Scott’s Proposals for FRS

It might be be premature to make any decisions until the details are known.

As you are no doubt aware, Governor Scott is slipping tidbits about his plan for FRS into the news.  Unfortunately, those tidbits are sparse in detail and his full plan is not scheduled to be released until February 7, so it is very difficult to get a grasp of how they will ultimately affect Florida Retirement System workers and retirees.  It is obvious the changes, IF ENACTED, will be significant.  It might be be premature to make any decisions until the details are known.  In the meantime, 1,000,000 strong FRS participants and retirees should be contacting their legislators and directing those representatives as to how they want to be represented in Tallahassee.

Crist Vetoes cut in DROP interest?

Governor Crist exercised his line item veto power to veto HB 5607 which would have cut the interest rate paid on DROP form 6.5% t0 3%

We have just heard that Governor Crist exercised his line item veto power to veto HB 5607 which would have cut the interest rate paid on DROP from 6.5% t0 3% for those entering the DROP after July 1 of this year.  According to our sources, Crist vetoed the cut because he didn’t like the way it was rushed into the legislation at the end of the term, without going through the normal process!  We will keep you informed.

Should FRS drop the D.R.O.P?

When the DROP was initiated, 6.5% was about 125% of the then 5.25% five year Treasury bond rate. With the yield on the five year T-bond down to 2.5%, the same 125% premium would put the DROP rate at 3%. If you survey other states with DROP plans, you will realize that 3% is a pretty common rate.

Since potential legislative cuts to your retirement benefits are nearly inevitable, we thought it might be educational to discuss your Florida Retirement System Options, and what changes might be made.  More importantly, we want you to understand how they might affect you!  We will begin this week with the scoop on the Deferred Retirement Option Program (DROP).   (For an overview of the DROP program, please see FRSOptions.com)

Back in 1998, when the Deferred Retirement Option Program was initiated by the Florida Retirement System, the world was a different place!  The Stock Market was on a roll; having just completed a 10 year run that averaged 19.21% per year.  The 5 year Treasury bond was paying about 5.25% and the coffers of the Florida Treasury were flush.   Skip ahead to the beginning of 2010 and the stock market has just completed its worst 10 year stint in history, and has a net minus 2% return over the last 10 years.   The 5 year treasury is only yielding 2.5%, and the Florida Treasury is facing a revenue shortfall of some $3 billion.  A shortfall that is growing, and expected to get even more dire in the foreseeable future.

The Florida Legislature is faced with the daunting task of cutting the budget to meet the shortfall in tax revenues due to the monster recession, and the Florida Retirement System is facing its first year of underfunding in over a decade.  The”Sunshine Review” of the State Budget has a succinct outline of the budget situation.  Suffice it to say the politicians see employee pension plans as a cherry ripe to be picked.  By focusing attention on the temporary underfunding of the FRS pension plan, it seems to have made your retirement benefits an easy target for spending cuts to help balance the state budget. Despite the fact that FRS is one of the most solid Pension funds in the US.  You can expect that the legislature will be looking harder and deeper next year, and will most certainly put your retirement benefits at greater risk.

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DROP Rate Dropped!

the document states the interest rate paid on DROP will be reduced from the current 6.5% to a new rate of 3% for all participants who enter the DROP on or after July 1, of 2010. W

The fears we voiced on Monday have come true on Wednesday.   In a document we secured today, which was introduced this morning at 10:00 am, titled “State Budget Conference Chairs bump issues Senate offer Conforming and Implementing Language” (click on the title to be directed to the link) has some last minute introductions that were claimed to be tabled.

Line 1 of page 7 of the document states the interest rate paid on DROP will be reduced from the current 6.5% to a new rate of 3% for all participants who enter the DROP on or after July 1, of 2010. We have further confirmed that this is already in the budget, so it appears to be a done deal.  At 3% the Deferred Retirement Option Program loses its attractiveness as a viable retirement option.  We will address this in detail in a later post.

The following lines of the document spells out that the door will be open for EMPLOYEE contributions beginning in 2011!  This would indicate that your contributions are already in process, and it is simply a matter of how much you are to contribute.

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The DROP basics for Civilian Participants

Since public sector employees may find it difficult to accumulate significant wealth on their often moderate salaries and have had little chance to accumulate wealth in a retirement plan (outside of IRAs or Deferred Comp), the DROP was initially very attractive. It was the only real way to get a decent pension, AND a nice lump sum of money.

The DROP basics for Civilian Participants

DROP is an acronym for Deferred Retirement Option Program. FRS added the DROP program to the Pension in 1998 as a way to induce employees to work longer, in an attempt to keep employees from retiring as soon as they are first eligible. Agencies realized that it cost far less to provide a DROP benefit for a current employee than it would cost to recruit and train a NEW employee. So, in 1998 the Florida Retirement System (FRS) instituted a program that could entice experienced employees to continue to work for up to five more years and at the same time allow them to accumulate a lump sum of money that would be available at retirement – the DROP.

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