The “New” FRS COLA

As of July 1, 2011 there will be some changes made…you will receive no further credit for COLA for the five years after July 1, 2011.


As you are aware, one of the better benefits within the Florida Retirement System has been the automatic 3% Cost of Living Adjustment that FRS adds to your Pension checks each year.  Over the course of a 24 year retirement, the COLA would almost double your annual pension, which would hopefully allow your standard of living to keep up with rising prices and inflation.

COLA is a simple process.  Each year, beginning on July 1, your pension check is increased by 3% more than what it had been for the previous 12 months.  That 3% compounds each year, meaning next year’s 3% pension increase will be added to last year’s pension increase, which was added to last year’s pension hike, and so on.  To illustrate, let’s assume you Pension check is $2500 at retirement.  Next year, it will be $2500, plus 3% ($75), so your pension check will be $2,575.  Year three FRS will add 3% to the Second year amount which is $82.50, so the third year checks will be $2,657.50, and so forth.  If you retire at 62, by the time you reach age 85 your monthly pension check will be almost $4,900!

As of July 1, 2011 there will be some changes made.

For those already retired, or those in the DROP, your benefit will remain the same!  No changes to your COLA will happen.  You will still get your 3% per year.

For those still working, you will receive no further credit for COLA for the five years after July 1, 2011.

This cut will reduce your annual COLA going forward for each year you continue to work.  The calculation is simple:  Take the number of months you have worked prior to July 1, 2011, and divided it by the total number of months you have worked at retirement, then multiply it by the 3% COLA.  Remember, entering the DROP is the same as retiring, so the calculation would be to the time you enter DROP.

For instance,  if you have 24 years of service as of July 1, 2011 (now!), and you continue to work until you have 30 years in, your COLA calculation is 24/30 = 80%,  80% of the 3% Cola is 2.4% COLA for your retirement.

If you have 21 years of service as of July 1, 2011 (now!), and you continue to work until you have 25 years in, your COLA calculation is 21/25 = 84%,  84% of the 3% Cola is 2.52% COLA for your retirement.

If you have 27 years of service as of July 1, 2011 (now!), and you enter the DROP when you have 30 years in, your COLA calculation is 27/30 = 90%,  90% of the 3% Cola is 2.7% COLA through your DROP period, and the for the rest of your retirement.

You can see that the more years you have it NOW, the higher your percentage of COLA will be, either in the DROP or in Retirement.  The current legislation stipulates that the COLA will return at 3% on July 1, 2016, so the maximum loss will be 5 years of credit.  Let’s assume you have 20 years in now, and you DROP or retire at 30 years.  You will get 20 years of credit up until July 1, 2011, then you will get NO credit for the next 5 years, and then you will get 5 years of additional credit for the time you work from July 1, 2016 until you DROP or retire with 30 years.  The calculation is basically the same.  You have 25 years of 3% COLA credit, and 5 years with no credit.  Your COLA would be 25/30 times 3% = 2.5%.

It is important to note that pushing your retirement ahead in order to “lock in” 3% COLA will probably NOT prove to be your best option.  By “locking” it in, you will forego any additional salary (at 100% of your earnings), as well as the future years service credit for years worked.  It might provide you with a higher COLA percentage, but it will be on a smaller pension benefit.  For Instance:

You have 24 years in Special Risk with an AFC of $50,000.  You want to retire now, so that you will lock in 3% COLA for life.  Your pension will be 24 years times 3% service credit = 72% of your $50,000 AFC = for a pension benefit of $36,000 per year.  Because you elected to retire early, your benefit will be reduced by 5% as a penalty for early retirement (the penalty is 5/12 or .0042 per month or 5% per year you retire before your “normal retirement age”), so your first year benefit will be $34,200. Your second year pension will increase by a 3% COLA, or $1,026, for a 2nd year benefit of $35,226.

Had you worked that one more year to get you to the 25 year “normal age of retirement”, the scenario is this.  Your first year benefit is 25 years of service, times 3% service credit per year = 75% of your AFC = $37,500 benefit for the first year.  The 2nd year your benefit goes up by the calculated COLA (24/25 times 3%) of 2.88%, or $1080!  Your 2nd year benefit is $38,580.  By “locking in” the 3% COLA, you effectively lost over $3000 for just the second year.

Make sure you do the math!  Locking in the COLA by retiring or entering the DROP early will very likely cost you a lot of money.  Obviously, it is not as good of a benefit as it was, but don’t make a foolish mistake that will cost you dearly in the future.  A percentage of 3% is better than NO COLA.

We hope this helps!  We encourage you to discuss your options with a financial advisor who is familiar with FRS and with your personal financial situation.

  • Sjosie55

    Would the 3% COLA apply to those of us who are retired on disability? If our Pension Plan is a part of/overseen by(?) FRS, should they be giving the 3% to us? We have not recieved a COLA for many years and the last was1%.

  • FRS Options

    We are not up to speed on disability, but I would guess if you have not recieved it, it doesn’t apply.

  • Drwinkler

    That is not the case. Ohio just ruled on cutting costs and pensions. All current retirees lost 1% of COLA. Current workers saw an increase of pay-in to retirement andd medical. The new plan has them paying in close to 25%. That state is not alone. We FL teachers better be thankful they chose to make time already earned worth something instead of the blanket changes some states are making. Our retirees are untouched and the loss increases with less time. Although the young get less, they also have time to plan with the potential of higher salaries in the future.

  • Drwinkler

    Anita, it states that for workers not enrolled inFRS

  • Biagio

    Yes, there are some states that have gone ahead and made changes to pension plans for current employees and retirees, but that is the exception and not the rule. Most changes that states have made are for new hires.

    Changes states make also depend on what their state statute and constitution say. Some states do not have specific language in their state statute or constitution protecting pension benefits. In those cases changes can be made. However, states such as NY for example, have specific language protecting pension benefits for current employees and retirees. According to the attry’s handling the Fl pension lawsuit the statutes and constitution indicate that changes cannot be made to employees currently under that plan.

    I guess we’ll see how a judge decides.

  • Ironheaded

    Any idea how much it will affect the amount you roll over?
    Say on 6/30/11 you have $460,000 available to roll over, would you be looking at 
    a $5 dollar drop or a $300,000 dollar drop on 7/1/11?  Just looking for ballpark.
    I would think it wouldn’t be huge, but I am unsure of the type of formula used for these calculations.
    I have 24.5 years special risk service. 

  • Pusod1960

    Do you know when MyFRS will get their on-line tools operational again?

  • FRS Options

    The change for you will be minimal.

  • FRS Options

    Unfortunately, I don’t know.

  • Cam

    Can you post this article for the readers. Very interesting.

  • muon

    I am very grateful to see this website and the comments made.  Some comment about my situation would be appreciated.  I returned to Florida to teach at a community college after teaching 6 years at university outside of the state. Because it was 6 or 7 years to vest (when I returned) and I thought that I might leave Florida in time, I opted out of the state pension fund and selected CCORP… a private retirement fund plan.

    I’m still teaching Florida.  I’m 55 now and my wife is younger. I want her to have secured income after I’m gone.  Is it prudent to buy back into the state pension fund?  I have enough funds in my private retirement account to do so.  With the market being so volatile, it seems safer.  Any thoughts?

  • FRS Options

    It is probably a matter of simple math. I believe FRS will tell you exactly what it will cost you, and you will know your benefit, so you can simply determine if it is worth it mathematically. If that is the case, it would make sense to do it regardless of market volatility.

  • mrj

    What is happening in Tallahassee. I can’t even get a calculation on what my investment plan will be worth when I’m elibgible to retire later this year. Are we suppose to make uneducated guesses on what to do? Chances are I will stay in the pension plan, but I would like to know what the investment plan is worth so I can plan. This is unreal … OK, through venting now.

    Can you work in the private sector after retiring from special risk and still be allowed to take distributions from the investment plan without any penalty, only paying normal income taxes. I will be 56 years old.

    Am I correct that I will not be able to transfer this money to another retirment vehicle until 59.5 years old without incurring the 10% penalty.

    How soon after retiring are you able to take distributions from the investment plan.   

  • FRS Options

    Dear mrj,
    I believe you can still get a projection of your lump sum by calling the Division of Retirement, Retirement Calculations section at 888-738-2252. We have no idea how long it will take them to make the necessary changes to reflect the new laws on the on-line calculator. If you request the official numbers, FRS will most likely prevent you from accessing the on-line info for about 30 days.
    If you opt to collect your pension and go to work for the private sector, you will be able to collect your pension and work without penalty. If you opt to roll the money to the Investment Plan, or an IRA and take pre-59 ½ distributions that don’t qualify as IRS code 72(t) distributions, you may be subject to the 10% penalty.
    You may transfer the balance of your Investment Plan to another qualified plan, such as an IRA without incurring any penalties or taxes. You are only subject to the 10% penalty and income taxes if you make a distribution OUT of the Investment plan or your IRA. As long as it remains in the retirement account you are good.
    You may take a distribution, or roll over up to 10% of your Investment Plan balance after 30 days, and the balance after 90 days. If you take the distribution, it will be subject to taxes and possible penalties, if you roll it into another qualified plan, such as an IRA, there will be no taxes or penalties.
    Hope that helps, if not, let us know!

  • Adc

    Hello Ahhaha.
    Hope runs eternal in Florida as well as California.

  • FRS Options

    The fund is already considerably higher than in 2008, when all of the political wrangling began. Florida is not in the same boat as California, though if left to the politicians, we will be soon.

  • Disgruntled Member

    FYI… You still cannot get a lump sum projection by calling. I called and was told I could make an official request for this information by calling FRS directly (option #3). When I spoke to the FRS representative, she collected my information and told me that I would not get a response until the formula used for calculation is released and that date is still unknown. When I asked for projections for each of the next nine years assuming a 3% salary increase, I was told “You can ask for anything you want, but I cannot guarantee you will get it.” Before the 2nd choice calculator was removed from the website, I was easily able to get this info anytime I wanted.

    I’m anxious to know how much of a hit in projected dollars my pension took by the bill passed earlier this year. I’d also like to know an email address for Ash Williams, as I’d love to send him an email explaining how The Florida State Division of Retirement has failed its fiduciary responsibility by not having the lump sum formulas released as of yet. If I cannot find an email address, I will have to mail a letter via certified snail mail to his office.

  • Teacher

    I notice as of August 21, our FRS year-to-date statement has not been updated.  It was updated in mid-July to reflect our fiscal year end final compensation.  I think they are having a hard time knowing what to include because of their overtime hours limitation.  It becomes more complex when you look at colleges and universities stipends and overloads. 

  • suzie.creamcheese

    Since we no longer have a DROP calculator available to us, I ran my numbers for being in DROP 38 months and compared it before and after the changes.

    In real dollars, comparing the totals I will be down 10.3% . 

  • FRS Options

    Your pretty close. The actual number will probably be closer to 12% less after all is said and done. The optimistic side is, you won’t be down, you just won’t get as much.

  • Pusod1960

    When is MyFRS going to get their online tools back online? It has been temporaily down for several months, and people need to make decisions on whether to take the pension or exercise 2nd option and move to the investment plan after getting 30 years. I have 29 years and I need to really start making a decision, as in 6 months I will need to decide if I will enter DROP. I did get a statement saying that my present value is $337.000 at 29 years, but what do you think it will be worth in a year when I get 30 years. My AFC is 48K.

  • FRS Options

    That is a question that all members should be asking FRS! We can understand the software had to be re-written to reflect the changes, but seems it should have been complete by now.

    We would need some more particulars, like your age, gender, and whether you are a regular member or special risk (we assume regular) but woud a GUESS would be around $360k or so.

  • Pusod1960

    I’m a 51 year old male in regualr class. If it only goes up another 25 K, I’m thinking I’m better off taking my pension of $1972.oo/month, which is option 2, to give my wife a little protection if I die before ten years. In good health.

  • FRS Options

    If you are only 51, it will be considerably more. Because you are so young, you may also defer your DROP enrollment until you are age 57. If you take the lump sum, keep in mind your spouse could inherit 100% of the balance if something were to happen to you. It would seem you might want to simply keep working, and defer the DROP decision until you are 57. That would allow your pension to accrue to 36 years, and still be eligible for 5 years in the DROP,

  • Pusod1960

    The problem with that is that after 30 years in the frying pan (very stressful job that my doctor says is creating health problems) I was looking forward to getting a low stress part-time job, as we have down sized in preparation for this, and everything is paid off. We could actually live off my pension and wife’s income, and save everything I make, as we would get insurance through my wife’s job. She is an RN.

  • FRS Options

    I see, I thought you were looking for help in deciding about going into the DROP or not. That would have indicated you were going to continue to work.

  • Pusod1960

    I am still considering DROP, but I would not wait until age 57 to start, as I want to be done with the state no later than age 55. The stress is reducing my life expectancy, so the sooner I get out, the longer I think I would live. This is also why I’m strongly considering cashing out. I’m seen too many die while still working, or anly live ayear or two after retirement. My mother retired from the state at age 52, and hasn’t had to go to the doctor in 25 years. She’s 77 now, and in the best health of her life. She told me if she had worked any longer, she wouldn’t have lasted this long, as she was often sick while working because of the stress.

  • MRJ

    just a general question…
    I’ve been doing a little calculating on FRS website concerning my benefits when I retire. I’m special risk class 55YOA with approx 22 years of service. I am retiring by end of 2012. I will be chosing option 3 which leaves a reduced benefit for survivor. My question is that it seems that the factor used to calculate the benefit changes substantially between March 2012 and April 2012. It would take almost to the end of the year to catch up with what my benefit would be in April 2012 compared to November 2012. 

    Would I be better off to drop in April 2012 and then simply roll over drop money into the IP when I retire. Am I missing something or is this obvious.

  • FRS Options

    We would need more information, or to see what you are referring to in order to appropriately attempt an answer to your question. I presume 55YOA means age? It is possible the change is simply an anniversary month. Benefits are penalized for less than full years of service. That is just a guess. If you can send us the actual information, we may be able to be a little more specific. Are you referring to DROP in the March/April scenario, or just the Pension. Rolling to the IP at retirement is probably a reasonable option, but it also would depend on a bit more of your situation.

  • MRJ

    The FRS site shows that between April 2012 and May 2012 the factor used to calculate my benefit for option 3 goes from 89% to 87.6%. I believe this means that I would be collecting whatever the factor % is of option 1.
    I am asuming that is because of actuarial data used in ages of my wife and I.  
    In any case, I would be collecting almost the same benefit for option 3 in April 2012 that I would be in Nov 2012 because of this decrease in this factor.   It just seems that since I am going to work through next year I could;
    1)work and collect about the same benefit in April 2012 that I would in Nov 2012 OR
    2) drop in April 2012, collect drop money for 7 months and my monthly benefit wold be about the same with the COLA in July 2012. 

  • FRS Options

    It pretty much comes down to the math, and whichever offers the better benefit. You might also investigate an insurance policy to protect your spouse, and compare the cost of it vs. option 3.

  • FRS Options

    We suspect you would benefit if you didn’t have to make the 3% employee contribution, but otherwise, it doesn’t seem it would have any impact on you.

  • Bob Freeman

    In Rick Scott’s proposal are there any provisions to take a lump sum payout, like a business might offer if you leave a company earlier. Ex.  someone earning $1,000
    a month in retirement who is 60 years of age, based on a lifespan of 10 years longer  
    could receive $ 50,000 to exit the retirement system, saving at least $ 50,000 if he lives longer than 10 years?   

  • FRS Options

    There has been a “lump sum” option as long as the Investment Plan has been available. Scotts proposals and plans have not changed that. Any vested FRS member can convert their pension to the “present value” of that pension amount prior to their last day on the job. There is a considerable amount of information on the website to that regard.

  • Emo P. Lipschitz

    thank goodness. i retired in 2007 and im getting $20k more than when i checked out. sorry for all those future retirees who will retire at a static amount. prudence dictates an aggressive ira for them to offset the no cola. tough in these times of escalating costs and health care insurance.

  • FRS Options

    There are some calculations to be made, depending on your age, is age, and the age at retirement. As a rule of thumb, we would estimate 25% less.