Big changes could be coming for future teachers in Florida, but it’s not surprising to me. Senate Bill 84 has made its way through the Florida Senate and was approved on April 8th and is now set to be voted on in the House. The bill makes it compulsory for new eligible teachers, after July 1st, 2022 to be enrolled in the Investment Plan and no longer eligible for the Pension Plan.
Understanding the difference between the two is critical. The Pension Plan, also known as a Defined Benefit Plan, pays out a specified monthly income in retirement. Because 100% of the investment risk is on the employer, if they don’t meet their actuarial growth targets, they are forced to contribute more money into the plan. This can be extremely expensive and the reason that most companies in America no longer offer a pension plan today. The Investment Plan on the other hand, is known as a Defined Contribution Plan, like a 401(k). The employer also contributes a certain amount to the employee’s Investment Plan, however all of the investment risk is on the employee. If funds are not managed properly, or a retiree spends too much money too quickly in retirement, they essentially run the risk of outliving their money!
Managing risk with the Investment Plan and projecting realistic investment returns and spending rates is critical to reduce the risk of outliving your retirement nest egg. For more tips and strategies, join us for our upcoming FRS Retirement Preparedness Workshops at www.FRSWorkShop.com