If you're planning on leaving FRS employment in the middle of your career, find out what to consider and what your payout options will be.
What to Consider | Payout Options — Investment Plan | Payout Options — Pension Plan
One-time 2nd Election
The FRS provides you with one opportunity to change plans (your 2nd Election) any time during your FRS career. To use your second election you must be an actively employed FRS-covered member receiving salary payments from your employer. If you are on an unpaid leave of absence, or have terminated your FRS-covered employment, you are not eligible to use your second election. You'll need to make your 2nd choice election prior to terminating in order for your election to be received and processed.
Regardless of which retirement plan you've chosen, you can use the 2nd Election CHOICE SERVICE on MyFRS.com to see which plan best meets your future financial needs. You can also call the MyFRS Financial Guidance Line for assistance.
Switching Plans
If you're in the Investment Plan and would like to switch to the Pension Plan, consider the following:
- You'll need to buy back in to the plan. The total amount you'll need is based on whether you had previous Pension Plan service. If so, your amount is based on what the "present value" of your accumulated benefit in the Pension Plan would have been if you had stayed in the Pension Plan. If you did not have previous Pension Plan service, your amount is based on the actuarial accrued liability or "total cost" of the benefit you would buy under the Pension Plan.
- If your Investment Plan balance is less than the "buy-back" amount and you still want to switch back, then you must make up the difference out of your own money.
- If your total balance in the Investment Plan is greater than the "buy-back" amount, then your Investment Plan balance will be reduced by the "buy-back" amount; the rest will stay in the Investment Plan. You will have a benefit in both plans, although you cannot receive your Investment Plan benefit until you start drawing your Pension Plan benefit.
- If you chose the Hybrid Option (you chose the Investment Plan going forward but left your current benefit frozen in the Pension Plan), then you can't move your frozen money into the Investment Plan at a later date; it must stay in the Pension Plan. However, you can move the Investment Plan portion of your benefit back to the Pension Plan.
If you're in the Pension Plan and would like to switch to the Investment Plan, the present value of your accumulated benefit in the Pension Plan will be converted into an opening account balance in the Investment Plan.
| Payout Options — Investment Plan |
| Cash It Out |
Pros |
Cons |
| You can choose to take a full or partial lump sum distribution of your account balance when you leave.
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You have a lump sum cash payment that you can use to pay off debt or make a purchase (be sure to review the Tax Implications).
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- You will be taxed on the money (see Tax Implications for details).
- You will lose the retirement nest egg that was created for you and you may not have enough money to fund your retirement.
- You will no longer have access to the MyFRS Financial Guidance Line services (online and telephone).
- You will forfeit any unvested service you may transfer from the Pension Plan.
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| Leave It in the Plan |
Pros |
Cons |
| You can choose to keep your money in your Investment Plan account.
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- Your money will continue to grow until you retire or elect to have it paid to you.
- You will continue to have access to the MyFRS Financial Guidance Line services (online and telephone) at a modest charge to you.
- You will be able to monitor and change your investment elections, just as you can today.
- Generally, the investment fund fees you pay in the Investment Plan are lower than those you would pay in the retail market for mutual funds.
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None.
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| Roll it Over |
Pros |
Cons |
| You can choose to take all or part of your Investment Plan account and roll it over into another tax-deferred account.
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- You don't pay taxes until you have it distributed to you.
- Your money continues to grow until you retire or have it paid to you.
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- Generally, the investment fund fees you pay in the retail market for mutual funds are higher than those in the Investment Plan.
- You may be restricted to a limited number of funds or types in the new plan.
- You will no longer have access to the MyFRS Financial Guidance Line services (online and telephone).
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Tax Implications
Because the money that's in your Investment Plan account has never been taxed (your employer has made all contributions), you will be responsible for payment of taxes once you have the money distributed to you. Your age and personal financial situation will determine the amount of tax you'll be required to pay, as follows:
- Under Age 55 - Generally, you'll be required to pay a mandatory 20% tax that will be applied as a credit towards your general tax liability in the year in which you receive payment. If your tax bracket is higher than the 20%, you will be responsible for any additional taxes when you file your income taxes. In addition, the IRS may impose a 10% penalty tax, as you are withdrawing money that was earmarked for your retirement.
- Age 55 or Older - Generally, you'll be required to pay a mandatory 20% tax that will be applied as a credit towards your general tax liability in the year in which you receive payment. If your tax bracket is higher than the 20%, you will be responsible for any additional taxes when you file your income taxes.
Note: Be sure to contact the MyFRS Financial Guidance Line to discuss what impact taxes will have on your benefit before you take your money out of
your account. You can find additional information on the tax implications in the FRS Investment Plan Special Tax Notice.
Distribution Process
You must be terminated from FRS employment for at least three full calendar months before you can begin receiving any benefit from the Investment Plan. For example, if you terminate on March 10, you would be eligible to take a distribution beginning July 1 and after. There is an exception if you have reached the normal retirement requirements of the Pension Plan. You may receive a one-time distribution of up to 10% of your account balance after being terminated for one full calendar month and the remainder after two additional months.
Additionally, you may be required to complete the FRS Investment Plan Employment Termination Form (available on MyFRS.com) and mail it to the FRS Investment Plan Administrator. If you are interested in receiving your distribution in some form other than a lump sum, you should call the Plan Administrator who will initiate the payment process.
| Payout Options — Pension Plan |
| Payout Considerations |
Details |
| No immediate payout is possible at this time if you are age 42 or less. If you're above age 42, you may receive a benefit that is reduced by 5% for each year you are under age 62 (Special Risk would be reduced from age 55).
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Your benefit stays with the FRS until you reach early or normal retirement (for Regular Class members, you must be age 62 with 6 years of service or have 30 years of service regardless of age; for Special Risk Class members, you must be age 55 with 6 years of service or have 25 years of service regardless of age).
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| Your benefit remains frozen "as is" until you receive your benefit at early or normal retirement age.
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In the years between when you terminate and when you actually retire, your Pension Plan benefit will not grow and may not keep up with inflation.
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| Cost-of-living adjustment (COLA) increases your benefit.
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Once you begin receiving your monthly benefit, you will automatically receive a 3% cost-of-living adjustment increase each July.
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