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.

Continue reading “The “New” FRS COLA”

The “New” FRS DROP

there is no magic to DROP, the bulk of the DROP benefit is simply your own pension being returned to you after the 5 years.

For those of you that were interested in entering the DROP, you might not want to give up so quickly because of the decrease in interest rates.  The rate reduction from 6.5% to 1.3% initiated by the Florida Legislature as of July 1 does not necessarily make the Deferred Retirement Option Program obsolete.  Certainly, it lowers the earnings, but, the biggest part of the DROP sum is not interest, but simply your pension payments accruing each month in the DROP account.  There seems to be some misunderstanding about these numbers.  It appears that those of you choosing to enter the DROP on or after July 1 will earn the lower 1.3% interest rate on your pension payments.  If you are already in the DROP, and once you begin the DROP, you will NOT have to make the 3% employee contributions!

Your DROP amount will not decrease by 70%, only the interest earned will.  As we discussed on our web page , there is no magic to DROP, the bulk of the DROP benefit is simply your own pension being returned to you after the 5 years.

When you enter the DROP, you technically retire and begin to receive your pension.  Since you are going to continue to work, instead of the pension checks coming to you each month, those checks are deposited in your “DROP account”, and interest is then added to it.  The monthly amount going into your DROP is determined by the same calculation as your pension, which is:  Years of service, multiplied by service credit (3% for special risk, or 1.6% for regular members.  The result is then multiplied by your Average Final Compensation, which is the 5 years of your highest earnings.  For example, you have worked 30 years, and average of your highest five years of compensation (your AFC) is $50,000.   Your calculation is 30 times 1.6%, times $50,000, or a pension of 48% of $50,000, or $24,000 per year – so you would receive $2,000 per month into your DROP account.  Each year, on July 1, you will receive an annual increase by whatever your Cost of Living Adjustment (COLA) is.

Continue reading “The “New” FRS DROP”

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.

FRS Legislative Alert, HB 303

House Bill 303 was introduced by Representative Fredrick Costello (click for contact information)of Ormond Beach. It is a far reaching and devastating proposal.


House Bill 303 was introduced by Representative Fredrick Costello (click name for contact information)of Ormond Beach.  It is a far reaching and devastating proposal for Florida Retirement System members, particularly FRS Special Risk members.  The bill was filed just today, so we have had very limited time to study it.  Please note also, that we are not lawyers, so some of the language is somewhat subject to interpretation, but as we read it, the bill includes the following changes:

Service credit would be reduced from 3% to a maximum of 1.6% for ALL employees for future service after June 30, 2011.  Higher credits for previous years will be honored, but all future years for ALL employees will be reduced to 1.6% per year.   (HB 303, lines 112-125)

Effective December 31, 2012 the Deferred Retirement Option Program (DROP program) is terminated for ALL members.  Those already in the DROP will be paid out and terminated.  (HB 303, lines 147-152)

Continue reading “FRS Legislative Alert, HB 303”

FRS Change Ahead

Judging from the amount of media coverage the Florida Retirement System and your benefits are receiving, it isn’t a question of whether there will be changes made this legislative session, but a question of what change and how much.

“Change is inevitable”…

After last weeks run-in with HB 303, we might review the overall challenge to FRS Participants.  Judging from the amount of media coverage the Florida Retirement System is receiving, it is not a question of whether there will be changes made, but a question of what change and how much.  Our newly inaugurated governor, Rick Scott, has made it very clear that he believes FRS is a “ticking time bomb”. Last year’s legislative session included over 35 bills introduced to make changes at FRS, and we can speculate that those proposals might simply be foreplay for this session’s action.  Governor Scott has announced he will make his recommendations known by February 4th.

The Florida League of Cities has waged a full scale war against your Pension.  Representatives and Senators from both parties, from Senate President Mike Haridopolis, a Republican,  to Senator Jeremy Ring,  a Democrat  and chairman of the Senate panel that is considering the changes, are out to change the Florida Retirement System.  Senator Mike Bennett announced his intention to introduce legislation to make sweeping changes months ago (See Is Florida Paying Former Employees too much).   Florida Tax Watch has recommended far-reaching changes of the Florida Retirement System

Why  is this such a major issue all of a sudden?  As of the FRS Annual Report from June 30, 2008, the Pension Trust was slightly “overfunded”.  When Lehman Brothers went bankrupt in September and created a financial panic, the assets in the plan dropped significantly, and the fund became “underfunded” for the first time in 11 years.  As of the most recently published annual report, for the period ending June 30, 2009, the fund was only 87.5% “funded”, with some $96.5 billion.  According to the MyFRS website, as of December 31, 2010, the FRS pension assets were up to almost $124 billion.  That is putting the fund assets back on par with where they were in 2008 when it was fully funded, and is a gain of some $30 billion since the 87,5% funding report .  According to the FRS and SBA Annual reports, the amounts are as follows:

Continue reading “FRS Change Ahead”

Debunking the Myth of the Overpaid Public Employee

The data indicates that public employees, both state and local, are NOT overpaid!

This article is a must read.  It is a well presented, and thoroughly researched paper comparing the compensation and education of public vs. private employees by the noted think tank, the Economic Policy Institute.

Please follow this link;   Debunking the Myth…

Fact? or fiction.

Misleading headlines are becoming more fantastic with each day we edge closer to the November elections. Candidates, their parties, and the press are in a race to see who can be as creative with the truth as possible, in hopes of swaying momentum in their favor.

Misleading headlines are becoming more fantastic with each day we edge closer to the November elections.  Candidates, their parties, and the press are in a race to see who can be as creative with the truth as possible, in hopes of swaying momentum in their favor.

We have commented on many articles fabricating the truth about the Florida Retirement System most recently the article quoting Senator Mike Bennett as saying it is “out of control”.  We know the facts tell a different story.  FRS is one of the strongest, best managed, and most well funded pension plans in the country.

Fact? or fiction.

Continue reading “Fact? or fiction.”

Is Florida Paying Former Employees Too Much?

Bennett has announced that he will be introducing a bill this fall that will cut and eliminate benefits to FRS members.

In a recent new article titled “Is Florida Paying Former Employees Too Much”, Senator Mike Bennett was quoted as saying the current Florida Retirement System Pension System is “out of control”.  Bennett has announced that he will be introducing a bill this fall that will cut and eliminate benefits to FRS members.  We decided to check into the data he used to support his opinion and we could not find credible data to support his conclusion.

The article statesthe state paid out $5.6 billion to retired workers; that’s almost 10 percent of the state budget”.  According to the Annual Report (page 53) The Florida Retirement System Trust paid out $4.8 billion in total pension benefits (we could not validate the $5.5 billion number from the annual report).  The article stipulates this is almost 10% of the state’s total annual budget.  Again the math is fuzzy; as the budget was closer to $66 billion, of which 5.5 is only 8.3%, but I guess rounding up makes the story more sensational.

Page 19 of the Annual Report, reflects $4.8 billion payout to retirees (who worked hard for the benefits the state promised them), employer contributions accounted for $3.73 billion, and of that only $679 million are labeled state contributions.  The real number – only 1% of the real dollars came from the State budget.

Continue reading “Is Florida Paying Former Employees Too Much?”

Ask Why?

the FRS Pension Plan has enough assets to pay ALL of its retirement obligations for roughly the next 30 years! If that is the case, why should any benefits be cut? Why do the legislators feel it is so important to bolster a financially strong plan?

Ask Why?

Governor Charlie Crist vetoed the impending cut in the DROP interest rate last Friday (See HB 5607) and stated his veto was because “the legislators unfairly popped the changes into the budget” (see .  We discussed that fact in our April 28th post Drop Rate Dropped.  It would seem the Governor has clamped down on the unfair process used by the legislators to cut benefits and increase funding for the Florida Retirement System.  Perhaps the important question for participants (and taxpayers) to have answered is Why is the legislature seeking random solutions before clearly defining the problem.  What is the motive for the legislature’s attempts to cut FRS benefits, and to increase employer and employee contributions to the plan?

The press has labeled Crist’s veto as a political move so he can identify himself as an independent.  If that is the case, so be it, it was still the right decision.  Your Florida Retirement System benefits should not be a pawn in some gambit in Tallahassee.

Starting early in the Legislative session, your benefits have been at risk.  Some of the proposed bills were pretty severe in their proposed cuts (A Call for action, HB 1319 and 1543).  All of the proposed bills were put on hold pending a “summer study” by the legislature.  From input and conversations with all of you, the question is What is the purpose of the study?  Is the legislature exploring whether changes should be made in FRS, or has the legislators already determined cuts should be made, and the study is simply to determine what changes?  I think it bears some exploration.

Continue reading “Ask Why?”

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

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.

Continue reading “Should FRS drop the D.R.O.P?”