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Chapter 9 PENSION PLAN SERVICE RETIREMENT Chapter 9 Contents: I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. XIII. XIV. XV. Requirements for Vesting and Retirement .......................................... 9-2 Retirement Benefit Formula ................................................................ 9-3 Benefit Estimates ................................................................................. 9-7 Retirement Application........................................................................ 9-8 Retirement Date................................................................................. 9-10 Proof of Age ...................................................................................... 9-10 Option Selection ................................................................................ 9-11 Beneficiary Designation .................................................................... 9-15 Final Salary Certification................................................................... 9-18 Deadline for Adding Member’s Name to Retired Payroll................. 9-20 Changes after Member’s Name Is Added to Retired Payroll ............ 9-20 Maximum Benefits ............................................................................ 9-21 Retirement Annuities Offered by Private Companies ....................... 9-22 Deferred Retirement Option Program (DROP) ................................. 9-29 FRS Investment Plan ......................................................................... 9-52 Service retirement is possible under the FRS Pension Plan once certain criteria are met. The requirements for retirement and the steps involved in the retirement process are discussed in this chapter. (For information on IFAS Supplemental Retirement Benefits, see chapter 12, part IX. For information on the FRS Investment Plan, see page 9-52.) This Division of Retirement Employer Handbook is intended for the employers of members of the FRS Pension Plan or the FRS Investment Plan. However, references to an FRS member in this Handbook will refer to a member of the FRS Pension Plan, unless stated otherwise. The Division is responsible for processing contributions and maintaining service credit records for Investment Plan members, and for administering Investment Plan members’ disability benefits and Health Insurance Subsidy benefits. Procedures in this handbook should be well marked to indicate the difference in actions required of the employer with respect to Pension Plan vs. Investment Plan members. CHAPTER 9: PENSION PLAN SERVICE RETIREMENT FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK I. REQUIREMENTS FOR VESTING AND RETIREMENT Normal Retirement Requirements Normal retirement requirements for members of the FRS Pension Plan, are shown below: • Regular Class, Elected Officers’ Class (EOC) and Senior Management Service Class (SMSC) - Vested and age 62 or 30 years of creditable service regardless of age (may include optional service credit). • Special Risk Class - 6 years of special risk service and age 55; or 25 total years of special risk service and age 52 (may include up to 4 years of military service); or 25 years of special risk service regardless of age; or 30 years of any creditable service (may include credit for up to 4 years of military service). • Special Risk Administrative Support Class - Members of this class will qualify for special risk normal retirement age or date (see requirements above) provided they have at least 6 years of special risk or special risk-related service. Vesting Requirements on or after 7 /1 /0 1 Effective July 1, 2001, all members of the FRS Pension Plan achieve vested status upon completing 6 years of creditable service 1 (including military leaves of absence), regardless of their membership class. Pre-7/1/01 Vesting Requirements Before July 1, 2001, the number of years required for a member of the FRS Pension Plan to vest depended upon membership class. Members of the Senior Management Service Class vested upon completing 7 years of creditable service, members of the Elected Officers' Class vested upon completing 8 years of creditable service, and members of all other classes vested after completing 10 years of creditable service. Early Retirement If a member is vested under his/her membership class but has not yet reached normal retirement age or date, early retirement can be taken. The amount of the benefit will be reduced by 5% for each year (or 5/12 of 1% for each month) the retirement date precedes normal retirement age. STATUTORY REFERENCE: Sections 121.021(29) and (30), 121.055(4), and 121.091(1) and (3), F.S. FRS RULE REFERENCE: Sections 60S-4.003 and 4.005, F.A.C. 1 To vest with 6 years of creditable service, a member must have been actively employed in an FRS-covered position on July 1, 2001. Inactive members with 6 or more years of FRS service did NOT automatically vest on July 1, 2001; these members must return to work and complete at least 1 work year of creditable service under the FRS to vest (except that no member is required to compete more than the 7, 8, or 10 years of service required before July 1, 2001). 9-2 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT II. RETIREMENT BENEFIT FORMULA The monthly benefit a member will receive at retirement depends on his/her years of creditable service, percentage value for each year of creditable service, and average final compensation. The amount may be reduced if the member retires early or selects benefit payment option 2, 3, or 4. An option 1 benefit at normal retirement age is calculated as follows: Years of Creditable Service X Percentage Value X Average Final Compensation = Yearly Option 1 Benefit at Normal Retirement Age Yearly benefit ÷ 12 = Monthly Option 1 Benefit Years of Creditable Service “Years of creditable service” is the total years and parts of years a member works in positions covered by the FRS or in one of the closed retirement systems in which the member may have participated before joining the FRS, plus any additional service for which retirement credit is purchased. Percentage Value “Percentage value” is the value a member receives for each year of creditable service. The chart on the following pages shows the percentage values for the FRS and the closed retirement systems. Part II. RETIREMENT BENEFIT FORMULA (Jul 2006) 9-3 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK % Value (per year of service) Retirement Plan STATE & COUNTY OFFICERS & EMPLOYEES’ RETIREMENT SYSTEM (SCOERS) Division A (no Social Security) .................................................................. 2.00% * Division B (with Social Security) ............................................................... 1.50% * TEACHERS’ RETIREMENT SYSTEM (TRS) Plan E ...........................................................................................................2.00% * FLORIDA RETIREMENT SYSTEM (FRS) Regular Class Retirement up to age 62 or 30 Years ............................................................1.60% Retirement at age 63 or 31 years ..................................................................1.63% Retirement at age 64 or 32 years...................................................................1.65% Retirement at age 65 or 33 or more years .....................................................1.68% Special Risk Class Service from 12/1/70 through 9/30/74 ..........................................................2.00% Service from 10/1/74 through 9/30/78 ..........................................................3.00% Service on or after 10/1/78........................................................................... 3.00% ** Past service with city or special district purchased as Special Risk service ................................................................................2.00% 9-4 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT Special Risk Administrative Support Class (with 6 years of Special Risk service credit) Retirement at age 55; or with 25 years of creditable service; or, if military service is included in the creditable service, at age 52 with 25 years............................................................................1.60% Retirement at age 56; or with 26 years of creditable service; or, if military service is included in the creditable service, at age 53 with 26 years............................................................................1.63% Retirement at age 57; or with 27 years of creditable service; or, if military service is included in the creditable service, at age 54 with 27 years............................................................................1.65% Retirement at age 58; or with 28 years of creditable service; or, if military service is included in the creditable service, at age 55 with 28 years............................................................................1.68% Elected Officers’ Class Judges and Justices......................................................................................3.333% All Others ......................................................................................................3.00% Senior Management Service Class Service on and after 2/1/87 ...........................................................................2.00% * For more on requirements for and calculation of benefits under SCOERS and TRS, please contact the Bureau of Retirement Calculations. Outside the Tallahassee calling area, call toll free at 888/RET-CALC (888/738-2252). Otherwise, you may reach the bureau by phone at (850) 488-6491 or SUNCOM 278-6491 or by e-mail at calculations@dms.myflorida.com . ** For retirements before July 1, 2000, the percentage value for Special Risk Class service earned from October 1978 through December 1992 varied incrementally: Service from 10/1/78 through 12/31/88..............................................2.00% Service from 1/1/89 through 12/31/89................................................2.20% Service from 1/1/90 through 12/31/90................................................2.40% Service from 1/1/91 through 12/31/91................................................2.60% Service from 1/1/92 through 12/31/92................................................2.80% Rates for these periods were retroactively upgraded to 3.00% with the enactment of chapter 2000-169, Laws of Florida. For military service values, see chapter 7, part III, section C. Part II. RETIREMENT BENEFIT FORMULA (Jul 2006) 9-5 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK Average Final Compensation (AFC) Average final compensation (AFC) is the average of the 5 highest years of salary an employee earns during covered employment. Salaries are counted by fiscal year (July 1 - June 30). If an employee worked only part of a year, you can determine whether the months worked should be included within one of the 5 highest years by dividing the actual salary received in the partial year by the percentage of a year of creditable service earned for that year 2 . If the resulting amount is one of the five highest salaries, the actual salary received should be used in the AFC. Since this represents only a percentage of a year, the remaining percentage necessary to complete 5 years of creditable service should be added from the next highest fiscal year’s salary (i.e., the appropriate percentage from the 6th highest year’s salary) 3 . Federal law under Sec. 401(a)(17) of the Internal Revenue Code limits the amount of annual salary that may be applied towards retirement, and therefore the amount of annual salary that can be used in the AFC. Employees who initially became members of the FRS on or after July 1, 1996, were initially subject to a maximum fiscal year salary of $150,000, an amount that is adjusted incrementally 4 by the Commissioner of the Internal Revenue Service to reflect cost-of-living increases. Based on the FRS Plan Year, as of July 1, 2006, this limit is $220,000. Employees who initially became members of the FRS before July 1, 1996, are subject to a higher fiscal year limit, which is adjusted annually by the Commissioner of the Internal Revenue Service to reflect cost-of-living increases. As of July 1, 2006, this limit is $328,860 for FRS members. 5 Community colleges and other local agencies that administer an optional retirement program for employees in lieu of the FRS are also subject to this federal law and should limit compensation included in their retirement plans accordingly. The higher limit adopted by the 1996 Legislature ($328,860 in FY 2006/07) is applicable only to FRS, TRS, SCOERS, SMSOAP, and SUSORP members or participants who were initially members of those plans prior to July 1, 1996. STATUTORY REFERENCE: Sections 121.091 and 121.30(6), F.S. FRS RULE REFERENCE: Section 60S-4.004, F.A.C. 2 3 4 5 For example, if a member worked 3 months earning $12,000 over that period, you would divide $12,000 by 25% (the percentage of a year’s creditable service earned) to arrive at an annualized compensation of $48,000. For example, using the example in footnote 2, if the member earned $40,000 in his/her 6th highest fiscal year of earnings, you would add $30,000 (75% of $40,000) to the previously derived $12,000 to arrive at a combined salary of $42,000. In other words, this limit will not necessarily be adjusted annually. This limit is slightly higher than the “grandfather” limit set by IRS, due to differences in methods for determining cost-ofliving adjustments. 9-6 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT III. BENEFIT ESTIMATES Online Estimates Members wishing to calculate their own estimate of benefits may use the Online Services feature of the Division’s website (http://frs.myflorida.com). These secure web pages require members to use a secure User ID. A member’s User ID is his or her 9-digit Social Security number, typed without dashes or spaces (for example, 123456789). For the initial log in, the member’s password will be his or her birth month and year, typed in 6-digit MMYYYY format, (for example, if the member was born in July 1967, the password would be 071967). At the first log on, members will be prompted to answer a secret question and choose a new password, before moving on to the Member Services menu where an estimate of benefits may be calculated. Members becoming eligible to transfer to the FRS Investment Plan will also be sent a User ID to logon to our new combined pension plan and investment plan website, at www.myfrs.com . Official Estimates Upon request, the Division will calculate an official estimate of an employee’s retirement benefits. We encourage members to request an estimate 4 to 5 years before retirement. To request an estimate, Form FR-9, Information Request, should be completed and submitted to the Bureau of Retirement Calculations (an online version of Form FR-9 may also be completed and submitted electronically via the Division’s web site at: http://frs.myflorida.com . (See chapter 7, part II, for more information on Form FR-9.) Part III. BENEFIT ESTIMATES (Jul 2006) 9-7 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK IV. RETIREMENT APPLICATION Retirement is not an automatic process. An employee can begin receiving monthly retirement benefits only after making proper application on Form FR-11, FRS Application for Service Retirement, and terminating covered employment. The earliest an employee can apply for retirement is 6 months before termination of employment. For retirement purposes, an employee is considered terminated only after stopping all employment with all employers covered by the FRS, except elected officers who are dually employed as described in chapter 1, part IV, section J., who may elect to terminate and retire from the non-elected office while continuing to serve in the elected office 6 . The Division will acknowledge receipt of the application form and advise the employee of anything else needed. The employee may change any item on the application prior to retirement. However, once a benefit payment has been cashed or deposited, the employee’s retirement is final and the option selection cannot be changed, nor can additional service credit be added. NOTE: A member who wishes to participate in the Deferred Retirement Option Program (DROP) must also apply for retirement. However, the procedures and forms to retire and enter DROP are somewhat different from the procedures and forms described in this part. (For details on the DROP process and the program generally, see part XIV of this chapter and chapter 13, part III.) STATUTORY REFERENCE: Section 121.091, F.S. FRS RULE REFERENCE: Sections 60S-4.002(2), (3), and (4) and 4.010(5), F.A.C. 6 In such cases, the elected officer is also retired from his/her elected officer position, but is not required to terminate his/her elective office to achieve retired status and may continue in his/her elective office as a renewed member. 9-8 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT SAMPLE OF FR-11, page 3 Part IV. RETIREMENT APPLICATION (Jul 2006) 9-9 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK V. RETIREMENT DATE The effective date of retirement is always the first day of the month. If the Division receives the application form before the employee terminates employment or within 30 days thereafter, the effective retirement date will be the first day of the month following termination. If the application is not received until 30 days after termination, the effective retirement date will be the first day of the month following receipt of the application form by the Division. (See chapter 10, part III, for effective dates of retirement for disability retirees.) The employee may choose to defer his/her retirement to some future date. The effective date of retirement will be the first day of the month following receipt of the application, unless a later date is specified. The Division will accept an application for benefits up to 6 months before the desired retirement date. STATUTORY REFERENCE: Section 121.091, F.S. FRS RULE REFERENCE: Section 60S-4.0035(3), F.A.C. VI. PROOF OF AGE When the employee applies for retirement, proof of age must be furnished. If option 3 or 4 is chosen, proof of age for the employee’s joint annuitant must also be provided. The Division will accept a legible copy of one of the following documents: • • • • • • Birth certificate Delayed birth certificate Census report more than 30 years old Life insurance policy more than 30 years old Letter from the Social Security Administration stating the date of birth it has established for the payment of benefits. Certificate of naturalization If the employee cannot furnish any of the above, a legible copy of a document from two of the following categories will be required: • • • • Birth certificate of a child, giving the employee’s (or joint annuitant’s) age Baptismal certificate more than 30 years old Hospital record of birth School record at the time the employee (or joint annuitant) entered grammar school STATUTORY REFERENCE: Section 121.031, F.S. FRS RULE REFERENCE: Section 60S-4.0035(2), F.A.C. 9-10 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT VII. OPTION SELECTION At retirement, the employee must choose one of four benefit payment options. Retirement benefits cannot be received until an option has been selected. Once a benefit payment has been cashed or deposited, or the member begins participation in DROP, the option selection cannot be changed. If an employee is married and selects either option 1 or 2, he/she must notify his/her spouse and the spouse must acknowledge the option selection on Form FRS 11o or Form SA-1. The employee may not begin receiving his/her retirement benefits until the required forms are submitted to the Division. Options 2, 3, and 4 are actuarially adjusted from option 1. This means that, while the monthly benefit is usually lower, the total benefits expected to be paid to the employee and designated beneficiary or joint annuitant under options 2, 3, or 4 are equal to the total lifetime benefits expected to be paid to the member alone under option 1. FRS Benefit Payment Options Option 1: A monthly benefit payable to the employee for his/her lifetime. Upon the death of the employee, the monthly benefit will stop and the beneficiary will receive only a refund of any contributions paid which are in excess of the amount the employee received in benefits. This option does not provide a continuing benefit to a beneficiary. Option 2: A reduced monthly benefit payable to the employee for his/her lifetime. If the employee dies within 120 months of his/her effective retirement date 7 , his/her designated beneficiary will receive a monthly benefit payment in the same amount as the member was receiving for the balance of the 120-month period. No further benefits are then payable. Option 3: A reduced monthly benefit payable to the employee for his/her lifetime. Upon the employee’s death, the joint annuitant (spouse or eligible financial dependent), if living, will receive a lifetime monthly benefit payment in the same amount as the employee was receiving*. No further benefits are payable after both the employee and the joint annuitant are deceased. Option 4: An adjusted monthly benefit payable to the employee while both the employee and his/her joint annuitant (spouse or eligible financial dependent) are living. Upon the death of either the employee or joint annuitant, the monthly benefit payable to the survivor is reduced to two-thirds of the monthly benefit received when both were living*. No further benefits are payable after both the employee and the joint annuitant are deceased. *NOTE: The benefit paid to the joint annuitant under age 25, who is not the employee’s spouse, will be the employee’s option one benefit amount. The benefit will stop when the joint annuitant reaches age 25, unless disabled and incapable of selfsupport, in which case the benefit will continue for the duration of the disability. 7 For members in DROP, the 120 payments begin on the first day of DROP participation, not after DROP ends. Part VII. OPTION SELECTION (Jul 2006) 9-11 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK FRS Benefit Options – co continued Changing Retirement Options IMPORTANT: Please make it clear to employees who select option 4 that this is the only option under which the benefit will automatically be reduced upon the death of either the member or the joint annuitant after retirement commences. This reduction also applies when a husband and wife are both FRS members and both select option 4. Both benefits will be reduced when either spouse dies. If the employee elects to change retirement options, Form FRS-11o, Option Selection for FRS Members, must be submitted. Once a benefit payment is cashed or deposited, or the member begins participation in DROP, the option selection cannot be changed. STATUTORY REFERENCE: Section 121.091(6), F.S. FRS RULE REFERENCE: Section 60S-4.010, F.A.C. 9-12 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT SAMPLE OF FRS-110 Part VII. OPTION SELECTION (Jul 2006) 9-13 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK SAMPLE OF SA-1 9-14 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT VIII. BENEFICIARY DESIGNATION Under the FRS Pension Plan 8 , at the time of retirement, all previous beneficiary designations are null and void unless an employee is applying for a “second-career” retirement benefit. The employee is required to designate his/her retirement beneficiary on Form FR-11, FRS Application for Service Retirement. The employee may designate one or more beneficiaries sequentially or jointly. If he/she wishes to designate more than one beneficiary, Form FST-12, Beneficiary Designation Form (Retired Members Only) [including DROP participants], must be submitted. Beneficiary Designation and Option Selection • If the member chooses option 1 or 2, he/she may name as beneficiary any person, organization, trust, or his/her estate. The member may name one or more beneficiaries to receive benefits jointly or sequentially. • If the member chooses option 2 he/she may name one or more contingent beneficiaries to receive any benefits remaining upon his/her death and the death of all his/her primary beneficiaries. (See chapter 11, part I, for additional information on contingent beneficiaries.) • If the member chooses option 3 or 4 he/she must name as his/her beneficiary a person who qualifies as a joint annuitant. • If the member chooses option 3 he/she may name more than one joint annuitant, and specify the percentage of the benefit to be paid to each. DROP participants are also subject to the beneficiary designation provisions described above (except Form DP-11 should be completed instead of Form FR-11). Form FST-12 must be used by DROP participants who wish to designate more than one beneficiary. STATUTORY REFERENCE: Section 121.091(6) and (8), F.S. FRS RULE REFERENCE: Sections 60S-4.010(8) and 4.011, F.A.C. 8 See page 9-58 for information regarding designation of beneficiaries under the FRS Investment Plan. Part VIII. BENEFICIARY DESIGNATION (Jul 2006) 9-15 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK J o in t Annuitants Proof of Dependency If the employee selects either option 3 or 4 and designates someone other than his/her spouse or child under age 25 as beneficiary (joint annuitant), the Division will need proof of the financial dependency or disability of that person before the employee’s name can be added to the retired payroll. For purposes of the FRS Pension Plan, a joint annuitant is a designated beneficiary who is eligible to receive a monthly lifetime retirement benefit upon the member’s death. By law, to qualify as a joint annuitant under option 3 or 4, the beneficiary must be: • The spouse of the member; • The member’s natural or adopted child who is under age 25, or is physically or mentally disabled and incapable of self-support, regardless of age; or any person other than the spouse for whom the member is the legal guardian, provided that such person is under age 25 and is financially dependent for no less than one-half of his or her support from the member at retirement or at the time of death of such member, whichever occurs first; or • A parent or grandparent, or a person age 25 or older for whom the member is the legal guardian, provided that such parent, grandparent, or other person is financially dependent for no less than one-half of his or her support from the member at retirement or at time of the death of such member, whichever occurs first. To determine if the designated beneficiary qualifies as a financial dependent, the Division will need the following: • A certified copy of the employee’s latest income tax return signed and filed with the Internal Revenue Service (IRS). This must be the complete return, including copies of Form W-2. The employee should contact the IRS for the correct procedure to obtain this certification. • A certified copy of the beneficiary’s latest income tax return, as signed and filed with the IRS. If the employee’s beneficiary did not file a tax return, a notarized statement to that effect from the beneficiary is required. • Additional documentation such as medical or institutional cost statements. • Other proof as required by the Division based on individual circumstances. STATUTORY REFERENCE: Section 121.021(28), F.S. FRS RULE REFERENCE: Sections 60S-4.011 and 6.001(34), F.A.C. 9-16 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT SAMPLE OF FST-12 Part VIII. BENEFICIARY DESIGNATION (Jul 2006) 9-17 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK IX. FINAL SALARY CERTIFICATION At the time of an employee’s retirement, you are required to certify the last 4 months of salary paid prior to the termination of the employee. The salary certification should be submitted on Form FC-1, Final Salary Certification (see note below). If a salary adjustment or correction is made after the form is submitted, you must submit an amended salary certification. You should not certify any payments on which retirement contributions are not required. Annual Leave Retirement contributions are due for lump sum payments for accumulated annual leave. Accumulated annual leave is leave accrued during the employee’s career and which was intended but never utilized by the employee for his/her personal use. General leave, which may be used for both sickness and vacation, is considered accumulated annual leave. When leave is initially accrued separately as annual leave or sick leave and later combined into a consolidated leave account, only the payment for that portion which represents annual leave shall be considered as compensation. Accumulated annual leave payments that may be included in the AFC are limited to a combined total of 500 hours. If a single lump sum payment exceeds 500 hours, only a maximum of 500 hours is to be certified and reported with retirement contributions. (Please see chapter 2, part I., section A., for additional information.) Sick Leave Lump-sum payments of accumulated sick leave are not considered to be compensation for retirement purposes and should not be certified on Form FC-1. Bonuses Bonuses are payments made in addition to an employee’s regular or overtime salary. These payments are usually non-recurring, do not increase the employee’s base rate of pay, and do not carry with them a commitment for payment in future years. Bonuses are not considered compensation for retirement purposes and should not be reported for retirement. Therefore, bonuses should not be certified on Form FC-1. NOTE: For DROP participants, Form FC-1 should certify any prorated deferred salary payment made prior to the DROP begin date. Certify all salaries earned prior to the DROP begin date. STATUTORY REFERENCE: Section 121.021(24), F.S. FRS RULE REFERENCE: Section 60S-6.001(3) and (6), F.A.C. 9-18 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT SAMPLE OF FC-1, page 1 Part IX. FINAL SALARY CERTIFICATION (Jul 2006) 9-19 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK X. DEADLINE FOR ADDING MEMBER’S NAME TO RETIRED PAYROLL To insure that an employee’s name is added to the retired payroll during the first month of retirement, all information and documentation regarding the employee’s retirement account should be received in the Division by the 5th day of the month containing the employee’s effective retirement date. If all required information and documentation are not received early in the month, the employee may be added to the next retired payroll and the first month’s benefit will be paid retroactively. XI. CHANGES AFTER MEMBER’S NAME IS ADDED TO RETIRED PAYROLL Once a benefit payment has been cashed or deposited, or the member begins participation in DROP, retirement is final. The option selection cannot be changed nor can additional service credit be purchased. If a benefit payment has not been cashed or deposited, retirement can be canceled, the option selection can be changed, and additional service can be claimed. For more information, the employee should contact the Bureau of Retirement Calculations. Outside the Tallahassee calling area, you may reach the bureau toll-free at 888/RET-CALC (888/738-2252). Otherwise, contact the bureau by phone at (850) 488-6491 or SUNCOM 278-6491 or by e-mail at: calculations@dms.myflorida.com . STATUTORY REFERENCE: Section 121.091, F.S. FRS RULE REFERENCE: Section 60S-4.002(4), F.A.C. 9-20 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT XII. MAXIMUM BENEFITS FRS Ma Maximum Under Florida law (s. 112.65, F.S.), the initial retirement benefit payable under the FRS may not exceed 100% of the retiring employee’s average final compensation. 9 Federal Maximums Since 1974, the Federal Government has limited the amount of retirement benefits retirees can receive per year under Sec. 415 of the Internal Revenue Code. For information purposes, the 2006 calendar-year annual federal maximum benefit for a member age 62-65 who retires under option 1, 3, or 4 is $175,000 (option 2 is slightly lower). This maximum is adjusted for age so that retirees younger than age 62 have a lower maximum, and those older than age 65 have a higher maximum. Preservation of In 1998, Congress enacted legislation to permit government entities to establish “excess Benefits Plan benefit plans” for people who are adversely affected by the federal maximum benefit limit. As a result, in 1999, the Florida Legislature adopted the FRS Preservation of Benefits Plan (an excess benefits plan) to effectively eliminate the impact of the federal limit on FRS retirees. The Division is now authorized to pay each affected retiree, by separate check, an amount equal to any reduction in benefits imposed by the federal limit. Therefore, any retiree affected by this federal maximum will be “made whole” by the excess benefit plan and will not suffer a reduction in benefits. DROP and Federal Limits Members who elect to participate in the Deferred Retirement Option Program (DROP) are not exempt from the maximum benefit limitations described in the prior section. However, the amount of the accumulated DROP at the time the member ceases DROP is amortized over the member’s expected lifetime, in the manner required by the Internal Revenue Code, and the annualized value of the DROP account reduces the federal maximum annual benefit the member is entitled to receive. For example, if a member completed DROP at age 62 having accumulated a DROP amount that, amortized over his/her expected lifetime, would have an annualized value of $10,000 a year, the federal maximum applicable to the normal FRS retirement benefit for that member would be $165,000, rather than $175,000. FRS Benefits/ Contributions are Primary Since June 18, 1999, a member may receive more than one retirement benefit or pension from his employer based on the same period of service (a benefit based on the same service from a different employer’s retirement system or plan is prohibited). However, if the member participates in any retirement plan maintained by his employer in addition to the FRS and Social Security, including a qualified pension plan, a qualified employee annuity plan, or a 403(b) annuity, federal limits may apply to the total amount of benefits and/or contributions payable under all plans except Social Security. FRS benefits and/or contributions are considered primary to any other plan. STATUTORY REFERENCE: Sections 112.65, 121.091(1)(a), and 121.30(5), F.S. FRS RULE REFERENCE: Section 60S-4.002(3), F.A.C. 9 Florida law also separately limits benefits paid under other public pension plans. Part XII. MAXIMUM BENEFITS (Jul 2006) 9-21 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK XIII. RETIREMENT ANNUITIES OFFERED BY PRIVATE COMPANIES “Fifth Option” or “Pension Maximization” P la n s The Division has seen an increase in the number of private insurance companies and financial and retirement planners encouraging members to purchase insurance policies (“pension maximization” or “fifth option” plans) that offer private insurance protection in the form of an annuity for a member’s spouse or loved one. Instead of retiring under option 3 or 4, which provides a lifetime benefit to both the member and the joint annuitant with an annual COLA, under these plans, the member is encouraged to retire under option 1, which provides the highest benefit but is paid to the member only during his or her lifetime. The plans referred to in this section should not be confused with any plans or programs offered under the FRS Investment Plan, which is administered by the State Board of Administration (SBA). (See page 9-52 for more details on the FRS Investment Plan) Plans Not Supported by the Division Many of these companies erroneously state or imply that they are associated with the FRS. Some agents may also claim that the Division has sold or provided them the names and addresses of members or retirees so that the private companies can contact them. Although the Division maintains individual addresses of active FRS members through the information provided on the reporting agencies’ monthly payroll reports, these records are not provided to the public or sold to private companies. The Division also keeps address information on retired FRS members and beneficiaries; however, their names and addresses are, by law, confidential and exempt from the Public Records Law and may not be provided in aggregate, compiled, or list form to any person other than a public agency engaged in official business. The Division has reservations about insurance and annuity programs marketed as an alternative to a continuing retirement benefit under the FRS. The Division does not support nor endorse any such programs because they may encourage FRS members to select a retirement option contrary to their surviving spouses’ best financial interests. Jane Bryant Quinn Article & Worksheet On the next page is a copy of an article written on this subject by financial expert Jane Bryant Quinn, plus a worksheet designed to help employees determine whether it would be to their advantage to select an FRS joint and survivor option (option 3 or 4) or a “pension maximization” product. The worksheet was prepared by John Allen, an attorney with the Colorado law firm of Allen-Warren, at the request of Ms. Quinn. You may wish to make copies of this article available to your employees to use in making their own decisions about “pension maximization” or “fifth option” plans. 9-22 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT Watch the Numbers If You’re Considering a Switch in Life Insurance by Jane Bryant Quinn Some life insurance agents and financial planners are persuading couples to gamble with their security, especially the security of a dependent wife. They don’t tell you that you’re gambling; the scheme is presented as safe and smart. But, as you’ll see in the specific case history I present below, you may be misled by a sales pitch. First a brief summary of what’s going on: There are generally two ways of taking your pension: • The payments can last for your lifetime only. This choice yields a higher monthly income for as long as you live and nothing thereafter. • The payments can stretch over the lifetimes of you and your spouse. “Joint-and-survivor” pension payments may be 25 to 40 percent lower. But if you die first, they guarantee your spouse a continuing income. For a spouse’s protection, joint pensions are the best. But insurance agents are pooh-poohing that idea. Instead, they’re recommending the higher, single life pension. With part of that higher check, you buy a life insurance policy. If you die first, that policy funds an annuity for your spouse, to replace the lost pension. If your spouse dies first, you have a higher pension for the rest of your life. A financial planner named David Trela, from The Eschels Financial Group in Southfield, Michigan wrote me a letter, urging that I write about this nifty idea. So I asked him for an illustration of an actual case. When I got it, I sent it for analysis to actuary James Hunt, a director of the National Insurance Consumer Organization. Here are the sad results: Trela’s customer, Mr. X, 62, is retiring from a Michigan public school district. His wife is 57. With a single-life pension, they’d get $2,957 a month for as long as the husband lived and nothing after that. By contrast, with a joint-and-survivor pension, they’d get $2,306 a month ($1,660 after taxes) for as long as either one of them lived. That’s a gross of $651 a month less. Trela told them to take the larger, single-life pension. For only $585 a month, he said, they could buy a $205,000 universal-life policy on the husband. If he died, the proceeds would buy an annuity paying the widow $1,679 a month, almost exactly replacing the after-tax pension she gave up. What’s more, Trela said, they’d have an extra $66 a month to live on. Neat, right? Mr. and Mrs. X decided to buy. Part XIII. RETIREMENT ANNUITIES OFFERED BY PRIVATE COMPANIES (Jul 2006) 9-23 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK Jim Hunt says they’re being given wrong information. “In general, Eschels Financial uses tax implications when it helps and doesn’t when it hurts,” he says. Trela told Mr. X that he could pay his $585 life insurance premium from the $651 a month that he gains from choosing the single-life pension. But that ignored taxes. The insurance actually costs Mr. X $812 in pre-tax income. Result: as a couple, they’ll have $161 less to live on each month than if they had taken the joint-and-survivor pension. Trela also did not show the taxes on the wife’s annuity income, if she had to depend on it to replace her husband’s pension. By Hunt’s calculations, her after-tax income would be only $1,372 a month. That’s $307 a month less than she would have gotten from the pension. So the plan makes this couple poorer, not richer. In addition, Mrs. X’s annuity income is fixed. If she kept her joint-survivor-pension, she would get a cost-of-living increase every year. The insurance proceeds would buy her a larger annuity each year she gets older, but generally not enough to beat the pension plan. When I asked David Trela about these problems, he conceded that he had knowingly used pre-tax numbers. He agreed that the couple’s income would not be as high as his fancy computer printout said. When I asked him why he’d done it, he said, “I don’t have an answer for that.” He denied that it had anything to do with making a sale or collecting a commission. There may be a happy ending to this story. A subsequent letter from Mr. Trela concludes that “in this particular case the dollars-and-cents answer ... clearly favors the election of the survivor benefit through the pension plan.” He says he is “trying to reach this client,” to “re-explain the inaccuracies.” Mr. X isn’t retiring until June, so he has time to reconsider. There are a very few circumstances where this insurance scheme might work. But in general, mistrust it. Never buy without taking the proposal to an accountant for an independent evaluation of whether the computer printout tells the truth. © 1989, Washington Post Writers Group Reprinted with permission 9-24 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT Pension Maximization: Will It Work For You? When you retire, there are two general ways of taking your pension: (1) Lifetime only. You get a higher monthly income, but it stops when you die. (2) Joint-and-survivor. You get a lower monthly income, but it lasts for the lifetimes of you and your spouse. [The FRS offers another way to receive your pension — option 2. This option pays a benefit to a designated beneficiary if you die within 120 months of your effective retirement date. This monthly benefit payment will be in the same amount as you were receiving for the balance of the 120-month period. No further benefits are then payable.] A “pension max” salesperson will propose that you take the lifetime-only pension. To protect your spouse, you buy a life insurance policy. At your death, the proceeds of that policy can be used to provide your spouse with a lifetime income. This plan is potentially workable if: (1) Your single-life pension after tax, and after paying the insurance premium, is greater than you would have received had you chosen the joint-and-survivor pension; and (2) after your death, the insurance proceeds are sufficient to buy your spouse a lifetime income at least equal to what the joint-and-survivor pension would have paid. Does your proposed plan meet these two tests if you are just starting your retirement?* This worksheet will tell you. You and the salesperson should fill in the following blanks: Have You Really Maximized Your Pension? 1. Your monthly pension, if paid for your life only. $ ___________ 2. Your monthly pension after all taxes.** $ ___________ 3. Your monthly pension if you take a joint-and-survivor option. $ ___________ 4. That same pension after all taxes.** $ ___________ 5. Your spouse’s monthly pension after your death, if you take the joint-and-survivor option. (This may or may not be the amount you reported on line 3.) 6. This same pension after all taxes.** $ ___________ $ ___________ 7. The midpoint between lines 5 and 6. Use this as a first rough target for figuring how much insurance to buy if you choose pension maximization.*** 8. The cost of buying your spouse an annuity after your death, figured for your spouse’s age when you retire.*** The “annuity rate” tells you, in dollars and cents, how much monthly income can be bought for every $1,000 of life insurance proceeds. $ ___________ Age: ________ Annuity Rate: $_______ 9. The life insurance proceeds needed to provide the monthly income. To calculate this, divide the target income (line 7) by the annuity rate (on line 8) and multiply by 1,000. 10. Monthly life insurance premium required to secure proceeds shown above. $ ___________ $ ___________ Compare this with the income you’d get from a joint-and-survivor pension, after tax. If your income after pension max leaves you with less disposable income than you’d get from a joint-and-survivor pension, stop here. It usually makes no sense to use it. Part XIII. RETIREMENT ANNUITIES OFFERED BY PRIVATE COMPANIES (Jul 2006) 9-25 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK If pension max provides you with more income as a couple, continue the calculation to see if it protects your spouse. HAVE YOU LEFT A LARGE ENOUGH ANNUITY FOR YOUR SPOUSE? 12. Your spouse’s life expectancy, based on his or her age when you retire.**** The number comes from an IRS table, and is called the Expected Return Multiple. _________ 13. The portion of the spouse’s annuity income that will be excluded from income taxes. This is called the Exclusion Ratio.***** Carry it to three decimal places. _________ 14. Subtract the Exclusion Ratio from 1.000. 0. _________ 15. Enter the monthly income you targeted, from line 7. $ __________ 16. Multiply line 15 by line 14. This tells you how much of the spouse’s annuity income is subject to tax. $ __________ 17. Subtract income taxes** from the spouse’s annuity income and enter that income after tax. $ __________ 18. Enter actual amount of net spousal income you need to protect (line 6). $ __________ If line 18 is larger than line 17, you need more insurance. Redo the calculation, using a larger insurance amount. If line 18 is less than line 17, you could buy a smaller insurance policy. If you start pension maximization earlier than retirement, you’ll also need a present-value analysis. This analysis recognizes that $1,000 spent on insurance today is worth much more than $1,000 received in higher pension benefits 10 years from now. A present-value analysis tells you whether those extra pension benefits are worth their cost. Don’t buy from an insurance agent or planner who won’t (or can’t) do this calculation for you. This worksheet does not consider the value of pensions with cost-of-living adjustments. But you can take a stab at it by estimating what your pension will be in 5, 10, and 20 years, and using this sheet to see if the life insurance will indeed supply a comparable pension for your spouse. All pension-max proposals with cost-of-living adjustments should be presented with a presentvalue analysis. So should any proposal where insurance premiums or death benefits vary. * ** *** **** ***** This worksheet is not effective for plans started before retirement. For such plans, the salesperson should compare the cost of the insurance premium with the after-tax pension benefits expected — adjusting for the fact that costs come now and benefits, later. Federal, state and local. Do the exact calculation. Don’t just estimate the bracket. A good professional planner will be able to target this exactly. For safety, refigure for 5, 10, and 20 years ahead. Each year the spouse lives, his or her life expectancy improves. To get the Exclusion Ratio: Multiply the spouse’s monthly annuity income by 12. Multiply the result by the Expected Return Multiple (line 12). Divide the result into the proceeds of the life insurance policy. Worksheet prepared by John Allen JD, Allen-Warren, P.O. Box 740035, Arvada, Colorado 80006. Permission granted for reprinting. 9-26 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT What Are the Risks of Choosing Pension Maximization 10 ? • Since the retirement benefit is annually adjusted under the FRS Pension Plan to help protect the benefit against inflation, the member would need to purchase a much larger amount of insurance (or a rising amount of insurance) to provide the spouse with a comparable lifetime income. • If a member buys a universal-life policy or an interest-sensitive whole-life policy, and interest rates decline, he/she might have to pay a higher insurance premium or accept a lower death benefit. The member should ask the agent to demonstrate what happens to the pension-max plan if interest rates drop. • If a member buys a policy with a “vanishing premium” — hoping to pay premiums for a limited number of years — and interest rates fall, the member will pay premiums for a longer time. • Between the time the policy is activated and the time of the member’s death, annuity rates can (and usually will) change. The policy proceeds may not be enough for the member’s spouse to buy an annuity that will afford him/her the income originally planned for. • Inflation or unexpected expenses could erode the member’s income. If the member becomes unable to afford the life insurance premium and has to cancel the policy, his/her spouse would lose the income protection the policy was intended to provide. • If a premium payment is late or lost, the member’s insurance could lapse — leaving his/her spouse without income protection. • The “owner” of the policy may at any time cancel the policy or change the beneficiary. Thus, if the member’s spouse is the policy “owner,” the member could be left without a benefit. • With private insurance, the company could fail as a result of economic conditions or the actions of its managers, which could jeopardize the payment of future benefits under the plan. • Both the member and his/her spouse or other financial dependent may receive health insurance subsidy payments from the pension plan that would be discontinued when the member dies 11 . • The spouse’s money could run out if the life insurance proceeds are not used to buy a lifetime annuity. But choice of an annuity means that the member won’t have a lump sum of money for his/her heirs. Both goals — a legacy and lifetime spousal income — cannot be guaranteed. NOTE: 10 11 If a member chooses a pension maximization plan at retirement, he/she should make sure the life insurance plan has been approved and is in full force before the FRS benefit is paid. Once an FRS benefit payment is cashed or deposited, the member’s option selection cannot be changed. It could be disastrous for a member to cash an option 1 FRS benefit payment and then discover that he/she has been turned down for the alternative plan’s life insurance policy. List of risks based on list created by John Allen JD, Allen-Warren, P.O. Box 740035, Arvada, Colorado 80006. The FRS pays a health insurance subsidy (HIS) to eligible retirees or beneficiaries with health insurance coverage. The surviving spouse or dependent is not eligible to continue receiving the monthly HIS payments after the member’s death if the member retires under option 1. Similarly, if the member retires under option 2, the HIS payment is guaranteed payable to the member’s beneficiary only for the first 10 years of retirement. Part XIII. RETIREMENT ANNUITIES OFFERED BY PRIVATE COMPANIES (Jul 2006) 9-27 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK Here Are the Potential Advantages of Pension Maximization 12 : 12 • If the member’s spouse dies first, the insurance can be canceled, leaving the member with more disposable income. • If the member decides to continue the insurance after the spouse dies, a larger estate may be left to his/her heirs (although if leaving a larger estate is important to the member, he/she can carry extra life insurance without taking the pension-max approach). • If the member divorces, the policyholder could cancel the policy (although the divorce settlement could require that the policy be kept in force). • If the member and his/her spouse were to live for many years, the member could — at that point — withdraw some cash from the policy. By doing so, the member would shrink the death benefit available for his/her spouse. But at later ages, less money may be needed to provide the spouse with a lifetime income. List of advantages based on list created by John Allen JD, Allen-Warren, P.O. Box 740035, Arvada, Colorado 80006. 9-28 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT XIV. DEFERRED RETIREMENT OPTION PROGRAM (DROP) Since July 1, 1998, eligible members of the FRS, the Teachers’ Retirement System (TRS) and the State and County Officers and Employees’ Retirement System (SCOERS) may choose to participate in the FRS Deferred Retirement Option Program (DROP) for up to 60 months. 13 General Description This program allows a member to retire and continue working — drawing both salary and retirement benefits while in the program. Instead of paying the monthly retirement benefit directly to the member or depositing it in his/her bank, while the member is in DROP, the benefit payment is credited to the member’s individual DROP account, where it will earn tax deferred interest, compounded monthly at an effective annual rate of 6.5%. The DROP participant continues to work up to the date preselected to stop participation in DROP. When the DROP period ends, employment must be terminated. At that time, the member will receive distribution of his/her accumulated DROP benefits, and will begin directly receiving the FRS monthly retirement benefit (in the same amount as determined at retirement and entry into DROP, plus applicable cost-of-living increases 14 ). (See page 9-36 for discussion of special provisions allowing certain members to extend their DROP participation beyond 60 months. See page 9-38 and chapter 13, part III, section C., for discussion of special termination and reemployment provisions applicable to elected officers.) Employment Status while in DROP 13 14 A DROP participant is, in actuality, a retiree under the FRS. However, participation in DROP does not alter his/her employment status and, for such purpose, the DROP participant will have the same employment status as nonretired members in covered employment until the post-dated resignation becomes effective and/or termination occurs. Terms and conditions of employment (salary, insurance coverage, leave accrual, seniority, being subject to layoff or termination, etc.) do not change as a result of DROP participation. Certain members are able to extend their DROP participation for up to an additional 36 months (see page 9-36). Each July 1st, retirement benefits for retired members and DROP participants are increased by 5/12ths of 1% for each month in the prior fiscal year that the member was retired). This equates to an annual 3% increase in benefits. Part XIV. DEFERRED RETIREMENT OPTION PROGRAM (DROP) (Jul 2006) 9-29 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK Eligibility for DROP A vested FRS, TRS, or SCOERS member may elect to participate in DROP for a maximum of 60 months 15 following the date on which he/she first reaches normal retirement date (including members who are on a leave of absence or on workers’ compensation). While a member may apply for DROP up to 6 months before reaching his/her normal retirement date or DROP deferral date, unless he/she is eligible to defer the election as described in the next section, the election to participate in DROP must be made within 12 months of first reaching the normal retirement date. A member’s normal retirement date is reached when the member is either age 62 and vested, or has 30 years of service regardless of age (age 55 and vested, or 25 years of service for special risk members). DROP participation is not allowed for any member who previously retired under the FRS, TRS, or SCOERS and has since become reemployed in a covered FRS position as a “renewed” member. 16 Participation is also not allowed for employees in the FRS Investment Plan, State University System Optional Retirement Program (SUSORP), State Community College System Optional Retirement Program (CCORP), or Senior Management Service Optional Annuity Program (SMSOAP). Local agency senior managers and members of the Elected Officers' Class who have withdrawn from the FRS are also ineligible to participate in DROP. 15 16 Certain members are able to extend their DROP participation for up to an additional 36 months (see page 9-36). Renewed members of the FRS are automatically enrolled in the FRS Pension Plan; however, they may elect to participate in the FRS Investment Plan instead, if they wish. In neither case will they be eligible for DROP. 9-30 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT Deferring DROP Entry A member who has reached his/her normal retirement date may be able to defer his/her DROP election as described below if he/she meets one of the following criteria: • Since July 1, 2001, any member designated and certified by his/her employing agency as “instructional personnel” as defined in s. 1012.01(2)(a)-(e), F.S. 17 , may indefinitely postpone the DROP election. These members may elect to enter DROP at any time after reaching their normal retirement date and may participate in DROP for a full 60 months, regardless of the date they begin DROP. • A member who reaches his/her normal retirement date based on years of service before age 57 (or age 52 for special risk members) may defer his/her DROP election. He/she may elect to enter DROP anytime from the member’s initial eligibility date through the month he/she attains age 57 (or age 52 for special risk members) and participate for a full 60 months. (The member could also make the deferred DROP election at any time during the 12 months after the month in which he/she reaches age 57 (or age 52 for special risk members), but his/her participation period would be shortened accordingly.) • When determining either DROP eligibility or the maximum participation period, a member may choose to include or exclude any optional service credit purchased by the member or his/her employer from the total service used to establish his/her normal retirement date. 18 Optional service includes all creditable service for which the member chooses to purchase/claim retirement credit. It may include prior service, optional past service, wartime military service, a military leave of absence taken before December 3, 1974, a leave of absence without pay, in/out-of-state service, a suspension without pay, teaching in a federally operated school in Florida, and periods of disability retirement. Workers’ compensation credit, nonoptional past service credit, and employer-purchased credit for a military leave-ofabsence on or after December 3, 1974, do not count as optional service credit. Upgraded service credit is not considered optional service credit. • A member with dual normal retirement dates, resulting from an employment history in two different classes of membership with different retirement date and age requirements, may elect to participate in DROP within 12 months after attaining his/her normal retirement date in either class. • An elected officer who reaches his/her normal retirement date while serving a term of office (including an elected officer who is not a member of the EOC) may defer DROP participation until his/her next term in such office. The officer must elect to participate in DROP within 12 months of the first day of the succeeding term and may only participate for up to 60 months or until the end of the term, whichever is less. 17 This definition includes classroom teachers, staff members responsible for student personnel services, staff members responsible for providing school library media services, other instructional staff, and educational paraprofessionals. 18 For example, in establishing eligibility for DROP, a member with 30 years of service that includes 2 years of purchased optional service credit could elect to join DROP immediately (by opting to include the optional service) or could wait up to 2 years to join DROP (by choosing to exclude the optional service). Whether included or excluded for purposes of the DROP election, the purchased optional service credit will always be used in the member’s benefit calculation. Part XIV. DEFERRED RETIREMENT OPTION PROGRAM (DROP) (Jul 2006) 9-31 FLORIDA RETIREMENT SYSTEM Š EMPLOYER HANDBOOK Enrolling in DROP Key procedures for a member to enroll in DROP: • Eligible employee compares estimates with and without DROP and decides to elect DROP participation. • Employee and employer complete and submit two forms, Form DP-ELE and Form DP-11, described below, to the Division. • To make an option selection, the member must complete Form FRS-11o, (supplied along with Form DP-11). • Employee should be reported on your monthly retirement report under Plan DP, DR, DS, or DT beginning with the selected month of DROP enrollment. Form DP-ELE, Notice of Election to Participate in the DROP and Resignation of Employment, must be submitted to the Division no later than 12 months following the date on which the member first reaches his/her normal retirement date (unless the member is eligible to defer the DROP participation date 19 ) and no earlier than 6 months before the member’s anticipated DROP begin date. The member must indicate the starting and ending date of DROP participation, acknowledged by the employer. To participate in DROP for the full 60 months 20 , the member must file this form together with Form DP-11, Application for Service Retirement and the DROP, no later than the end of the month the member reaches his/her normal retirement date or DROP deferral date. Any member who fails to complete and submit Form DP-ELE within 12 months of first reaching his/her normal retirement date or DROP deferral date will be ineligible for DROP participation. Form DP-11, Application for Service Retirement and the DROP, establishes the effective date of retirement and beginning DROP participation date. This application may be filed up to 6 months in advance of the member’s intended date to begin DROP. To retain the desired retirement and DROP begin dates, the Division must receive Form DP-11 no later than the close of business on the last day of the month in which the desired DROP effective date falls. If the form is received after the end of said month, the effective date of retirement and DROP begin date can be no earlier than the first of the month in which Form DP-11 is received. The form requires the member to name a beneficiary, provide required birth date verification, and establish dates of DROP participation. To make an option selection, the member must complete Form FRS-11o (supplied along with the Form DP-11). 19 20 For more on DROP deferral, see page 9-31. Certain members are able to extend their DROP participation for up to an additional 36 months (see page 9-36). 9-32 (Jul 2006) CHAPTER 9. Chapter 9: PENSION PLAN SERVICE RETIREMENT DROP Participation Period DROP participation will continue for the acknowledged period indicated on Form DP-11 unless: Beneficiary Designation Form DP-11 requires each member electing to participate in DROP to name one or more beneficiaries to receive any continuing retirement benefits or DROP benefits payable if the participant dies. The beneficiary or beneficiaries designated to receive continuing retirement benefits must be the same beneficiary as is named to receive the DROP benefits. If the DROP participant’s designated beneficiary dies while he/she is in DROP, the DROP participant may name a new beneficiary as follows: • • The employee terminates or is terminated earlier than originally stated. The employee, with the employer’s approval, expands DROP participation past the originally selected termination date but still within the 60-month limitation period (e.g., member signs up for 36 months of DROP and later expands it to 60 months with the employer’s approval). The Division must receive a revised Form DP-ELE, signed by both the employee and employer, verifying this change. The member m