FRS Pension or Investment Plan?

The Dilemma: As an employee of Florida Retirement System (FRS), one of the most important decision you will face in your career is a choice between the Pension plan and the Investment Plan. This decision has the ability to significantly alter the lifestyle of you and your beneficiaries. Considering its significance, I learned from my experience working with county employees for the past 10yrs that many employees are not adequately informed and are ending up with a wrong choice.  This could be because of misinformation on how these plans work or perhaps employees are mirroring the decision of a colleague who is making a choice for a reason not identified with theirs. When clients ask for my advice on this choice, I start the conversation with the advantages and disadvantages of each, followed by their long-term goals, followed by a recommendation.

Pros vs. Cons: When Florida Retirement System was first established in 1970, defined benefit Pension Plan was the only choice. Realizing the need to provide more flexibility to the employees, the Investment plan was introduced in 2002. Since the beginning, the Pension Plan’s primary objective was to maximize the benefit for the employee and provide some protection for the beneficiary.  Since it is not designed to maximize benefits for the beneficiaries, those employees looking for a maximum self-benefit, the Pension Plan will provide the most value. On the other hand, the Investment Plan was designed to provide an extensive beneficiary protection while requiring self-discipline from the employee to ensure the longevity of the plan. Considering the option to change from one plan to the other is only allowed once, a careful review is necessary before making a switch.

The Recommendation: There is a growing trend of employers moving towards a defined contribution plan such as the Investment plan compare to the defined benefit Pension Plan. One of the reasons for this trend is the ability to shift the responsibility to manage the retirement plan from the employer to the employee. I won’t be surprised if the same will be true with FRS in near future. For this reason, those employees who are approaching retirement and are not looking for an extended beneficiary protection should retire under the Pension Plan. On the other hand, employees with longevity issues and are looking to maximize benefits for their beneficiaries should retire under the Investment Plan. It is important to have a thorough discussion with a knowledgeable professional on this topic before making a decision.