NJ Teacher Retirement Tiers
The New Jersey Teacher Retirement System has a tier system for retirement benefits. All teachers are placed into one of five tiers, depending on their age and years of service. For example, Tier 1 comprises teachers who have been employed from January 1, 2007, to June 30, 2010, and were at least 55 years old with ten or more years of service at the end of that period.
Table of Contents
- Retiring in New Jersey
- Supplemental Retirement Savings Plans
- Types of Retirement
- Applying For Retirement
- How Do Teacher Pensions Work in New Jersey?
- Who Qualifies for a Teacher Pension in New Jersey?
- How Much Does New Jersey’s Teacher Pension Plan Cost?
Retiring in New Jersey
Once you become a public teacher in New Jersey, you get enrolled in the statewide Teachers’ Pension and Annuity Fund (TPAF). This fund provides lifetime retirement assets for teachers when they retire.
The Teacher’s Pension and Annuity Fund is a retirement plan for teachers to get a percentage of their salary as a pension benefit. The more years of service, the larger the percentage they get from their teacher’s pension.
To fund the defined benefit plan, you are required to pay 6.5% of your salary every year. Your employer also pays something for this plan, but it changes how much they have to pay each year.
You make contributions to the TPAF account, and they stay there until you can retire. You will get full retirement benefits when you are 65 or older and have any amount of years of service.
Supplemental Retirement Savings Plans
Deferred Compensation 457 Plans
If you are employed by a board of education, you might be eligible to contribute to an IRC Section 457 deferred compensation plan. Ask your employer if this plan is available for TPAF members. You can save money for retirement if you work for the State. You need to sign up with the New Jersey State Employees Deferred Compensation Plan.
If you want more information about the New Jersey State Employees Deferred Compensation Plan, write to the New Jersey Division of Pensions & Benefits, New Jersey State Employees Deferred Compensation Plan, P.O. Box 295, Trenton, NJ 08625-0295.
Annuity Savings 403b Plans
- The SACT is a voluntary investment program where you can put your money. If you want to, you can also put it in the stock market. This program has two parts: one plan and the other.
- The SACT Regular Plan is available to all members of a New Jersey State-administered retirement system. People with jobs in this State can contribute money after they pay taxes.
- The SACT Tax-Sheltered Plan (IRC Section 403(b)) is available to people who work in public schools. You can make contributions to this plan before you are taxed for federal income tax.
Defined Contribution Retirement Program
The DCRP was set up by N.J.S.A. 43:15C-1 et seq., which is a law in New Jersey that says people can get a tax-sheltered, defined contribution retirement benefit from the DCRP along with life insurance and disability coverage if they are eligible for membership in the plan.
- If you work for a company that gives you too much money, and your company is in Tier 2, 3, 4, or 5 of the Team Parallel and Adaptive Financial Framework, then your company will pay more to Social Security.
- Employees who earn more than the DCRP minimum yearly salary of $5,000 can enroll in membership Tier 3. But employees who make less than this amount cannot.
- You can be eligible for the TPAF if you work at least 35 hours per week or 32 hours per week if you are a state employee. If you do not work this many hours but earn more than $5,000 in DCRP (or local education) salary each year, then you can still be eligible for enrollment.
Types of Retirement
Tier 1 members can get the money when they turn 60 years old. Tier 3 and Tier 4 members can get the money when they turn 62. The youngest people who can get the money are 65 years old. You don’t need to work for five years before you can get a retirement pension. The basic thing you do is find out if your pension is Tier 1, Tier 2, or Tier 3. Then the formula for calculating the maximum annual pension will be:
Years of Service x Final = Maximum 55 Average Annual Salary Allowance The maximum pension amount for people who have been working a lot of years is 60% of their average annual salary. You can calculate this by multiplying how many years they have worked with what they were paid per year.
Members who experience 25 years or more of pension service credit before getting to age 60 for Tier 1 and Tier 2 members, or before age 62 for Tier 3 and Tier 4 members are eligible, and You can retire with a pension if you have 30 years of service before you are 65. The more time that you bestow on the job, the higher your pension will be. But if you retire before certain ages as defined by your membership tier, then your allowance is permanently reduced.
- For people who retire before they are 55 years old, their monthly allowance is taken away 1/4 of one percent for each month (three percent per year) that they are under 55.
- For people who retire before age 60 will get less money from their allowance. You get 1/12 of one percent less for each month you are under age 60 through 55, and 1/4 of one percent less per month if you are under 55.
- For Tier 3 and Tier 4, those who go off before age 62, your allowance is reduced 1/12 of one percent for each month under age 62 through age 55 and 1/4 of one percent for each month under age 55.
- For Tier 5 members who go off before age 65 with 30 years of service, you will get less money. They take away 1/4 of one percent for each month (3% per year) under age 65.
The following benefits are available to people who were in the military and who remain in a job until they retire. They have to be over the age of 55 and have worked for a long time. The formulas and age requirements for calculating a Veteran Retirement are the same for all membership tiers.
A qualified military veteran who is:
- age 55 or above with 25 or more of service years; or
- age 60 or older with 20 or more of service years
You get a salary every year. 54.5% of your salary is what you can use as an allowance. That is for the 12 months with the most money that you made.
If you are 55 years old or older with 35 years of service, the US government will give you money based on this formula: (Years of Service x Highest 12) = Maximum 55 Consecutive Annual Months of Salary Allowance. But if you retire on a Service Retirement, it might give you more money.
If you have more than ten service credit years, are not yet 60 years old, and are a Tier 1 or 2 member, then you can get this. If you’re 62 years old or older, then it’s for Tier 3 or 4 members. And if you’re 65 years old or older, then it’s for Tier 5. The retirement will take effect on the first of the month after you are eligible for it.
The retirement is calculated using the formula for service retirement. You must file an application for this to happen. When you are no longer employed or want to retire, you can apply for a Deferred Retirement. You could do this whenever it makes sense for your job.
If you have not applied for a Deferred Retirement before then, then the only thing that will happen is that the money set aside in your benefits package will be given. A Deferred Retirement cannot happen before the date you applied. If a member is fired for a reason, they will not be able to get a Deferred Retirement.
Ordinary Disability Retirement is only available for Tier 1, Tier 2, and Tier 3 members. If you want to receive a disability retirement from the pension, you need to meet certain qualifications. You have to have been employed by the school district for at least ten years and have a severe injury or illness. Read the Long-Term Disability for PERS and TPAF Tiers 4 and 5 Fact Sheet for details on what other qualifications.
- You can have a TPAF account if you have been paying into your pension for more than two years. If you stop paying in for more than two years, then your account will become inactive. If more than two years have passed since the last contribution and you had to quit your job because you were disabled, there are special rules. To find out if they apply to you, see NJDPB or call them for more information.
- You need ten years of service credit in the State of New Jersey. A person can’t use their military, out-of-state, or U.S. Government civilian service to count towards the ten years of service credit.
- You can only get a disability if you are unable to work. You must show that you can’t do your work or any other work that your employer might want you to do.
- To be suitable for disability, you must have been disabled at the time of your separation from service.
- If you have medical reports or other evidence to show that your disability is real, you should submit it within six months. Otherwise, the government might cancel your application, and you would need to reapply.
Accidental Disability Retirement is only applicable to Tier 1, Tier 2, and Tier 3 PERS and TPAF members. If you are part of Tier 4 or 5 PERS or TPAF members, you need to work for one year before getting disability insurance. There is a fact sheet about it. To qualify for Accidental Disability Retirement:
- In order to have a TPAF account, you need to contribute money every year. If you do not contribute for more than two years in a row, your membership will stop. If more than two years have flown by from the last contribution to the pension, and you are disabled because of an illness or injury that is permanent, then special rules apply. You should contact NJDPB for more information.
- As a “direct product of a traumatic event,” you may be considered totally and permanently disabled.
- In your accident reports, there are witness reports and evidence. You need all of this for the police to do their job. Give it to them in six months or less.
- Doctors who are chosen by the retirement system will examine you. If you do not go to the first examination, all future examinations will be at your expense. All medical information is kept private and will never be shared with anyone else without your permission.
Applying For Retirement
Group Life Insurance
When you retire, the amount of insurance that you get from your company will decrease or stop. You may be able to convert the difference in life insurance coverage from when you were working and after when you are retired to a nongroup policy.
Conversion of Group Life Insurance at Retirement
If you retire with ten or more years of service credit in the retirement system, your group life insurance will be lower when you retire. The Quotation of Retirement Benefits is the amount of money that you will get when you retire. You will need to get this before retiring, and it will be automatically paid for. If you retire with less than ten years of service credit in the retirement system, you will not get group life insurance coverage.
This is because it would be too expensive to keep paying for your coverage if you only have a few years in. Your coverage will stop after 31 days of your last day. If you want to add coverage to what you already have, it is best to start looking 4-6 months before your retirement. This will be enough time to make a decision and change what you currently have.
Taxation of Retirement Benefits
Federal Income Tax
Every January, the NJDPB will send you a report of all of the money they paid out during the previous year. The tax on your pension depends on whether or not the payments you receive have already been taxed. If you made the contributions with after-tax dollars, then there will be no taxes.
A person pays taxes before they get money from a company. If they give that money to the company, then the company takes the taxes and gives that person back some of their own money. So, they’re taxed on what they have in their pocket when they give it to the company.
New Jersey State Income Tax
If you live in New Jersey, you will have to pay state income tax on your pension money. This is when you have recovered the amount of money that you contributed to the system while working. If you retire from a job that requires a lot of physical work with an Ordinary Disability or Accidental Disability, you will not have to pay taxes in New Jersey.
This is because when people retire from these jobs, they usually stop working. When you are 65 years old, your disability pension is treated as a regular pension and is taxed.
Health Benefits in Retirement
Eligibility for Retired Group SHBP coverage is obtainable to qualified retirees from the State who are also retired from State colleges, universities, and other Local Government Employers.
Cost of Retired Group Health Benefits Coverage
The Retired Group of the State Health Benefits Program is for certain retired members and their eligible dependents. There are medical, prescription, and dental coverage benefits. In order to be a member, you have to have been a full-time employee. You were eligible for health insurance until the day you retired.
Retiree Dental Coverage
Enrollment in the Retiree Dental Plans is optional. You have one opportunity to enroll when you first become eligible for Retired Group SHBP or SEHBP health plan coverage. If you are retired, you must enroll in the SHBP/SEHBP Retiree Dental Plan within 60 days of retirement or when first eligible for enrollment.
How Do Teacher Pensions Work in New Jersey?
New Jersey teachers are part of the New Jersey Teachers’ Pension and Annuity Fund. This fund was created in 1919.
The basic structure of the pension plan for teachers in New Jersey is similar to that of other states. Unlike other retirement funds, a teacher’s d and those made on their behalf by the State or school district do not determine how much they get paid when they retire. Teacher’s pensions are determined by a formula. That formula is based on how many years the teacher has been teaching and the salary that they are paid when they retire.
Most states, including New Jersey, have different benefits for teachers based on when they were hired.
Who Qualifies for a Teacher Pension in New Jersey?
In New Jersey, teachers need to work for ten years before they can get a pension. Teachers may not qualify for a lot of money because the pension is only worth it after ten years. Educators can’t collect a pension until they are retired. The State of New Jersey makes it so that teachers can retire from teaching when they are 65 years old if they have been teaching for 30 years.
New Jersey has a law that says teachers can retire early if they are 65 or older and have had 30 years of experience. But, there are two downsides to this. One is that the benefits will be reduced based on how old they are when they retire and how many years of experience they have.
How Much Does New Jersey’s Teacher Pension Plan Cost?
Teachers and their employers must contribute to the plan. The rates are set by the state legislature and can change every year. In 2018, teachers contributed 7.21% of their salary, while the State contributed 20.88%. In total, 28.09% of teacher salary goes to New Jersey’s teacher pension fund.
Most of that is for benefits. The State only contributes 2.62% percent of a teachers’ salary for benefits while the individual teacher invests 7.21%. 18.26% of the State’s contribution is to pay down the pension fund’s debt.
In New Jersey, as in most states, a teacher’s pension is not portable. If teachers quit the NJTPAF system, they can’t lay hold of their benefits even if they continue to teach. As a result of this, a teacher who leaves work or moves across state lines will have more than one pension. But the total amount of their pensions is likely to be less than if they had just stayed in one system for their entire career.
In other words, the shortfall of benefit portability will hurt a teacher’s retirement savings. This is because they might cross state lines to work in another state. This means that their benefits will not follow them.
The New Jersey teacher retirement system is like most other states in that it benefits the teachers who stay the longest. This leaves everyone else with an inadequate benefit. New and present teachers in New Jersey should think about their career plans. They need to know how the retirement plan works.
The New Jersey Teacher Retirement system is one of the best in the nation. New Jersey hopes to retain a high-quality teaching force to help its students succeed academically with lifetime pensions and health benefits for new teachers. If you’re thinking about getting into education as a profession, or if you are currently an educator looking for stability with your future income and retirement plan, then this might be the perfect opportunity for you!