rules and regulations pertaining to prohibited transactions, and perform other administrative duties.

The custodian usually offers a selection of standard asset types the account owner can choose to invest in, such as stocks, bonds and mutual funds. Most custodians will also permit the account owner to make other types of investments. The range of permissible investments is wide, but the IRS does place limits on the types of assets and transactions.

In addition to being able to have active control of your retirement investments, other benefits include the ability to access your money, the opportunity to work with a financial advisor and the option to leave a legacy to your heirs.