Retirement Contribution Refund

I work for a municipality in Florida that has a locally run retirement system (as opposed to the Florida State Retirement system). Participation in this system is mandatory; an employee cannot opt out or choose another system. The system is funded virtually 100% by employees; the city is obligated to see that the system is actuarily sound, but in reality makes very few contributions. The monies contributed by employees are invested by a retirement board, to fund retirements for current and future employees. In this system, it takes 10 years to vest, but very few employees stay around long enough to recieve retirement income. If an employee resigns prior to retirement, the city refunds only the contributions given by the employee. The interest that was earned on the contributions by the retirement board is kept in the retirement system. My question is: Can the city legally keep interest earned from using employees' mandatory contributions?

That would depend on what the Trust Plan documents state. Usually, yes, they can keep the interest. You put in the money in order to use for retirement. By taking it out before you retire, you are penalized both by the Plan and by the Government (in the form of paying taxes on income).

Sometimes you will only be penalized a certain number of months' interest, but you will need to read through the Plan documents. You will either have to go to their office and request the documents to read there or write to them and ask how much for photocopies and mailing.

Thanks for the information.