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BackChanging Mid-Stream

If you're leaving FRS employment in the middle of your career, find out what your options may be.

What to Consider | Switching Plans | Payout Options — Investment Plan | Tax Implications | Distribution Process | Payout Options — Pension Plan

What to Consider


One-time 2nd Election

You have a one-time opportunity to change plans (your 2nd Election) during your FRS career. To use your 2nd Election you must be actively employed with an FRS-participating employer, earning salary and service credits. If you are on an unpaid leave of absence, or have terminated your FRS-covered employment, you are not eligible to use your 2nd Election. You must make the 2nd election prior to terminating your employment for the election to be valid.

Regardless of which retirement plan you're in, you can use the 2nd Election CHOICE SERVICE on MyFRS.com to see which plan best meets your future financial and retirement 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 Pension Plan.
  • If your Investment Plan balance is less than the "buy-back" amount you must make up the difference out of your own money.
  • If your Investment Plan account balance is greater than the "buy-back" amount, your 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 begin 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), you can't move your frozen Pension Plan benefit into the Investment Plan. However, you can buyback 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

If you're in the Investment Plan...

  • You need at least one year of FRS service to be vested in your Investment Plan benefit.
  • You are always vested in employee contributions and entitled to a distribution of these contributions.
  • If you leave prior to attaining at least one year of service, any unvested account balance in your account after you leave will be frozen for five years following the date you leave. If you don't return to covered employment with an FRS employer within the five-year period, your benefit will be forfeited - even if you return to covered employment with an FRS employer later in your career.


Cash It Out Pros Cons
You can choose to take a full or partial lump sum distribution of your account balance when you leave. You have a lump sum cash payment that you can use to pay health expenses or other necessary expenses (review the Tax Implications).
  • You will be taxed on the money (see Tax Implications for details).
  • You will lose the retirement nest egg and you may not have enough money for retirement.
  • You will no longer have access to the MyFRS Financial Guidance Line services (online and telephone).
  • You forfeit any unvested balance and service you may have transferred from the Pension Plan.
Leave It in the Plan Pros Cons
You can choose to keep your money in your Investment Plan account.
  • 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.
None.
Roll it Over Pros Cons
You can take all or part of your account and roll it over into another tax-deferred account.
  • 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.
  • Generally, the investment management fees paid in the retail market are higher than those in the Investment Plan.
  • You no longer have access to the MyFRS Financial Guidance Line services (online and telephone).



Tax Implications


Because the money that's in your Investment Plan account has never been taxed, 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 all FRS employment for at least three full calendar months before receiving any benefit from the Investment Plan. There is an exception if you have reached the normal retirement requirements of the Investment 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 calendar months. For more information please see the MyFRS Termination Kit.



Payout Options — Pension Plan

If you're in the Pension Plan...

  • If you enrolled in the FRS prior to July 1, 2011, you must have 6 years of service to be vested in your Pension Plan benefit. If you enrolled in the FRS on or after July 1, 2011, you must have 8 years of service to be vested in your Pension Plan benefit.
  • You may be entitled to a refund of your employee contributions.
  • Any benefit you've accumulated remains in the Pension Plan indefinitely.
  • If you leave prior to vesting and return to work for an FRS employer at any time in the future you will be able to add to the service you have already earned. If you proceed to meet the vesting rules in place at that time, you'll be entitled to a Pension Plan benefit.
  • If you don't return to an FRS employer, and you are vested in the Pension Plan, you may wish to consider early retirement rather than waiting until you attain normal retirement age.


Payout Considerations Details
If you enrolled in the FRS prior to July 1, 2011, 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). Your benefit stays with the FRS until you reach early or normal retirement.
If you enrolled in the FRS on or after July 1, 2011, no immediate payout is possible at this time if you are age 45 or less. If you're above age 45, you may receive a benefit that is reduced by 5% for each year you are under age 65 (Special Risk would be reduced from age 60). If you enrolled in the FRS prior to July 1, 2011, normal retirement is age 62 with at least 6 years of service or 30 years of service, regardless of age. For Special Risk Class members, normal retirement is age 55 with at least 6 years of Special Risk service, or 25 years of Special Risk service, regardless of age, or age 52 with 25 years of Special Risk service and military service.

If you enrolled in the FRS on or after July 1, 2011, normal retirement is age 65 with at least 8 years of service or 33 years of service, regardless of age. For Special Risk Class members, normal retirement is age 60 with at least 8 years of Special Risk service, or 30 years of Special Risk service, regardless of age, or age 57 with 30 years of Special Risk service and military service.
Your benefit remains frozen "as is" until you receive your benefit at early or normal retirement age. 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.
Cost-of-living adjustment (COLA) increases your benefit. Once you begin receiving your monthly benefit, you will automatically receive a 3% cost-of-living adjustment increase each July (adjustment only applicable for FRS service earned prior to July 1, 2011).


If you leave FRS employment before you're vested, you'll want to know what to consider and how it will affect your payout options.



Payout Options


You are NOT eligible for a payout of any benefit because you are leaving FRS employment before you are vested (except for employee contributions).