Teachers in New Jersey have several choices when it comes to their retirement savings. They can choose between pension, defined contribution or guaranteed return plans.
The pension benefits a teacher receives depend on their tier, age, earnings and service credit. In addition, they can get a disability benefit.
Teachers’ Pension and Annuity Fund (TPAF)
The Teachers’ Pension and Annuity Fund (TPAF) is the main retirement system for New Jersey teachers. Its benefits are based on the years of service and salary that teachers earn prior to retirement.
Teacher contributions are made by teachers or their employer, and those contributions are then invested in the stock market. When a teacher retires, their pension wealth is derived from a formula that determines their final salary.
Like many states, New Jersey has multiple benefit tiers for teachers depending on their enrollment date. However, unlike most states, New Jersey’s teacher pension plan is not portable. This means that when a teacher changes jobs or moves across state lines, their retirement savings are worth less than if they stayed in one system for the entirety of their career.
Defined Benefit Pension Plan
Teachers and educational support professionals contribute a percentage of their salary and receive credit for the time they serve public school students in a pension plan that provides a guaranteed income in retirement. The Defined Benefit Pension Plan is an important part of the New Jersey teacher retirement system.
Teachers in the state’s public employee pension plans have multiple benefit tiers that vary by when they were hired. The earliest tiers apply to newly hired workers and the latest tiers apply to previously employed workers.
In addition, some plans have an additional tier for those who leave the system early. Educators can take their employer-sponsored no-contribution or a partial employer-sponsored no-contribution with them when they leave the state.
The defined benefit pension is based on a formula that is derived from an educator’s final average salary and years of service. In most cases, members can earn a higher pension for additional years of service. This is called the Pension Factor.
Defined Contribution Plan
A Defined Contribution Plan accumulates tax-deferred savings in individual employee accounts established by an employer. These plans are a major component of employer-sponsored benefit packages.
401(k)-style retirement plans are the most popular type of defined contribution plan. Participants contribute a portion of their gross salary to the account; employers can also make matching contributions.
In New Jersey, teachers are enrolled in the State’s statewide Teachers’ Pension and Annuity Fund (TPAF). This system provides lifetime retirement assets.
The TPAF is funded primarily by teachers’ contributions and the amount of those contributions depends on how many years of service the teacher has accrued.
NPERS offers a special option for members wishing to increase their creditable years of service. Members may purchase optional service credit for Out of State service, Leave of Absences or 12-Month Preretirement Service.
Ordinary Disability Retirement
If you are unable to continue performing the duties of your job due to disability, you may qualify for an Ordinary Disability Retirement. You must submit a disability application and undergo all medical examinations and tests ordered by the medical panel, which is independent of your employer.
As an ordinary disability retiree, you will be paid a regular retirement allowance (retroactive to the date you apply for the pension) until you are either reinstated to your former position or you have reached age 65. If you return to active service, your disability retirement allowance will be revoked.
The amount of your disability retirement allowance will be based on the formula set forth under prior law (i.e., years of credit divided by 55 times the average of any of your highest 3 years of service) plus a portion based on your annuity savings accumulation fund balance.
Timely filing of an ordinary disability retirement application is essential in order to receive the full disability benefit, which will be based on actual state and vesting service. You should file for disability within one year after the disabling incident or when your employment is terminated before your normal retirement date by reason of ordinary disability.