FAQs

(14) Do FRS Investment Plan funds pay dividends and interest income?

Yes, but the institutional and commingled investment funds available to you in the Investment Plan treat dividend and interest income somewhat differently than if you held a mutual fund within a taxable account.


In a taxable account, as part of the process of trading securities within a fund, there will be short-and long-term capital gains generated, as well as income from interest-bearing securities, and these are distributed to the investor when paid out. In a taxable account, an investor has the ability to decide whether to have the income paid, or to use the additional dividends and interest to purchase additional shares or units of the fund. When dividends and interest are paid to the investor, it represents a loss of income for the fund, and the share price is reduced, accordingly. The investor will have to pay taxes on these distributions and they may be taxed at ordinary income tax or long-term capital gains rates.


The fund shares held by members in any of the FRS Investment Plan fund offerings, or any tax-deferred retirement savings plan, are held under a mechanism called an "omnibus account". The "owner" of the omnibus account is the FRS Investment Plan. When the funds receive income from realized gains, dividends, and interest income, this stream of income is reflected in the share or unit price on a daily basis. As opposed to a mutual fund's distribution of dividends, which has the effect of reducing the net asset value (the price per share of the fund), the pass-through of income into the FRS Investment Plan fund offerings will have the effect of increasing the unit value since income is added into the fund, rather than being distributed to investors. This increased value is reflected in the daily share price shown in the funds and in your account balance. When you take a distribution from the FRS Investment Plan at retirement, the net asset value of the fund will reflect all gains, qualified dividends, and interest income earned during the time you were invested in the fund.

(2112) I'm already in a deferred compensation plan. Why would I choose the Investment Plan if I have enough money at risk right now?

When choosing between the Pension Plan and the Investment Plan, take a close look at what each has to offer, before ruling either plan in or out as the right choice for you. It may be that in your circumstances, the Investment Plan simply provides a higher benefit than the Pension Plan. For instance, vesting is 1 year in the Investment Plan and 6 years in the Pension Plan (8 years if first enrolled in the FRS on or after July 1, 2011). Nonetheless, an important factor to consider in making your choice is your total portfolio of retirement assets both inside and outside the FRS. Review your income goals and the level of investment risk you're willing to take. And be sure to get help making your assessment by calling the MyFRS Financial Guidance Line 1-866-446-9377, Option 2 and/or visiting the CHOICE SERVICE on MyFRS.com.

(10) Will the education and counseling firms continue to provide services after I make my plan choice? Will they be allowed to sell services, like tax preparation?

The education program providing retirement planning support and investment education and guidance is intended to remain in place indefinitely for all active FRS members, whether in the Pension Plan or the Investment Plan. However, the types of services they provide will expand after you make your plan choice. The education firms are expressly forbidden from soliciting employees for the purposes of selling services or investment products. They are also not allowed to receive fees or revenue from investment companies in the program that are in any way related to the education firms' recommendations.

(60) My employer offers a savings plan. Does participation in Investment Plan prevent me from participating in that savings plan?

No. You can participate in any other additional savings vehicles your employer offers. In fact, it's to your advantage to participate in another savings plan (in addition to one of the two FRS plans). That way you can accumulate even more for retirement.

(2027) Will employer contributions to the Investment Plan be reduced in the future?

Future actions of the Legislature cannot be predicted or guaranteed with respect to prospective pension policies. The amount of employee and employer contributions to both the Investment Plan and the Pension Plan are determined by legislation. In future years, the Legislature could reduce or increase employee and/or employer contributions to either or both plans.

(2239) I'm just in one fund. Why is my “Your Personal Rate of Return” different from the fund's performance?

“Your Personal Rate of Return” includes any activity in your account involving the funds you are investing in throughout the quarter (or statement period). For example, contributions or fund transfers. Conventional fund performance looks at a single fund only on the first and last days of the quarter.


Example I
Let's use a simple portfolio as an example. Suppose you have a portfolio of one share of XYZ stock. At the beginning of the quarter the stock price is $10. No changes are made to the account during the quarter, and at the end of the quarter, the stock price is $9. This means that the stock, and also your portfolio, had a return of negative 10% (i.e., -10%) for that quarter.


Example II
At the beginning of the quarter you owned the same share of XYZ stock, again with a starting price of $10. You purchase a second share of XYZ stock in the middle of the quarter, at a price of $11. Again, the stock price at the end of the quarter is $9. The return of the stock, measured from day 1 to day 91 is negative 10% (i.e., -10%). The return of the portfolio, however, will be different from that of the stock because of the activity of the account. Since the purchase in during the quarter was at a higher price than the ending price, the portfolio performance is worse. In this case, “Your Personal Rate of Return” is negative 14.3% (i.e., -14.3%). If the purchase during the quarter had been at a price lower than the ending price, the performance of the portfolio would have been better than that of the stock. This is a simple example, but it does show how activity during a quarter can influence performance.


Example III
As a third example, again suppose at the beginning of the quarter the stock price of XYZ stock is $10, but you have no balance in the portfolio. Your first investment was made during the quarter at a price of $11, and at quarter end, was in the plan for 61 days. At the end of the quarter the stock price was $9. The return of the stock, measured from day 30 to day 91, is negative 18.18% (i.e., -18.18%). Since the purchase of the stock was made at a higher price than at quarter begin, “Your Personal Rate of Return” will have a lower return than the stock's quarterly return of negative 10% (i.e., -10%).

(2244) If I enroll in the Hybrid Option, am I required to take a distribution from both the Pension Plan and the Investment Plan at the same time?

No. The chart below shows your distribution options under the Hybrid Option, and what happens if you're rehired after you begin taking distributions from one or both plans.


Your Distribution Options What Happens if You're Rehired
You may take a distribution from the Pension Plan and Investment Plan at
the same time.
Renewed membership in the FRS is not available for retired members who are initially reemployed with an FRS-covered employer on or after July 1, 2010.
You may take a distribution from the Pension Plan and delay distribution from
the Investment Plan.*
Renewed membership in the FRS is not available for retired members who are initially reemployed with an FRS-covered employer on or after July 1, 2010.
You may take a distribution from the Investment Plan and delay distribution
from the Pension Plan.
Renewed membership in the FRS is not available for retired members who are initially reemployed with an FRS-covered employer on or after July 1, 2010.


*If you're at least age 70 1/2, the IRS requires you to take minimum distributions from your Investment Plan account.

(2104) If I switch to the Investment Plan, what happens to the benefit I've accumulated so far under the Pension Plan?

There are two things you can do:


  • Convert the present value of your Pension Plan benefit (your future benefit expressed in today's dollars) into the opening balance of your Investment Plan. Then, you'll get future employer contributions made to your Investment Plan account. At retirement, or when you leave FRS employment, you'll get a benefit only from the Investment Plan, paid in any available form you choose. To vest in your transferred Pension Plan benefit, you must complete 6 years of total creditable service (8 years if first enrolled in the FRS on or after July 1, 2011).
  • OR


  • If you have at least 5 years of FRS service (8 years if first enrolled in the FRS on or after July 1, 2011) at the start of your Choice period, you can leave your current Pension Plan benefit frozen where it is and let future contributions and benefits accumulate in the Investment Plan. Then, you'll receive retirement benefits in two ways: a monthly benefit from the Pension Plan (if you meet the Pension Plan vesting requirements) and an Investment Plan benefit paid in any available form you choose. This is known as the Hybrid Option.

However, you cannot split the balance of your earned Pension Plan benefit between the two plans. You must either transfer the entire amount to the Investment Plan or leave the entire amount in the Pension Plan.


Any time after your Choice period ends (or after you join the Investment Plan, whichever is first), you can change your mind about your choice of plans once – but only once – during your FRS employment.


(2098) What are investment earnings?

Investment earnings are the increase in the value of your account that comes from an increase in the price of your investments and an increase in the value of reinvested earnings in your account. Keep in mind that investment earnings may not keep pace with inflation (the cost-of-living). This is especially true when it comes to investments with lower short-term risk, like money market and bond funds. Also keep in mind that investment fund fees are charged as a percent of your account. These fees will reduce your investment earnings. For example, with an investment fund that has a 0.50% annual fee, that fee will eat up about 15% of your money in that fund over 30 years. However, the fees charged by the investment funds in the Investment Plan are generally low when compared with fees charged by investment funds in other public sector defined contribution retirement plans. More information on fees is available in the Annual Fee Disclosure Statement available in the Investment Funds section on MyFRS.com

(2101) What happens to my benefit under the Investment Plan if I leave FRS employment before vesting in my benefit but I later return to FRS employment?

You are immediately vested in your employee contributions. You will be vested in your employer contributions and earnings on those contributions when you complete one year of service with a participating FRS employer. If you transferred a benefit from the FRS Pension Plan, you must meet the vesting requirements of the Pension Plan for that service. If you terminate FRS-covered employment before completing one year of service, you will not be eligible to receive a benefit from the FRS Investment Plan, other than receipt of your employee contributions paid while a member of the Investment Plan. The balance in your account will be placed in a suspense account for up to five years (invested in the FRS Intermediate Bond Fund [90]). If you return to FRS-covered employment within this 5-year period, the balance in the suspense account, plus accrued earnings, will be returned to your account. If you do not return to FRS-covered employment within the 5-year period, you will forfeit the balance represented by your employer contributions. If you take your employee contributions you will forfeit the balance paid by your employer. If you take a distribution of any amount from the FRS Investment Plan, you are considered retired and will not be eligible for certain FRS benefits should you return to FRS-covered employment in the future.

(2243) If I use my 2nd election to buy back into the Pension Plan and have money left over, what happens?

Any money remaining after you buy back into the Pension Plan remains in the Investment Plan, so you actually participate in both plans. Once you're ready to retire and terminate employment, you don't have to take a distribution from both plans at the same time. You must begin receiving your Pension Plan benefit before you can start receiving your Investment Plan benefits.

(2220) If I choose the Investment Plan, can I transfer my entire accrued Pension Plan benefit into one set of investment funds and my future employer contributions to another set of funds?

No. When you initially choose the Investment Plan, you must elect to transfer your entire Pension Plan benefit and all future contributions into the same investment fund selections. However, you could elect to change your allocation for future contributions immediately after your account has been funded so that future contributions could be directed to other investment funds.

(61) I'm a new employee. Can I choose between the two FRS plans?

As a new employee, you have a choice of two FRS retirement plans: the Investment Plan and the Pension Plan. Enrollment in the Investment Plan will be retroactive to your date of hire. The Investment Plan effective date will be established as the first of the month following the month in which the enrollment form is received or the online enrollment is processed by the Plan Choice Administrator. From your date of hire until the effective date, employee and employer contributions will be paid into your Investment Plan account at the blended contribution rate. From your effective date forward, contributions will be paid into your Investment Plan account at the Investment Plan contribution rate in effect at the time the contributions are made.


Your enrollment period will end at 4:00 p.m. Eastern Time, on the last business day of the eighth month following your month of hire. Your initial election will be considered your initial choice or first election. If you do not make an active plan election, you will be automatically enrolled as follows; this automatic enrollment (or default) is considered your initial choice or first election.


Membership ClassPlan Default
Special Risk ClassPension Plan
All classes (except Special Risk Class)Investment Plan

If you're a State University System employee, you must execute a contract with a SUSORP provider within 90 days of your election window. If you do not enroll in the SUSORP, you can enroll in either the Investment Plan or Pension Plan by your enrollment deadline. If you do not make an active plan election, you will be automatically enrolled as follows; this automatic enrollment (or default) is considered your initial choice or first election.


Membership ClassPlan Default
Special Risk ClassPension Plan
All classes (except Special Risk Class)Investment Plan
(2237) How is “Your Personal Rate of Return” calculated?

Since the calculation involves all of the activity in all of your investments throughout the statement period, the calculation is very complex. The method used in Alight Solutions's “Your Personal Rate of Return” calculation is a commonly accepted calculation used by the financial services industry. The year-to-date (YTD) “Your Personal Rate of Return” is based on the performance of your investments from the first of the calendar year to the end of the statement period. Call the toll-free MYFRS Financial Guidance Line at 1-866-446-9377, Option 4, for more information.

(2028) Why is the retirement contribution percentage higher for those employees in the Special Risk Class?

The Legislature determined that certain employees have unique job functions that put them at special risk. Due to the intense physical and emotional demands of their job, they would likely spend fewer years at work earning a retirement benefit than does a regular FRS employee. Eligible positions include such personnel as law enforcement officers, firefighters, correctional officers, emergency medical technicians and paramedics. These jobs are performed in dangerous work environments where a greater chance exists of on-the-job injury or disability leading to retirement. To compensate these employees for their dedication and service, it was decided by the Legislature to increase their contribution percentage under the various retirement plan options and to allow Special Risk Class members to retire at an earlier age.

(2247) Can I use my terminal annual leave payment toward my retirement benefit calculation?

Yes, you may use up to 500 hours of annual leave paid as a lump sum for retirement purposes. If you are in the Pension Plan, this additional salary may be used to increase your average final compensation (it can also be used as part of your DROP benefit calculation). If you are in the Investment Plan, the additional employer retirement contributions paid for this lump sum payment will be deposited in your Investment Plan account. Lump-sum sick leave payments, retirement incentive payments, lump-sum annual leave payments in excess of 500 hours or bonuses are not considered wages for retirement purposes.

(67) How does one-on-one financial counseling work? How much does it cost?

During your Choice period and beyond, you can call the toll-free MyFRS Financial Guidance Line at 1-866-446-9377, Option 2 for one-on-one assistance and guidance. The financial planner who assists you will have access to the same online CHOICE SERVICE information you do and, if you are not a new hire, they will have access to your personalized Benefit Comparison Statement too. The planner can respond to your questions and help you decide what's right for you. There is no charge for the telephone service. Additionally, you will have access to the ADVISOR SERVICE providing you with helpful information on your retirement outlook and offering personalized investment guidance on your retirement savings.