In years when the Statewide Defined Benefit Plan takes in more contributions from members and employers than are necessary to fully fund the plan, the FPPA Board may, but is not required to, deposit some or all of those funds into the Separate Retirement Accounts (SRAs) for active members in the plan. The SRA is currently invested in the FPPA Member’s Benefit Investment Fund until the member distributes or transfers the balance of their SRA upon retirement or enters into DROP.
There are also two different types of SRAs. The Base SRA, as described above, is applicable to all members of the Statewide Defined Benefit Plan. In addition, members who joined the SWDB plan through the reentry process also have a Reentry SRA due to the higher contribution rate paid by these individuals.
It should be noted that due to things like benefit adjustments, market downturns, changes in actuarial assumptions and other factors that have affected the plan over time, significant contributions haven’t been made to Base SRAs in over two decades. Thus, most members with significant Base SRA balances are already at or near retirement age.
This statutory change converts existing SRAs to defined contribution accounts. Members will now control investments for their individual accounts and the funds will be available for withdrawal upon retirement. FPPA maintains the ability to make deposits into active member SRAs should the opportunity arise.
The bill also allows for reentry departments to reduce the required reentry surcharge of 4% to reflect the actual cost of reentry. Any contributions received above the actual cost of reentry will be allocated to the member’s self-directed account.
This legislation directs FPPA to convert all existing SRAs into self-directed Defined Contribution accounts controlled by the member. Members are eligible to withdraw funds from these accounts when they retire.
Additionally, Base Separate Retirement Accounts can no longer be used to shore up unfunded liabilities. Historically, the FPPA board had the ability to use all or a portion of SRA funds from active members if they were necessary to shore up the plan. However, FPPA has never used this safeguard.
Allowing each reentry department the option of reducing the required reentry surcharge of 4% not only reflect the actual cost of reentry, but provides options for each department. Contributions in excess the actual cost of reentry will be allocated to the members self-directed account.
By giving members control of their SRA balances, they are better equipped to make sound decisions regarding their financial future.
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