Volume 4: Issue 3
Issue Date: July 12, 2005



DROP rollover to FRS Investment Plan now available

Senate Bill 1446 (Chapter 2005-253, Laws of Florida), which passed during the 2005 legislative session, allows FRS Pension Plan members to roll over some or all of their DROP accumulation to the FRS Investment Plan. This option allows DROP participants to keep their money in the FRS and take advantage of the low cost investment products offered in the Investment Plan. When a member decides to take a distribution of accumulated funds from the Investment Plan, multiple distribution options are available: a lump sum payment, periodic payments (monthly, quarterly, semi-annually, or annually), fixed or variable annuity (much like a traditional Pension Plan benefit), or a rollover to another qualified retirement plan.

Below are the answers to some of the questions you and your employees might have:

1. Q: What is the effective date of the law?
A: The law was effective July 1, 2005.
2. Q: Who can I call to discuss my questions concerning this new opportunity for my DROP accumulation?
A: You can call the toll-free MyFRS Financial Guidance Line at 1-866-446-9377, Option 1, and speak to one of the unbiased financial planners. They can answer your questions about rolling your DROP accumulation into the FRS Investment Plan.
3. Q: Do I have to roll my DROP accumulation to the Investment Plan?
A: No. You may rollover your accumulation to any eligible retirement plan as defined in section 402(c)(8)(b) of the Internal Revenue Code. (See the Division of Retirement DROP brochure for more information.). You should carefully compare fees, penalties, investment options, restrictions and services before choosing where to rollover your DROP accumulation.
4. Q: Are all current and future DROP participants eligible for the rollover?
A: Yes. All current and future DROP participants are eligible to roll their DROP accumulation over to the FRS Investment Plan so long as they do not take their accumulation as a cash lump sum payment, or they convert the cash payment to a lump sum rollover prior to the end of the 60-day rollover window after the date of their distribution check.
5. Q: Are former DROP participants who took their DROP distribution as a rollover prior to July 1, 2005 eligible for a rollover to the Investment Plan?
A: Yes. All former DROP participants are eligible to roll over their DROP accumulation to the FRS Investment Plan. Rollovers from former DROP participants may be transferred to the FRS Investment Plan so long as they come into the Plan from a qualified retirement account, such as an IRA, 403(b), 457, 401(a), 401(k), etc.
6. Q: Are former DROP participants who took their DROP distribution as a cash lump sum payment prior to July 1, 2005 eligible for a rollover to the Investment Plan?
A: No. If a former participant took their DROP accumulation as a cash lump sum payment, they are not eligible to roll the payment to the Investment Plan.
7. Q: If I roll my DROP accumulation into the Investment Plan, will I pay account management fees?
A: Yes. You will pay the investment management fees for the
fund(s) in which you choose to invest, plus a quarterly plan administrative fee of $6 ($24 annually). These fees will be reflected on your quarterly statement from the Investment Plan. Total fees paid in the Investment Plan are likely to be less than those paid in other plans, but you should review all fees carefully.
8. Q: Is there a minimum amount I can roll over to the Investment Plan?
A: Yes. Your DROP rollover must be greater than $1,000. There is no maximum amount that may be rolled over.
9. Q: Is there a minimum account balance I must keep in my Investment Plan account?
A: Yes. If your account value falls below $1,000, you will receive a mandatory distribution of your full balance in the plan.
10. Q: If I roll my DROP accumulation into the Investment Plan, will I have to pay any taxes?
A: Your DROP accumulation will not be taxed at the time you roll it over to the Investment Plan. It will only be taxed when you decide to take a distribution from the Investment Plan, and then only on the amount you take as a distribution.
11. Q: A portion of my DROP accumulation was based on contributions I made for the purchase of additional service in the Pension Plan prior to entering DROP. As such, I will be receiving two checks when I take my DROP distribution from the Pension Plan. Can I roll over both of my distribution amounts?
A: No. Any DROP accumulations you receive which are based on your after-tax personal contributions are not eligible to roll over to the Investment Plan. These accumulations will be paid to you as a tax-free, lump sum payment, as computed using the Simplified General Rule under the Internal Revenue Code. Only the DROP accumulation you receive based on pre-tax funds is eligible to be rolled over to the Investment Plan.
12. Q: If I retire from the Pension Plan, I know I will be subject to the reemployment-after-retirement restrictions of the Pension Plan. But if I roll my DROP accumulation into the Investment Plan, will I also be subject to the reemployment-after-retirement restrictions of the Investment Plan?
A: No. You will only be subject to the reemployment-after-retirement restrictions of the FRS Pension Plan, which may affect your monthly Pension Plan benefit if you return to work. You will have immediate access to your DROP accumulation from the Investment Plan whether you are retired or return to FRS-covered employment.
13. Q: If I roll my DROP accumulation into the Investment Plan, am I eligible to also roll other retirement monies I have from other sources to the Investment Plan?
A: Yes. You may roll other retirement monies into the Investment Plan if they are from a qualified retirement plan that is an eligible plan as provided by the IRS (includes IRA, 401(k), 401(a), 403, and 457 retirement plans, and the Federal Thrift Savings Plan). An FRS Investment Plan Employee Rollover Deposit Form ("IP-Rollover") must be completed in order to facilitate the transfer. This form is available on the MyFRS.com website under "Resources" in the "Forms" gallery or by calling the MyFRS Financial Guidance Line and selecting Option 4.
14. Q: If I roll my DROP accumulation into the Investment Plan, will those funds be subject to the minimum required distribution rules of the IRS (i.e., minimum payments beginning at age 70½)?
A: Yes.
15. Q: How many funds are in the Investment Plan and what are the fees?
A: There are 20 funds available in the Investment Plan with annual fees as low as 0.02%. There are also three balanced funds available to make your investing easy. You can see the funds and fees by logging on to www.MyFRS.com and clicking on the green "$" button in the upper right corner of the home page. You can also call the MyFRS Financial Guidance Line toll-free at 1-866-446-9377, Option 1, and speak to one of the financial planners. They can talk with you about all the funds and help you choose funds you feel best fit your goals and circumstances.
16. Q: If I am completing my DROP participation prior to age 59½, will I be subject to the 10% penalty assessed by the IRS for early withdrawals?
A: The answer is generally yes, but there are important exceptions. Since the FRS Investment Plan is an employer sponsored plan, you will be eligible to take distributions from the Investment Plan without the 10% IRS early withdrawal penalty if payments are paid to you after you separate from service with your employer during or after the year you reach age 55, or if payments are made as equal or almost equal installments over your life or life expectancy. You should consult your tax advisor or one of the financial planners at the MyFRS Financial Guidance Line about your specific circumstances. There is also additional information on taxability of benefits at MyFRS.com under "FRS Programs", "Comparing the Plans".
17. Q: What paperwork will I have to complete in order to roll my DROP accumulation in to the FRS Investment Plan?
A: If you are a new or current DROP participant, you should complete the Division of Retirement's Deferred Retirement Option Program Selected Payout Method, Form DP-PAYT, and send it to the Investment Plan Administrator, CitiStreet, who will sign and forward the completed form to the Division of Retirement. You must also complete an Investment Plan DROP Accumulation Direct Rollover Form for Current DROP Members, Form IPDROP-AD-1, and send it to the Investment Plan Administrator to set up your Investment Plan account. CitiStreet will send you a confirmation letter and personal PIN for accessing your account under separate cover after processing your completed form.

If you are a former DROP participant who received your DROP distribution as a rollover prior to July 1, 2005, you should complete the Investment Plan's DROP Direct Rollover Form for Former DROP Members, IPDROP-RO-1, available on the web at MyFRS.com, under "Forms" and send it to the Investment Plan Administrator, CitiStreet for processing. CitiStreet will send you a confirmation letter and personal PIN for accessing your account under separate cover.
18. Q: If I choose to roll my DROP accumulation to the Investment Plan, but fail to designate an investment fund for its deposit what will happen to my money?
A: If you do not choose one of the investment options listed on the rollover enrollment form, your DROP accumulation will be initially invested in the FRS Select Yield Plus Money Market Fund. After your account has been established you will then have access to move your money to any of the 20 available funds offered in the Investment Plan.
19. Q: How do I take a distribution from the FRS Investment Plan?
A: To take a distribution, call the MyFRS Financial Guidance Line toll-free at 1-866-446-9377, Option 4, and speak to a CitiStreet representative. Be sure to have your PIN number available prior to calling. If you do not have a PIN, you may request a PIN reminder online or by calling the MyFRS Financial Guidance Line and selecting Option 4.
20. Q: If I roll my DROP accumulation into the Investment Plan, will the beneficiary I named under the Pension Plan when I entered DROP automatically become my beneficiary for my money invested into the Investment Plan?
A: No. The beneficiary you named to receive your DROP accumulation and Pension Plan benefit are only applicable under that plan. If you roll over your DROP accumulation to the Investment Plan, you will need to name new beneficiaries to receive any benefits due at your death. Otherwise, your benefits will be paid out according to Florida Law. The beneficiary you named under the Pension Plan will continue in effect for that plan.
21. Q: If I roll my DROP accumulation into the Investment Plan and later return to FRS-covered employment as a renewed member, and join the Investment Plan as my retirement option, can I name a different beneficiary than the beneficiary I named for my DROP rollover?
A: No. Your named beneficiary under the Investment Plan will pertain to all investment accounts you have under the plan. You may, however, have a different beneficiary named under the Pension Plan to receive any benefits due from that plan.
22. Q: If I roll some or all of my DROP accumulation into the Investment Plan, what services will I get from the FRS?
A: You will continue to have access to the toll-free MyFRS Financial Guidance Line at 1-866-446-9377, where you can talk to experienced and unbiased financial planners from Ernst & Young. They can help you manage your retirement benefits and help you with any financial questions you may have. You will also have access to the MyFRS.com website where you can log in to your account to make asset allocation changes.
23. Q: Can the FRS Investment Plan receive rollovers from Roth IRA's?
A: No.
24. Q: I am a Special Risk member considering rolling my DROP accumulation to the Investment Plan. Will I be subject to a 10% early distribution tax penalty if I take a lump sum distribution from the Investment Plan before I am age 55?
A: Yes. You may be subject to the 10% penalty (i.e., excise tax). It will be your responsibility to pay the 10% penalty when you file your tax return. You will also be responsible for any other taxes you may owe for this payment above the 20% that was withheld. Note: the 10% excise tax triggered by lump sum distributions before you are age 59½ is applicable for distributions from the Investment Plan, deferred compensation plans, tax-deferred annuities and traditional IRAs (some exceptions apply if you are older than age 55).
25. Q: If I am age 50 when I terminate DROP and roll my DROP accumulation to the Investment Plan, could I be subject to the 10% tax penalty if I wait to take a lump sum distribution at age 55?
A: Yes. You cannot age into penalty exemptions. You are subject to the 10% tax penalty for plans like the FRS (and deferred compensation plans) based on your age at FRS-covered employment termination. You would need to wait until age 59½, unless you qualify for an exemption as defined under IRS section 72(t). For example, taking distributions as substantial and equal periodic payments over your lifetime; this method would allow you to avoid the 10% penalty.
26. Q: If I rollover my DROP accumulation to the Investment Plan and begin taking equal installments over my lifetime prior to age 55, say age 54, to avoid the 10% tax penalty, can I change my payment amount after 2 years?
A: No. You cannot change your payment amount until the later of 5 years or age 59½. So, the earliest you could change your payment amount if you began distributions at age 54 would be age 59½. Should you change your payment schedule prior to the later of 5 years or age 59½ all payments received may be retroactively charged the 10% excise tax.

We hope you find these questions and answers helpful, and encourage you to share them with your employees. If you have additional questions, please call the MyFRS Employer Assistance Line toll-free at 1-866-377-2121, Option 1. Your employees may call the MyFRS Financial Guidance Line toll-free at 1-866-446-9377 with additional questions.