Get your ORP-FRP buyback estimate first
When we came to USF, most of us had to choose between the state’s standard pension plan and sticking the equivalent USF contributions into one or more mutual funds (e.g., TIAA-CREF). (Not everyone had a choice: many of those in USF Health have to join the mutual-fund system and cannot join the Florida Retirement System, or pension plan.) Many tenure-track faculty members and instructors have chosen the mutual-fund route because we weren’t sure how long we’d be at USF or because mutual funds seemed a better financial option than a state pension. When you’re 30 or so, the possibilities for job switches loom big, and retirement is far in the distance. Normally, the two plans are entirely separate, but the legislature is allowing university employees to make a one-time switch during 2008 from the mutual-fund accounts into the state’s standard pension plan by buying credit for years of service. (There is another option—moving from mutual funds where you control the mix of assets to a mutual fund where the state of Florida controls the mix of assets—but I assume most people will only be considering the shift into the pension plan.)
This is a one-time, one-direction-only option. You’d turn money from your mutual-fund retirement account into years of service according to an actuarial formula that is specific to your years of service, income, and age. So the specifics will depend on your individual situation. You can get a buy-back estimate by calling the Florida Division of Retirement between 8 and 5 EST at 1-866-446-9377 and navigating to whatever path is to “finding out retirement calculations for K-12, community, college, and university employees.” Right now, that’s option 3 at the opening voicemail-labyrinth prompt (”If you would like detailed information regarding the FRS pension plan, …”), then 1 (”If you have questions about … the calculation of pension-plan benefits”), then 2 (”If you work for a school board, community college, or university”). I asked if employees could e-mail a request in, and the employee at the Division of Retirement said that staff needed the answers to specific questions before preparing the buy-back estimate. Here are the questions you will be asked:
- What is your Social Security number?
- What is a phone number where you can be reached if there are additional questions?
- Is your current address still _____ ?
- When you started in ORP, was it a voluntary election, or were you required to be in ORP? (College of Medicine faculty are required to be in ORP.)
- Have you ever taken any distribution from your ORP account?
- Are you in the state’s Executive Service? (Only five employees at USF are in this category; if you don’t know what this question is, your answer is no.)
- Is your current annual salary _____ ?
The staff member told me they’d mail out a buyback estimate in a few weeks (HR staff tell me it’s about 3-4 weeks), and it would be close but not exact—the precise buyback amount will depend on the day you sign on the switch application.
There are generic tradeoffs—mutual funds versus a pension system—but most people understand those tradeoffs and need the buyback estimate to get a sense of whether the pension plan is feasible as well as a sensible option. There are two issues with the pension plan that are notable: those in the Florida Retirement System have health benefits subsidized directly from the pension plan, and those in the Florida Retirement System are eligible for the DROP plan at age 62/30 years of service, where you can work for five additional years after technically retiring, and the pension payments are then paid into a special holding account that becomes a cash payout after the end of the fifth year after entering DROP. (Technically, the subsidy for retiree health insurance in ORP is bundled into the employer contribution to whatever mutual funds you chose.)
I’ve just requested my buyback estimate, and I’m not even thinking about the switch until I receive that estimate. Before you decide whether to switch, you may well want to seek financial planning advice. USF’s HR department has set up workshops (register by clicking here), and you can make appointments with Sonya Techton for one-on-one consultations in 2008. Please, for her sake, make sure you go to one of the workshops before talking with her personally.
(My thanks to Ms. Techton and Donna Pepper for corrections to a previous draft.)