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I have been working with pre-retirees in the Florida Retirement System since 1985 primarily within the branches of the Public School Systems in the state of Florida along with the Department of Corrections.

Sorting through the criteria explaining how the two Pension Plans work can be a confusing process. The two Pensions Plans available are as follows:

The Defined Benefit Plan (also known as the pension plan) utilizes a defined benefit formula which takes the number of credible years of service, multiplied by a retirement factor (the factor depends on the number of years of credible service), multiplied by averaged final compensation (AFC) which is the highest five years of income averaged. This final calculation produces the Option 1 retirement benefit:

Option 1 – This is a retiree only benefit which pays out the retirement benefit for your lifetime but ceases upon the death of the retiree. The State of Florida Retirement System keeps the balance of the account to be paid out to present/future retirees.

Option 2 – This is a ten year certain payment which pays out the retirement benefit at a reduced amount for the retiree’s lifetime with a ten year certain payment in the event the retiree does not live ten years. The beneficiaries’ payment will cease once the initial ten year period has ended.

Option 3 – This is a joint spousal benefit which pays a retirement benefit to the retiree at a reduced rate and continues this payment to the spouse upon the death of the retiree for the lifetime of the spouse. Once the retiree and spouse are deceased, the retirement benefit payment ceases and any remaining balance remains in the Florida Retirement System pension fund for present/future retirees.

Option 4 – This is a joint spousal benefit which pays a retirement benefit to the retiree for life with a payment of 2/3 to the survivor at either the death of the retiree or the spouse, whichever occurs first for the remaining life of the survivor.

Defined Contribution Plan (also known as the Investment Plan) Current employees of the State of Florida can exercise their 2nd Choice Election Option and convert from the Traditional Pension Plan to the Investment Plan. The “Opening Account Balance” of the Investment Plan upon conversion is determined by a Present Value calculation utilizing the traditional defined benefit formula stated above along with the mortality table taken into account which determines life expectancy averages.

As you can see, this can be quite cumbersome and confusing if left to your own resources and research. This is where our services come in to play. We are a “no fee” advisor that can utilize the State of Florida resources to help determine which might be the best options for you and your family to consider. Our comparison’s take into account the “Defined Benefit”pension formula with several potential retirement dates in mind, along with the determination that DROP may be a beneficial choice depending on the number of years you have worked and how long you plan to continue working in the Florida Retirement System.

We then compare these scenarios with the option of exercising the 2nd Election Option to switch to the “Investment Plan”. We do not recommend this option until within a month or so from actual retirement. Once this election is made and the “Opening Account Balance” is determined, the retirement account is now in your estate and out of the State of Florida. Therefore, you name your own beneficiaries and the State of Florida is not one of the beneficiaries of your Retirement Pension Account.

Our analysis will provide clarity to pre-retirees in determining which may be the most suitable option to choose based on your personal family situation. There is no blanket option that should be chosen based on what someone else has done with their retirement. I have many retirees tell me that they made their decision based on what their neighbor did or their best friend. This is in no way beneficial when making a decision that can impact the rest of your retirement lifetime.