Updates - Florida Retirement System
Due to new state laws, as of last year on July 1, 2023, the Florida Retirement System benefit changes are positive for state employees which can help make retirement options even better.
Deferred Retirement Option Program (DROP) Expansion
DROP is a pension plan program for employees who have reached normal retirement date which allows you to simultaneously earn a salary and retirement income in order to accumulate a tax-deferred “nest egg”.
DROP is expanded as follows:
- Time Period: The maximum time for eligible members to participate in DROP was expanded from 5 years to 8 years. This includes those currently participating in DROP.
- Election Window: The restricted 12-month election window was removed. There are no longer restrictions on when you can begin participating in DROP. You may enter DROP any time after becoming fully vested and reaching your normal retirement date.
- Interest Rate: The annual interest rate has tripled from 1.3% to 4%, compounded monthly, for your accrued monthly DROP benefit.
Health Insurance Subsidy Increase
The monthly retiree Health Insurance Subsidy was increased by 50% from $5 to $7.50 for each year of creditable service. The maximum monthly benefit was adjusted from $150 to $225 and the minimum monthly benefit was adjusted from $30 to $45. This includes current retirees.
For example, the Health Insurance Subsidy for an employee who retires after 20 years was $100 per month. Now the Health Insurance Subsidy for the same employee is $150 per month.
Deferred Retirement Option Program (DROP)
The Deferred Retirement Option Program (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 and your retirement benefit is calculated at the time your DROP participation begins. While you are in the DROP, 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 to another qualified plan or a combination partial lump sum payment and partial rollover. Monthly benefits are paid to you in the amount calculated at DROP entry, plus any applicable cost-of-living adjustments during DROP participation.
When your participation in DROP begins, your DROP benefit is based on the option selected at retirement (begin date for the DROP), and will accrue, with interest and cost-of-living adjustments, for the duration of your DROP participation. Upon your termination of employment and DROP, you must elect one of the following methods of payment for the DROP benefit within 60 days of your DROP employment termination.
1. Lump sum: All accrued DROP benefits, plus interest, less 20 percent tax remitted to the Internal Revenue Service (IRS), shall be paid to the DROP participant or the surviving beneficiary.
2. Direct rollover: All accrued DROP benefits, plus interest, shall be paid from the DROP directly to the custodian of an eligible retirement plan as defined in s. 402(c)(8)(B), Internal Revenue Code (IRC). However, in the case of an eligible rollover distribution to the surviving spouse of a deceased participant, an eligible retirement plan is an individual retirement account or annuity as described in s. 402(c)(9), IRC.
3. Partial lump sum: A portion of the accrued DROP benefits shall be paid to the DROP participant or surviving spouse, less IRS tax, and the remaining DROP benefits shall be transferred directly to the custodian of an eligible retirement plan as defined in s. 402(c)(8)(B), IRC. However, in the case of an eligible rollover distribution to the surviving spouse of a deceased participant, an eligible retirement plan is an individual retirement account or annuity as described in s. 402(c)(9), IRC. The proportions shall be specified by the DROP participant or surviving spouse.
If you do not make an election of one of the above methods within the 60-day period, the Division of Retirement will pay directly to you the accrued benefits in a lump sum, less IRS tax. If you fail to terminate in accordance with s. 121.021(39)(b), Florida Statutes (F.S.) on your DROP termination date, your retirement will be null and void and your Florida Retirement System membership established retroactively to the date you began DROP.
Source
https://www.dms.myflorida.com/workforce_operations/retirement/members/deferred_retirement_option_program_Drop
