The Florida Retirement System (FRS) Investment Plan is a defined contribution plan designed to provide Florida’s public employees with a flexible and portable option for retirement savings. Unlike the FRS Pension Plan, the Investment Plan allows participants to manage their investments and accumulate retirement savings based on their contributions and the performance of their chosen investments.
Our Take
It’s important that you understand all of the implications of switching to the FRS Investment Plan vs. staying in the FRS Pension Plan and entering the DROP when eligible.
We find that when many are fully educated on the way that the two plans work, that their overall benefits are maximized when they remain in the FRS Pension Plan and enter the DROP for 5 to 8 years.
Contact us to run a comparison and get fully educated before making the change! Making this transition to FRS Investment and utilizing your 2nd election is irreversible and may cause a lifetime of unnecessary retirement stress and anxiety.
That said, there are a few times where it can make a lot of sense:
1. You have significant health impairments that may shorten life expectancy and you are unmarried and want to leave your accumulated benefits to family members or friends.
2. You achieve what you believe your highest 5 years early in your career and are young enough where you plan to work another 10-15 years which can give the conversion amount (which is likely already high) plenty of time to compound and grow.
3. You part of a double pension family and one person may elect to remain in the pension plan and one may convert to the investment for maximum protection and flexibility.
Key Features of the FRS Investment Plan
The FRS Investment Plan offers a flexible and customizable approach to retirement savings, giving you more freedom to shape your financial future (for the positive or for the negative). As a defined contribution plan, your retirement benefits depend on the contributions made and the performance of your chosen investments.
With access to a wide range of investment options, you can build a portfolio that matches your risk tolerance and financial goals. When retirement rolls around, the plan offers various distribution options to suit your needs.
Key Facts: The FRS Investment Plan
Defined Contributions
The FRS Investment Plan is a defined contribution plan, meaning the retirement benefits depend on the amount of money contributed to the plan and the performance of the investments. Employees and employers make contributions to the plan, and these contributions are invested in a variety of funds selected by the participant. The contribution amounts are set by the state and based on how much income you earn through your employer.
Investment Options
Participants in the FRS Investment Plan have access to a diverse range of investment options. It requires you to take a proactive role in monitoring and managing your retirement progress and portfolio performance.
Distribution Options
Upon retirement, many FRS Investment participants role their money into an IRA and have it professionally managed by AWP. The key is, you will need to create a sustainable withdrawal strategy and strategize how to not outlive your money.
Eligibility & Enrollment
The FRS Investment Plan is available to all first responders who have not utilized their 2nd election. For new employees, you’ll be given the option to choose between the Investment Plan and the Pension Plan when you start your employment, but if no selection is made, you are defaulted into the FRS Investment plan.
Vesting Period
To be fully vested in the FRS Investment Plan, you need to complete one year of service. Once vested, you have full ownership of both your contributions and your employer’s contributions, plus any investment earnings.
Savings Portability
If you leave your job, you can take your FRS Investment Plan savings with you. You have the option to roll over your balance into another retirement account, such as an IRA, or leave it in the FRS Plan and manage it from there.
Benefits of the FRS Investment Plan
Flexibility in Investment Choices
The FRS Investment Plan offers participants the flexibility to choose from a range of investment funds. This flexibility allows participants to tailor their investment strategy to their individual risk tolerance, retirement timeline, and financial goals. As financial situations and market conditions change, participants can adjust their investment allocations accordingly.
Portability
If you leave your job, you can take your accumulated savings with you, making it easier to manage your retirement funds across different jobs or states.
Growth Potential
Your retirement savings can grow more significantly depending on the performance of your investments, particularly in strong market conditions.
Greater Control (which could be a drawback for some)
Participants in the FRS Investment Plan have direct control over their retirement savings. They can make informed decisions about where to allocate their funds, reallocate investments as needed, and manage their accounts actively. This level of control can be empowering for those who prefer to take an active role in managing their retirement portfolio.
Potential Drawbacks of the FRS Investment Plan
While the FRS Investment Plan offers many benefits, it’s important to consider the potential drawbacks as well. Unlike the FRS Pension Plan, your retirement income isn’t guaranteed and is subject to market fluctuations, which can introduce significant risk. The responsibility of managing your investments and making informed decisions can be daunting, especially if you’re not comfortable with financial markets. Additionally, without the steady income of a defined benefit plan, you’ll need to carefully plan your withdrawals to ensure your savings last throughout retirement. These factors make it crucial to weigh the risks and rewards before choosing the Investment Plan.
Market Risk
Markets can be volatile and some people have a hard time sticking to their investment strategy. Taking on more risk than you can either financially or emotionally afford, can lead to significant losses in times of market volatility if you are not prepared and if you allow your emotions to get involved in your decision making.
No Guaranteed Income
Unlike the Pension Plan, the Investment Plan doesn’t offer a guaranteed monthly benefit, so your income in retirement will depend on your investment choices and market conditions. It also requires a substantial amount of discipline to not deviate from your strategy.
Greater Complexity
Managing an investment portfolio requires more involvement and understanding of financial markets, which might be challenging if you’re not comfortable making investment decisions. Of course, you can always work with a professional like AWP who has expertise in managing FRS investments specifically for first responders.
Special Planning Considerations for Investment-Only Retirement
If you’re considering relying solely on the FRS Investment Plan for your retirement, here are some key factors to keep in mind:
Diversify, Diversify, Diversify!
Spread your investments across different asset classes (stocks, bonds, etc.) to minimize volatility. The mix will largely depend on your emotional volatility tolerance, investment objectives and proximity to retirement. Diversification can help protect your portfolio from significant losses if one area of the market underperforms – as long as you’re invested across non-correlated asset classes. Learn how we can help with our Growth-Focused Investment Management and Retirement Income Investment Management services.
We’re Playing Long Ball, Here
Retirement is a long-term goal, so focus on strategies that align with your time horizon. Avoid making decisions based on short-term market fluctuations and emotional reactions.
Be Smart with Contributions
Use your 457(b) and maximize your contributions while you’re working to build a robust retirement fund. Consider increasing your contributions whenever possible, especially if you receive a raise, work overtime or receive a longevity bonus.
Mind Those Fees
Be aware of the fees associated with the investment options you choose. Higher fees can eat into your returns over time, so it’s important to balance cost with performance potential.
Withdraw Wisely…
Plan your withdrawals carefully to ensure your savings last throughout your retirement. Consider a strategy that balances your need for income with the potential for continued growth in your portfolio and considers future income needs with inflation.
The Bottom Line
Choosing the right retirement plan is one of the most important decisions you’ll make as a first responder. The FRS Investment Plan offers flexibility and growth potential but comes with risks that require careful planning and management. By understanding the pros and cons, planning for an investment-only retirement, and implementing sound portfolio management strategies, you can set yourself up for a financially secure future.
