(152) Are employee contributions mandatory?


(2222) Can I purchase leaves of absence or prior, past, out-of-state, in-state or military service under both plan options?

No. Under the Investment Plan you cannot purchase additional service credit. You can only do this if you are enrolled in the Pension Plan. If you are electing the Investment Plan and choosing to transfer the present value of your FRS Pension Plan benefit into the Investment Plan, you must purchase additional service in the Pension Plan before the transfer. The only time you may purchase service under the Investment Plan is if the purchase is required by federal law, such as a military service leave-of-absence, which is covered under the Uniformed Services Employment and Reemployment Act.

(43) How do I count my years of creditable service?

Work performed in a full-time or part-time regularly established position with an FRS participating employer is creditable toward retirement. Service in a temporary or contract position is not creditable toward retirement. You earn a full month of retirement service credit for each month in which you receive a salary payment in a covered position.

Service that occurred between July 1, 1974, and July 1, 1985, required a minimum monthly salary for full credit. If you earned less than the minimum monthly salary during this period, your service credit is reduced proportionately for that month.

All retirement records are kept by fiscal years (July 1 through June 30). Credit is measured in terms of fiscal years and fractions of fiscal years. A work year of service credit is 12 months of a fiscal year, unless your work year is specified to be less than 12 months. Shorter work years have been approved for some employees of school boards, community colleges, and state universities. The work year of most schoolteachers, for instance, is 10 months. The shortest approved work year is 9 months.

When you work the required number of months in your work year, you will receive a full year of service credit. You cannot earn more than 1 year of credit in a fiscal year. If you work less than the required work year, you receive a part of a year of credit. That part, or fraction, is determined by dividing the number of months worked by the number of months required to be worked in the work year. For example, a deputy sheriff with a 12-month work year who works 9 months of that year will receive service credit for 75% of the work year (9 / 12 =0.75). A teacher who works 6 months of a 10-month work year will receive service credit for 60% of that year (6 / 10 =0.60).

(161) Will my employee contributions earn interest?

Employee contributions in the Investment Plan will accumulate earnings, minus investment fees and administrative charges. Employee contributions in the Pension Plan will not earn interest.

(153) Are employee contributions paid before or after taxes?

Employee contributions are paid on a pretax basis. Your salary will be reduced by the amount of the employee contribution before determining the federal income tax deduction.

(151) How should required employee contributions be reported on an employee's Form W-2?

See the Tax Advice Disclaimer below.* The FRS requires all members to contribute 3% employee contributions. These contributions, as required by s. 121.71(2), Florida Statutes, are treated for tax purposes as employer-paid employee contributions (commonly called an employer pick-up) under Internal Revenue Code section 414(h)(2).** Consequently, these contributions are not included in the employees pay when calculating income on Form W-2 (that is, they are not included in Box 1). Instead, they should be reported on Form W-2 in Box 14-Other. These contributions should be labeled as FRS 414(h) Employee Contributions." These contributions are reported to the IRS for informational purposes and are not reported as income on the employees tax return (does not have any effect on an employee's wages for income tax purposes). Because the employee contribution is included in wages for purposes of FICA, it is included in Box 3 (Social Security wages) and Box 5 (Medicare wages) of the W-2.

In summary, the employee contributions should be reported on Form W-2 as follows:

  • Box 1 - Code section 414(h)(2) "pick-up" contributions are not included in the amount reported in Box 1 of Form W-2 because they are considered under Code section 414(h)(2) to be "employer contributions" and thus not included in an employee's wages - this treatment is regardless of whether the employer makes the contributions or whether the employee contributes through a payroll reduction contribution.
  • Box 3 - The employee contribution is included in wages for purposes of FICA so it should be included in Box 3 (Social Security wages) of Form W-2.
  • Box 5 - The employee contribution is included in wages for purposes of FICA so it should be included in Box 5 (Medicare wages) of Form W-2.
  • Box 12 - Even though the employer "pick-up" contributions are pre-tax, they are not reported in Box 12 because they are not employee contributions, but are technically considered employer contributions under Code section 414(h)(2), even though they reduce the employee's salary. Please see IRS publication 2011 Instructions for Forms W-2 and W-3, pages 9 and 10, which provides that "required employee contributions" (which would include Code section 414(h)(2) employer pick-up contributions) may be reported in Box 14, but not Box 12, as follows:
    • "The following are not elective deferrals and may be reported in Box 14, but not in box 12 .... Required employee contributions."
    • "Do not report in Box 12 section 414(h)(2) contributions (relating to certain state or local government plans). Instead, use Box 14 for these items and any other information that you wish to give to your employee."
  • Box 14-Other Employee contributions should be reported in Box 14-Other, labeled as "FRS 414(h) Employee Contributions."

* TAX ADVICE DISCLAIMER: Although the information provided above is presented in good faith and believed to be correct, it is General in nature and is not intended as tax advice. You may want to obtain the advice and guidance of a professional Tax Adviser prior to any actual transaction. The FRS assumes no obligation to inform any member or agency of any changes in the tax law or other factors that could affect the information contained above.

** Code section 414(h)(2) states: in the case of any plan established by the government of any State ... where the contributions of employing units are designated as employee contributions but where any employing unit picks up the contributions, the contributions so picked up shall be treated as employer contributions.

(2088) Why does the Investment Plan include some investment funds that I've never heard of?

The funds you're talking about - the FRS Funds, and others - are privately managed funds created specifically for the Investment Plan. Creating investment funds specific to a particular retirement plan is very cost-effective, and commonly done by large retirement plans. Plan trustees hire premier specialist companies to meet specific requirements at costs that are often a fraction of buying investment products and services off-the-shelf in the retail market. For the Investment Plan, experienced specialist investment companies have been hired. These specialists typically provide services only to pension funds, endowments, mutual funds or the very wealthy. As a result, you have access to some of the best money managers at a fraction of the cost you would pay for similar funds outside the Investment Plan.

(154) Do all Pension Plan and Investment Plan members have to pay 3% employee contributions?


(158) If I terminate employment can I leave my employee contributions on deposit?

If you are a Pension Plan member, you can leave your employee contributions on deposit indefinitely. Interest will not be earned.

If you are an Investment Plan member, you can leave your employee contributions on deposit. Any unvested employer contributions will be moved to a suspense account for up to 5 years. If you do not return to FRS-covered employment within 5 years, the unvested employer contributions and service associated with that service will be forfeited. If your vested employee contributions on deposit are greater than $1,000 at the time the unvested contributions are moved into a suspense account and you may keep them on deposit in the Investment Plan. If your vested employee contributions on deposit are $1,000 or less, the Investment Plan Administrator will automatically distribute the balance to you (a de minimis distribution). If you receive a de minimis distribution, you will not be considered a reemployed retiree and will not be subject to the limitations applicable to such employees. If you receive a de minimis distribution and return to FRS-covered employment in the future, you will be placed back in the Investment Plan and earn additional service credit.