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  • The Dish From Ish, March 2019
    Updated On: Mar 06, 2019
    NIZAM "ISH" ISHMAEL, PBA Treasurer

    I received many e-mails, calls, and texts on my last article regarding the importance of securing a financial future. The following are a few of the items many members asked me to expand upon.

    During the 2011 legislation, the Cost of Living Adjustment (COLA) changed. Prior to July 1, 2011, it was 3%. So, if you retired before July 1, 2011, your COLA would increase by 3% each July 1st. When you enter the Deferred Retirement Option Program (DROP), you have technically retired and your COLA will be determined at that moment. For example, if your pension payment is $3,000, then the following July it will increase to $3,090. The $90 increase is the 3% COLA for that year. Just consider the increase after 15 years as it is a compounded benefit, which means the 3% is applied to the previous year’s total. After 15 years the $3,000 monthly pension payment becomes $4,673.90. So here is the bad news for us that have not yet retired. If you are still employed after July 1, 2011, your COLA is suspended indefinitely, which results in a blended or prorated COLA calculation.

    You may be asking yourself, how do I calculate my COLA percentage? Formula to calculate your COLA: service years prior to July 1, 2011, divided by total service years, multiplied by 3%. If you have 25 years completed as of July 1, 2011, and then you continue to work for another 5 years, that would give you 30 total years of service. 25/30 times 3% or .83333 times 3%, which equals a COLA of 2.5% for your retirement. I want to reiterate this point again when you enter the Deferred Retirement Option Program (DROP), you have technically retired and your COLA will be determined at that moment. During the 2011 legislation, the vesting period also changed. For the Florida Pension, you must have at least 6 years of credible service for 100% vesting. The vesting period, after July 1, 2011, for new hires has been changed to 8 years.

    In addition, if you were hired before July 1, 2011, your Average Final Compensation (AFC) is the average of your five highest fiscal years' earnings. If you were hired after July 1, 2011, your AFC is the average of your eight highest fiscal years' earnings. I also want to mention your benefit options if you are in the pension plan: Option 1: Provides the highest payout; however, when you pass away it ends. Option 2: Provides a slightly reduced benefit and when you pass away your beneficiary will receive the same benefit for the remainder of the ten-year period. The time in the DROP counts towards the 10-year period! Option 3: The beneficiary option is often chosen for married couples and provides a reduced benefit; however, if you pass away before your beneficiary or spouse, they will continue to receive the same benefit for the remainder of their lives. Option 4: Provides a reduced benefit for life. Upon the death of the member or the joint annuitant, the survivor will receive a lifetime benefit, equal to two-thirds of the current Option 4 benefit.

    Some of our members may want to know more about the FRS Investment Plan and how you can retire with a large sum of money, so it is important to consider the following when deciding. For a multitude of reasons this might be a good choice for some, especially if your health is a major concern and you do not believe that you will live to your normal retirement age, if your other income sources or other assets in retirement are enough so you don't have to touch the Investment Plan funds for several years, or if you are terminated from employment with just a few years of service at any age well below the normal retirement age and you have fully vested in the plan. If you die while still employed by an FRS agency and you are in the Investment Plan, your beneficiaries will receive all of your plan balance as long as you are vested.

    It is important to remember that DROP is only available to FRS Pension members who are vested and have reached their normal retirement date. If you are in the Investment Plan, you are not eligible for the DROP. Before making any choice please speak with someone who understands your situation and is qualified to help. Do not solely rely on advice from your co-workers for your personal planning. Again, as I stated last month, make sure to use the best financial advisor, not a convenient advisor. Contact me at ish@dcpba.org or at (305) 593-0044. This article should not be used for financial advice. In any specific case, the parties involved should seek the guidance and advice of their own financial advisor.

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