How It Works
- Questions about what to do with your investment plan after you separate from service?
- Find out about the investment plan rollover BONUS program!
The FRS Investment Plan is a defined contribution plan, in which employer and employee contributions are defined by law, but your ultimate benefit depends in part on the performance of your investment funds.
The FRS Investment Plan is funded by employer and employee contributions that are based on your salary and your FRS membership class (Regular Class, Special Risk Class, etc.).
The Investment Plan directs contributions to individual member accounts, and you allocate your contributions and account balance among various investment funds. (Participant contributions are not allowed.)
Your Investment Plan retirement benefit is the value of your account at termination. Unlike the Pension Plan, there is no fixed benefit level at retirement.
However, a guaranteed lifetime cost of living payment option (based on the benefit to be distributed) can be purchased and is available with annual 3% cost of living increases, like the Pension Plan.
Why the FRS Is Offering This Plan
The Investment Plan has been offered to FRS employees since 2002 and is similar to other defined contribution plans that have been offered to select groups of FRS employees for over 25 years.
It is primarily designed to serve shorter-service and mobile employees. Other employees that might find the Investment Plan appealing are older employees that don’t expect to work at least 6 years (if enrolled in the FRS prior to July 1, 2011) or 8 years (if enrolled in the FRS on or after July 1, 2011) and employees that want greater control over their retirement plan.
Who’s Eligible for the FRS Investment Plan?
All FRS employees are eligible for the Pension Plan except:
- Participants in the Deferred Retirement Option Program, known as DROP (except as a distribution option).
- Mandatory State University System Optional Retirement Program (SUSORP) members. (This is not an FRS plan.)
- Teachers’ Retirement System members. (This plan is closed to new members.)
- State and County Officers and Employees’ Retirement System members. (This plan is closed to new members.)
Participants in the Deferred Retirement Option Program, known as DROP (except as a distribution option).
How Your Benefit Accumulates
In the Investment Plan, benefits are earned more or less evenly over your career (subject to fluctuations in the financial markets and your investment strategy).
This is different from the Pension Plan, in which you accumulate benefits slowly at first and then at a faster rate the longer you stay.
So, if you don’t stay with FRS employers for most of your career or for the final years of your career, you’re more likely to receive a greater benefit under the Investment Plan.
When You Own Your Benefit
You will be vested (that is, you will own the assets in your Investment Plan account) when you complete one year of service in the FRS Investment Plan.
If you transfer from the FRS Pension Plan to the FRS Investment Plan, you will be able to count your Pension Plan service toward the one-year vesting requirement.
(If you transfer the present value of your FRS Pension Plan benefit to your FRS Investment Plan account, you need to complete six years of service (if enrolled in the FRS prior to July 1, 2011) or 8 years (if enrolled in the FRS on or after July 1, 2011) before you “own” this money.
Service in the FRS Investment Plan will count toward the six-year FRS Pension Plan vesting requirement for the transferred value of your FRS Pension Plan benefit.)
Employee contributions are immediately vested. This means that if you terminate employment prior to meeting the vesting requirements of the Investment Plan, you will be entitled to a refund of your employee contributions.
However, taking such a refund may not be a sound financial decision because you will forfeit any unvested employer contributions and service credit associated with the service and be declared a retiree.
As a retiree you will not be entitled to future FRS membership if you return to FRS covered employment.
If You Change Employers
Under the Investment Plan, if you leave FRS-covered employment after vesting and go to a non-FRS employer, you can choose to leave your account invested in the Plan.
There, it will continue to earn market returns until you begin to draw it down during retirement. You may also “roll it over” to an Individual Retirement Account (IRA) or to the plan of your new employer (if allowed by that plan).
However, if you roll your money out of the Investment Plan you will be considered retired from the FRS and not entitled to further membership if you return in the future.
If you leave prior to vesting, your account balance will be placed in a suspense account for up to 5 years.
If you return to FRS-covered employment within the 5-year period you will regain control over your account.
If you do not return within the 5-year period, you will forfeit the accumulated account balance.
Benefit Paid at Retirement
Under the Investment Plan, your retirement benefit is based on your account balance at termination of employment, which consists of any cumulative employer and employee contributions, dividends and interest, and investment gains or losses, less expenses.
The amount of your benefit payments is affected by the retirement income option you choose.
Retirement Income Options
Under the Investment Plan, you may choose to receive your account balance at termination of employment as a lump sum or to take periodic withdrawals on demand or by a pre-determined payout schedule you select.
There may be tax penalties if you withdraw your money before age 59 1/2. You may also use some or all of your account balance to purchase the same types of lifetime payment options (annuities) as offered in the FRS Pension Plan, with payments guaranteed by a private sector insurance company (MetLife).
Survivor benefits and 3% annual benefit increase option are available, as well as a number of other retirement income options.
In the Investment Plan, your vested account balance will be paid to your beneficiary or estate if you die.