Thirteen-point-five percent of Americans have a disability, so as you can imagine, when you consider the families that depend on FRS for their retirement security, how FRS treats disabilities is pretty important to all those families. If you are in the Florida Retirement System and you have a son or daughter with special needs, what do you need to know when it comes to your retirement benefits? Are there mistakes you could make choosing your survivorship options? Which plan gives you better advantages for your son or daughter, the pension plan or the investment plan? What else might you need to know? Well, that’s what we’re going to dive into today.

 As most any family who has a child with special needs can tell you, financial planning, including your retirement plan, can look a bit different for them than for other families. I can tell you this from firsthand experience as someone with a son with a disability. My book, “When Mental Illness Strikes, Crisis Intervention for the Financial Plan,” talks about how my son’s disability changed our family's financial plan and what our journey has been like.

Special needs families often have a big additional question that needs to be answered that other families don’t, and that’s “Who’s going to take care of my kid when I’m gone, and where are the resources required to do that going to come from?” In addition to that, if their son or daughter who has the disability has qualified for government programs like Supplemental Security Income, or SSI, and Medicaid, how do you plan around that so they don’t lose those valuable benefits? Because a mistake there could not only be costly from a financial sense, but it could also mean you lose valuable benefits that make a difference in their life.

Looking specifically at the FRS retirement plan and how it treats families with special needs children, let's look first at the pension plan and the difference between the four survivorship options in regards to special needs. Both pension survivorship Options 1 and 2 do not address special needs at all. As you are probably aware, Option 1 benefits stop when you die. There is no survivor benefits or joint annuitant that benefits would continue for. And Option 2 only provides for a joint annuitant for the first 10 years, beginning with the date you retire or begin DROP. So, if you have a child or adult child with special needs, Options 1 or 2 in the pension plan probably aren’t in your best interest, even with the higher payouts they provide.

Which brings us to Options 3 and 4. As you probably are aware, Option 3 continues the same benefit level for your joint annuitant if you die, and Option 4 cuts your benefit level by a third to the survivor if either you or your spouse dies. But—and here’s what’s important regarding special needs—if the FRS participant designates their child or adult child who is disabled as the joint annuitant, then the higher Option 1 pension amount goes to that child or adult child with a disability for as long as they are disabled even if it’s permanent and lasts the rest of their life.

Now, at first glance, that looks pretty terrific—and it is. But there’s also a downside to this that’s unique to families dealing with special needs.  You see, a lot of families who have an adult son or daughter with a disability have that son or daughter qualify for Supplemental Security Income, or SSI, which is a monthly income through Social Security for those under disability and not covered by SSDI, usually because there’s no work history yet. And in most cases, they’ll also be eligible for Medicaid, which may be providing some level of benefits to that person. But both of those programs have resource limits that are quite low, like $2,000. Which means, if the SSI or Medicaid recipient has resources above $2,000 (with a small number of exceptions), then that recipient is going to lose those SSI and Medicaid benefits.

So, you can imagine, if this special needs person is receiving a check from your pension each month for anything more than that, then they aren’t going to be able to qualify any longer for those programs. Again, they are going to lose their SSI and Medicaid benefits.

Now, the way we typically plan around that is with the use of a unique kind of trust called a special needs trust, which can hold the assets for the beneficiary of the trust (which would be the special needs person). Special needs trusts have approved language in them that allows the assets in that trust, even though they are there for the express benefit of the special needs person, to not count against those resource limits and thereby disqualify the special needs person for SSI and Medicaid, preserving those benefits.

But unfortunately, with FRS, the joint annuitant you designate has to be a person, and you can’t name the trust on behalf of the special needs person to receive the funds each month. Now, if the Option 1 pension amount is large enough, this may be OK—the financial support will be there in the form of your monthly pension for your son or daughter, but they just won’t be able to qualify for SSI or Medicaid any longer. That may be enough.

But if it’s not, you might want to consider the investment plan. Since the investment plan allows you to name a trust as a beneficiary of your account, you have a lot more flexibility. You also have the ability to roll your investment plan assets into your own IRA, giving you additional estate planning flexibility.

Another planning issue with using the pension plan and choosing Options 3 or 4 when you have a disabled son or daughter is that you can only name one joint annuitant on your plan. Well, what if you have a spouse and a child with special needs? You have to pick one or the other to be your joint annuitant. If you choose your spouse, and he or she starts receiving benefits because you died, and then your spouse dies, what does your son or daughter with special needs then get? Nothing. That’s no good. If you name your disabled child as the joint annuitant, then your spouse gets nothing if you die before him or her. That doesn’t work for a lot of families either. And here’s a thought: What if you have two kids with special needs? We’ve seen that quite a few times over the years.

Again, you may want to consider the investment plan. With the investment plan, you can choose multiple beneficiaries, taking care of both your spouse and your special needs child. Or you can designate your spouse as the primary beneficiary of the account. If you pre-decease your spouse, he or she as your spouse has more favorable options when they inherit the funds than anybody else. Then, when they die, any remaining funds can go directly to the special needs trust for the disabled child.

Other planning options that should be considered are using your DROP plan for special needs and the role life insurance might be able to play in helping you solve all this. In regards to the DROP, with the recent enhancements to the DROP program for those in the special risk class, you may find it creates a significant asset that may help in your special needs financial plan. And using life insurance to create the funds when you die that your special needs child would need is certainly an option that should be explored if you’re insurable.

There are certainly multiple options available with both the pension plan and the investment plan when it comes to answering that question, “Who’s going to take care of my kid when I’m gone, and how am I going to provide the resources for that to happen?” But what are the right decisions for you? How do you figure all this stuff out and make the best choices you can around your circumstances? Because one thing we’ve learned working with both FRS and special needs families for years is everybody is unique and has their own set of circumstances and objectives they’re trying to achieve.

Talk to a competent advisor and explore your options. Talk to a seasoned attorney in this field. We’ve found those attorneys who practice in elder law to have a solid understanding of planning strategies around Medicaid, Medicare, and SSI. We work regularly with a few outstanding attorneys, and if you need a referral, we’d be happy to discuss it with you.

Want to talk more? Give us a call and let’s set up a time to talk about your unique situation.

Thanks for watching, and stay safe!