Peck Bulgin Wealth Management

Florida Retirement System (FRS) Participants

Individuals who retire from the Florida Retirement System, including DROP participants, have a unique set of steps that need to be carefully followed when transitioning from their working years into a comfortable retirement.

Retiring from the Florida Retirement System(FRS)

FRS Pension and Investment Plan Retirement Checklist

1) Meet with a financial advisor at Peck Bulgin Wealth Management to discuss your financial plan and retirement spending estimates by calling 1-904-348-5464 or 1-800-363-9652, ext. 5402, or by emailing peckbulgin@raymondjames.com

2) Obtain an estimate of what your FRS Investment Plan account value and Pension Plan monthly benefits will be on your planned retirement date

  • Get the estimate online at www.myfrs.com or by calling My FRS at 1-866-446-9377, option 2

3) Schedule a meeting with your Human Resources department to cover the following items:

  • Ensure your health insurance coverage will continue without lapse
  • Options regarding sick and vacation payouts for accumulated days
  • Discuss possible re-employment provisions and restrictions
  • There is typically a one-year waiting period before working for any FRS-participating employer without having to suspend benefits

4) If you have workplace savings plans (e.g., 403(b), 457(b), etc.), talk to your financial planner and discuss your distribution options

5) Select payout method of retirement benefits (see comparison below)*

6a) If lump sum method is chosen:

  • Complete the one time 2nd-Election Enrollment Form
  • Change from FRS Pension Plan to FRS Investment Plan
  • Contact your financial planner to establish a Rollover IRA to ensure a tax-free transfer of funds
  • Submit Letter of Resignation
  • Complete Retiree Package when it arrives via mail (approximately 30 days after distribution)
  • Health Insurance Subsidy Certification (Form HIS-1)

6b) If monthly pension method is chosen:

  • Complete Application for Service Retirement form (at least 60 days prior to termination)
  • Submit Letter of Resignation
  • Complete Retiree Package when it arrives via mail (approximately 30 days after first pension check)
  • Direct Deposit Authorization (Form DFS-A1-26R)
  • Health Insurance Subsidy Certification (Form HIS-1)
  • Withholding Certificate for Pension Payments (W-4P)

*What type of payout method should I select?
This seems to be the million-dollar question for most FRS retirees. If presented with the retirement option of getting a pension check for the rest of your life or a lump sum payout, what’s the better deal? First off, there should be a distinction made immediately between these different types of distributions. We often hear folks talk about taking the lump sum who are, in fact, actually talking about the direct rollover. We will explain each of these distribution methods along with a few details of each:

Monthly Pension Annuity

This option to receive benefits is simply opting to receive a monthly income check for the rest of your life. There are typically four options to choose from when selecting the pension plan.

Option No. 1 is a single lifetime payment and upon your death the payments will stop. This option will provide you with the largest benefit of the four and does not provide a continuing benefit to your beneficiary. If you are married and you select Option No. 1, your spouse must be notified and acknowledge your selection.

Option No. 2 is a monthly benefit that is less than Option No. 1 and the benefit is payable to you for life. In the event you die within 10 years after your retirement date, the same monthly benefit will be paid to your designated beneficiary for the remainder of the 10-year period. No further benefits are then payable.

Option No. 3 is a reduced monthly benefit payable for life. Upon your death, your joint annuitant (spouse or financial dependent), if living, will receive a lifetime monthly benefit payment in the same amount you were receiving.

Option No. 4 is an adjusted monthly benefit payable to you while both you and your joint annuitant (spouse or financial dependent) are living. Upon the death of either you or your joint annuitant, the monthly benefit payable to the survivor is reduced to two-thirds of the monthly benefit received while both are living. No further benefits are payable after both you and your joint annuitant are deceased.

The monthly pension has many advantages and disadvantages and should be heavily analyzed before deciding.

Once this option is selected it cannot be changed. One of the most important issues surrounding the option to take a monthly pension is the fact of unexpected expenses. Hopefully these come at a minimum during your retirement; however, if they do, you won’t have the luxury of accessing any part of your retirement benefit outside of what is distributed to you on a monthly basis.

Monthly pension payments are adjusted annually for cost of living increases. This can be a very helpful benefit so your annual income attempts to keep up with inflation over time. The downside to this is the fact that many have annual caps that limit the amount of your increase. This cap is very important to the overall decision as this severely diminishes the benefit of the monthly pension in years when we have high inflation. For instance, in 1981 when the U.S. had inflation of 14% and a grocery bill that increased from $100 to $114 that would have only yielded a maximum increase in the monthly pension benefit up to the cap (typically 1.50 – 3.00%).

Direct Rollover

Choosing to roll over pension benefits into a traditional IRA or other qualified retirement plan has started to become more popular than ever before. Actually being in charge of your own retirement has truly become more the rule rather than the exception. There are many things to weigh when looking at the direct rollover option, but here are a few things to consider.

Unexpected expenses are things no one wants to think about but will ultimately always be there. By selecting the direct rollover, you are providing yourself the option to be able to access all or part of your pension as needed.

If no income is needed - Some folks retire and have no need for current distributions from their FRS retirement. If this is the case, there is little need to choose the monthly pension as you will be taxed on each distribution whether you “need” it or not. If this is rolled into an IRA or other qualified retirement account, you will only be taxed when distributions are requested from this account. This is a way to moderate when and how much you will be distributed and taxed accordingly.

Keeping up with inflation - A direct rollover will allow you to invest your assets as you see fit. Exposure to stocks, bonds, mutual funds, CDs, money markets, etc., can potentially help you keep up with or exceed inflation.

Leaving money to heirs (Stretch IRA) - One of the most important benefits of rolling over your pension benefits to an IRA or qualified retirement plan will allow you to pass this tax-deferred asset on to your spouse and then future generations as well.

Poor discipline and spending problems - The biggest downside to the direct rollover is the simple fact that some people need structure when it comes to their retirement spending. The allure of the monthly pension is that you don’t have to worry about overspending the money in your pension plan. Since these distributions are doled out to you on a monthly basis, there is no way to spend your way through these funds and leave yourself broke. However, by choosing to roll your pension over into an IRA, there is the possibility that with careless spending you could find yourself in a financial bind.

Lump Sum - Cash Out

This is the option that is selected when an individual simply wants to forgo the monthly pension and “cash out.” Taking the lump sum, you will be receiving your full benefit as a distribution and will be responsible for taxes on the FULL amount that is paid to you. This option needs to be carefully considered as it can come with sizable and unintended tax consequences. There is a mandatory 20% that will be withheld from your lump sum distribution, and you may be responsible for an additional 10% tax penalty if you are under the age of 59½.

At the end of the day, this decision is a tricky, yet very important one. Please let us know if you have any questions regarding all sides of this debate as everyone’s case is different. It is essential to consult with a financial professional before making your final decision.

Deferred Retirement Option Program (DROP)

This program 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 interest while you continue to work for an FRS employer. Upon termination, 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 entry into DROP, plus any applicable cost-of-living adjustments for intervening years.

Exiting DROP Checklist

1) Meet with a financial advisor at Peck Bulgin Wealth Management to discuss your financial plan and retirement spending estimates by calling 1-904-348-5464 or 1-800-363-9652, ext. 5402, or by emailing peckbulgin@raymondjames.com

2) Schedule a meeting with your Human Resources department to cover the following items:

  • Ensure your health insurance coverage will continue without lapse
  • Discuss possible re-employment provisions and restrictions
  • There is typically a one-year waiting period before working for any FRS-participating employer without having to suspend benefits

3) If you have workplace savings plans (e.g., 403(b), 457(b), etc.), talk to your financial planner and discuss your distribution options

4) Complete Termination Notification (Form DP-TERM)

5) Select payout method of retirement benefits (Form DP-PAYT)

  • If you choose direct rollover or partial rollover, you will need to speak with your financial planner to ensure the proper account is established to receive the rollover distribution

6) Complete retiree package delivered approximately 30 days after termination

  • Withholding Certificate for Pension Payments (Form W-4P)
  • Health Insurance Subsidy Certification (Form HIS-1)

7) Direct Deposit Authorization (Form EFT)

  • This form will arrive after submission of the Termination and Payout Method forms

Peck Bulgin Wealth Management and Raymond James are not endorsed, affiliated with or a subsidiary of the Florida Retirement System

The above information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The above information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James & Associates we are not qualified to render advice on tax or legal matters.