Employers' Pensions and Benefits Administration Manual (EPBAM)
   

 

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Purchasing Service Credit
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  Contents
  Purchasing Service Credit - Introduction
  Purchase of Service Credit through MBOS Now Required  NEW!
  Who May Purchase Service Credit
  Types of Service Eligible for Purchase
 

Temporary Service (PERS, TPAF, and PFRS)

 

Leave of Absence without Pay (PERS and TPAF, PFRS and SPRS) 

  Leave of Absence for Service with Public Employee Unions
 

Former Membership Service (PERS, TPAF, PFRS, and SPRS) 

 

Out-of-state Service (PERS, TPAF, and PFRS) 

 

U.S. Government Civilian Service (PERS, TPAF, and PFRS) 

  Service Credit Purchases, American International or Overseas Schools
 

Military Service before Enrollment (PERS, TPAF, and PFRS) 

 

Military Service after Enrollment (PERS. TPAF and PFRS)
 Please see the
Certifying Officer Letter of November 3, 2000.

  Military Service and the Maximum Rate of Interest on Debts Incurred before Military Service (PERS, TPAF, PFRS, SPRS and JRS)
 

Optional Service

 

Uncredited Service (PERS, TPAF, and PFRS) 

 

Local, County, or Municipal Pension Fund Service (PERS and TPAF) 

 

Special Conditions (PFRS and SPRS) 

 

Cost and Procedures for Purchasing Service Credit 

 

Determining the Cost of Purchase

 

Application Process

 

Issuance of Quote Letter and Authorization Form

 

Payment Options

  Direct Rollover or Trustee-to-Trustee Transfer of Funds for the Purchase of Additional Service Credit
 

Cancellation and Prorating of Purchase of Service Credit 

  Paying off a Purchase Balance
 

Projected Estimates of Service 

 

Additional Purchase Guidelines 

 

Important Notes 

 

Employer Responsibilities

 

Necessary Forms

Introduction

A member's retirement allowance is based in part on the amount of service credit posted to the member's account at the time of retirement. It may be beneficial, therefore, to purchase eligible service credit in order to enhance retirement benefits or to qualify for certain types of retirement.

Purchasing Service Credit through MBOS Required

Beginning April 1, 2011, all purchase requests must be submitted to the Division of Pensions and Benefits using the Purchase Application program of the Member Benefits Online System (MBOS).

MBOS provides registered members with fast, efficient processing of purchase requests, and members receive immediate confirmation and a follow-up e-mail indicating that the application was received.

Information about MBOS and the online Purchase Application can be found in the MBOS Users’ Guide.

MBOS registration information and instructions are available on the Division's Web site.

Members who need assistance registering for MBOS should be directed to call the MBOS Help Desk at (609) 777-0534 or to send an e-mail with the subject line "MBOS E-mail" to: pensions.nj@treas.state.nj.us

MBOS Purchase Application: Exceptions

Most members are required to process purchase requests through MBOS; however, members cannot use the MBOS Purchase Application for the following types of purchase:

Please note that these are the only circumstances where paper purchase requests are permitted.

Limited access to a computer or a member’s reluctance to use MBOS are not considered sufficient circumstances for accepting a paper purchase request
for processing. Paper Applications to Purchase Service Credit received by mail will not be processed and the member will be mailed instructions on submitting
the request through MBOS.

Who May Purchase Service Credit?

Only members who have active accounts in one of the State administered retirement systems are permitted to purchase service credit. Members may request purchases while on a leave of absence or after termination, so long as their accounts have not expired.

Normally, an account is no longer considered active:

  • Two years from the end of a leave of absence,

  • Two years from the date of the last contribution, or

  • 30 days after a retirement date or board approval date - whichever is later.

Members, who are vested, but inactive for more than two years, are not permitted to request to purchase service credit; the Division does not consider these members to be "active" members. Whether or not vesting has been achieved, members have two years from the date of the last contribution, or two years from the end of a leave of absence, to make purchase requests.

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What Types of Service Are Eligible for Purchase?

Temporary Service (A Shared Cost Purchase)

Members of the PERS and the TPAF are eligible to purchase all or a portion of service credit for temporary, provisional, or substitute employment if the employment was continuous and immediately preceded a permanent or regular appointment.

PFRS members are eligible to purchase temporary employment, provided the service rendered was in a title eligible for participation in the PFRS, was continuous, and immediately preceded a permanent or regular appointment.

In addition:

  • PERS, TPAF, or PFRS members are allowed to purchase temporary service rendered under a former account.

  • Part-time, hourly, and substitute service may be eligible for purchase and must be certified by the employer to determine if the service rendered is eligible.

  • Service with the Job Training Partnership Act (JTPA) or any of its successors (i.e., Workforce Investment Act) are not eligible.

  • Intermittent employment may be eligible for purchase under some circumstances.

Leave of Absence without Pay (A Shared Cost Purchase)

Members of the PERS, TPAF, PFRS, and SPRS are eligible to purchase all or any portion of service credit for official leaves of absence without pay.   The amount of time eligible for purchase also depends on what "type" of leave was taken.

  • Up to 2 years may be purchased for leaves taken for personal illness;

  • Up to 3 months may be purchased for leaves taken for personal reasons.

Conditions that pertain to the purchase of eligible leaves of absence:

  • To be eligible for purchase, each leave of absence must be shown to have been approved in advance.

  • A leave of absence without pay under a former membership may be eligible for purchase.

  • An employee who is paid 10 months a year who was on an approved leave that includes the month of September may be allowed to purchase service for the months of July and August as part of the leave of absence.

  • Employers will now have to certify the amount of time a member was under a doctor's care for leaves for personal illness.

  • Employees are eligible for up to 3 months for leave for personal illness for maternity. If a leave is in excess of 3 months, it must be certified by a physician that the member was disabled beyond 3 months due to the pregnancy.
  • Child care leave is considered a leave for personal reasons and is limited to 3 months maximum that is eligible for purchase.

Note: The receipt of a public pension or retirement benefit is expressly conditioned upon the rendering of honorable service by a public officer or employee. Therefore, the Board of Trustees shall disallow the purchase of all or a portion of former service it deems to be dishonorable in accordance with N.J.S.A. 43:1-3.

Leave of Absence for Service with Public Employee Unions (A Full Cost Purchase)

Chapter 368, P.L. 2005, effective on January 12, 2006, permits members of the PERS and TPAF to take paid and unpaid leaves of absence for service with public employee unions and also allows full cost purchases of PERS and TPAF credit for the period of leave. This law applies only to union leaves taken on or after January 12, 2006.

To purchase a leave of absence as a union officer or representative, a PERS or TPAF member must complete and submit all required documents to the Purchase Section of the Division of Pensions and Benefits within 30 days after the quarter ends. For example, the first quarter covers January 1st through March 31st. Therefore, the documents must be received no later than April 30st.

Faliure to submit all required documents according to the prescribed time frame will irrevocably void any eligibility for this quarter under the Leave of Absence - Union Representation Laws.

Required Forms

Authorization to Purchase Service Credit — Union Representation

Employer Verification of Leave of Absence for Union Representation

The law had also provided a one year window to allow members to purchase unpaid leaves of absence taken for service with public employee unions prior to the law's effective date of January 12, 2006. That one-year window is now closed.

Unpaid Union Leaves Taken Prior to the Enactment of Chapter 368

A public employee who had been granted and had taken an approved unpaid leave of absence prior to the effective date of Chapter 368 and who had not received PERS credit for that service, was given up to one year after the law's effective date to purchase that period of previous service credit, in accordance with the guidelines below.

  • County, municipal, and State monthly employees were permitted to purchase approved unpaid leave that ended on or before 12/31/2005;

  • State biweekly employees were permitted to purchase approved unpaid union leave that ended on or before January 6, 2006.

Employees wishing to purchase prior unpaid leaves for union business were required to submit their purchase request by January 12, 2007.

A member applying for retirement who wishes to purchase a leave of absence without pay for union business were required to submit the purchase request prior to his or her retirement date or Board approval date.

Former Membership Service (A Shared Cost Purchase)

Members of the PERS, TPAF, PFRS, and SPRS are eligible to purchase all or a portion of the service credited under a previous membership (PERS, TPAF, PFRS, SPRS) which has been terminated after two continuous years of inactivity in accordance with statute, or by withdrawal of the member contributions made under such membership.

Special Note: Former Membership Service, SPRS Members

Former membership earned under another State-administered retirement system, such as the PERS, TPAF, or PFRS, may be purchased or transferred for credit in the SPRS, but the service time purchased may not be used to qualify for a SPRS Service or Special Retirement.

In addition, the purchase factors used to calculate the cost of purchasing former membership service under a State-administered retirement system other than the SPRS are different than those used for purchasing SPRS service. See purchase costs for SPRS members below for additional information.

Out-of-State Service (A Shared Cost Purchase)

PERS, TPAF, and PFRS members are eligible to purchase up to 10 years of public employment rendered with any state, county, municipality, school district, or public agency outside the State of New Jersey, provided the service rendered would have been eligible for credit in a NJ State-administered retirement system. This service is only eligible for purchase if the member is not receiving, or eligible to receive retirement benefits from the out-of-state public pension fund.

PLEASE NOTE: Effective November 1, 2008, Out-of-State service and US Government service credit cannot be used to qualify for employer paid health care benefits in retirement for members of the Teachers’ Pension and Annuity Fund (TPAF) and the Public Employees’ Retirement System (PERS). The purchase of Out-of-State and/or US Government service may be used to increase a member’s monthly retirement allowance.

US Government Service (A Full Cost Purchase)

PERS, TPAF, and PFRS members are eligible to purchase up to 10 years of credit for civilian service rendered with the US government if the public employment would have been eligible for credit in a NJ State-administered retirement system. This service is only eligible for purchase if the member is neither receiving nor eligible to receive retirement benefits from the federal government based in whole or in part on this service.

PLEASE NOTE: Effective November 1, 2008, Out-of-State service and US Government service credit cannot be used to qualify for employer paid health care benefits in retirement for members of the Teachers’ Pension and Annuity Fund (TPAF) and the Public Employees’ Retirement System (PERS). The purchase of Out-of-State and/or US Government service may be used to increase a member’s monthly retirement allowance

Click here for additional information regarding purchases of service rendered at American International or Overseas Schools.

Military Service Before Enrollment (A Full Cost Purchase)

Members of the PERS, TPAF, and PFRS are eligible to purchase credit for up to 10 years of honorable, active military service rendered prior to enrollment, provided the member is not receiving or eligible to receive a military pension, or a pension from any other state or local source for such military service.

Military Service after Enrollment

For more information about military service after enrollment, please see the Certifying Officer Letter of November 3, 2000, "Military Service After Enrollment".

For members of the PERS, TPAF, PFRS, SPRS and JRS who enter active military service following enrollment, purchases, loans, back deductions or other obligations to the retirement systems incurred prior to active military service shall not bear interest at a rate exceeding 6%, for the entire duration of the member's active military service. Interest in excess of 6% per year will be waived. More information about this waiver of interest is available through the link, "Military Service and the Maximum Rate of Interest on Debts Incurred before Military Service".

Optional Service (A Shared Cost Purchase for PERS Members)

A PERS member who served in a position where enrollment was optional and who elected not to become a member of the PERS at that time may purchase that public service for credit under his or her active account. Service from the following categories may be considered for an "optional service" purchase:

  • Non-veterans hired prior to 7/1/66 or the date the employer adopted the resolution to be covered under the PERS, whichever is earlier;

  • Non-veteran elected officials provided they have not established membership in the retirement system through other public employment;

  • Only non-veteran State employees in the classified service on 12/1/54;

  • Any part-time school crossing guard receiving periodic retirement benefits from the federal government, military or civilian pensions (including Social Security);

  • Any employee receiving periodic retirement benefits from any other state.

Uncredited Service (A Shared Cost Purchase)

PERS, TPAF, and PFRS members are eligible to purchase all or a portion of any regular employment with a public employer in NJ for which the member does not now have retirement credit, and for which pension membership would have been compulsory.

Local Retirement System Service (A Full Cost Purchase for the PERS and the PFRS, A Shared Cost Purchase for the TPAF)

PERS and TPAF members are eligible to purchase all or a portion of service credit established within a local retirement system in New Jersey if they were ineligible to transfer that service to the PERS or TPAF upon enrollment. This service is only eligible for purchase if the member is not receiving or eligible to receive retirement benefits from that public pension fund.

Layoff Service, PFRS (A Full Cost Purchase)

Under the provisions of Chapter 338, P. L. 1999, PFRS members in a police title are eligible to purchase up to three years of layoff time provided they were in good standing at the time of separation from employment (not released for misconduct or delinquency).

Along with the application submitted by the member, the employer will be required to provide the following information:

  1. The member's name and PFRS membership number;

  2. An indication that the member is applying for a Chapter 338 purchase;

  3. An indication that the member was a police officer in a PFRS position when involuntarily separated from employment and was not separated for cause or under charges of misconduct or delinquency;
  4. A confirmation that the member is currently in a PFRS police service position; and

  5. The start and end dates of the entire layoff period, not just the dates the member wishes to purchase.

The purchase section will request this information in the form of a letter.

Additional Opportunities to Purchase Service Credit
PFRS

If a member has at least 20 years of service credit in the PFRS and leaves, with the employer's approval, to accept a full-time position in one of the agencies listed below, the member may purchase a maximum of three years of such service upon return to covered employment.

  1. A federal agency.

  2. An agency of another state or local government.

  3. An organization whose principal function is offering professional, advisory, research educational or developmental services to governments or universities concerned with police management.

SPRS

Former membership under another NJ State-administered retirement system may be purchased during the current membership. This service cannot be used to qualify for Service or Special Retirements. It can be used in the computation of a retirement allowance on the basis of 1% of final compensation for each year of such service credit, and for earning benefits in addition to pension (i.e., 25 years of service credit for SHBP eligibility in retirement).

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Cost and Procedures for Purchasing Service Credit

Determining the Cost of Purchase

The cost of a purchase is based on the member's nearest attained age at the time the Division receives a purchase request, and the highest reported yearly salary posted to their account as a member of the retirement system. The cost of the purchase will nearly always increase with an increase in the member's age and/or salary.

NOTE: For PFRS purchases made under the provisions of Chapter 338, the salary the member was receiving at the time of the layoff will be used to calculate the cost of purchase.

SPECIAL NOTE, SPRS PURCHASES OF FORMER MEMBERSHIP SERVICE

Two different sets of purchase factors are used to determine purchase costs for SPRS members, depending on the service credit type purchased. One set of factors is used to calculate the cost of purchasing SPRS service, including former membership under the SPRS; another is used to calculate the cost of purchases of former membership service under another State-administered retirement system (PERS, TPAF or PFRS).

At retirement, a SPRS member with former membership service credit under a different retirement system will have his or her retirement allowance calculated in two parts; the former membership service credit (under another retirement system) will be included in the computation of a retirement allowance on the basis of one percent of final compensation for each year of such service credit. Please click here for additional SPRS Retirement information.

Estimating the Cost of Purchasing Service Credit for PERS and TPAF members

The following types of service credit may be purchased on a "shared cost" basis: Temporary Service, Former Membership in a New Jersey State-administered Retirement system, Unpaid Leaves of Absence, Out-of-state Service, Optional Service, and Uncredited Service.

A "shared cost" purchase is one where the total cost is shared equally between the member making the purchase and the employers across the state. The member will pay the cost of purchase through payroll deductions ("arrears"), or by making a lump sum payment, or a combination of both. The employers will pay their share based upon an actuarial assessment that depends on the future liability the pension fund will face given the increased retirement benefit the purchased service will secure for the member at retirement. The employer share of each purchase cost will be indexed based upon the relative size of each employer's workforce.

The following types of service credit may be purchased only on a "full cost" basis: Military Service, US Government Civilian Service, and Local Retirement System Service (PERS).

A "full cost" purchase is one where the member is responsible for the total cost of the purchase. There is no employer liability as in a "shared cost" purchase.

A Purchase Cost Worksheet is available to members in Fact Sheet #2: Estimating the Cost of Purchasing Service Credit: Public Employees' Retirement System and Teachers' Pension and Annuity Fund.

The formulas used to estimate the cost of purchasing service credit are reproduced here.

Shared Cost Purchases

Multiply the factor corresponding to the age of the member, times the current annual salary or highest reported fiscal-year's salary as a member (whichever is higher); this equals the cost of purchasing one year of service credit.

Multiply the cost of one year of service credit, times the number of years the member is eligible to purchase; this equals the total estimated cost of the purchase.

Full Cost Purchases

Multiply the estimated cost of a shared cost purchase by two to obtain the estimated "full cost" purchase price.

The Age Factor Table is reproduced here. The cost factors have been rounded so the actual cost may vary.

PERS and TPAF
Age Factor Table for Purchasing Service Credit
The cost factors have been rounded so the actual cost may vary.

Age at Purchase
Purchase Factor
Age at Purchase
Purchase Factor
Age at Purchase
Purchase Factor
Age at Purchase
Purchase Factor

20

0.031 33 0.038 46 0.050 59 0.071
21 0.032 34 0.039 47 0.051 60 0.073
22 0.032 35 0.039 48 0.052 61 0.072
23 0.033 36 0.040 49 0.054 62 0.071
24 0.033 37 0.041 50 0.055 63 0.070
25 0.033 38 0.042 51 0.057 64 0.068
26 0.034 39 0.043 52 0.058 65 0.067
27 0.034 40 0.044 53 0.060 66 0.066
28 0.035 41 0.045 54 0.061 67 0.064
29 0.036 42 0.046 55 0.063 68 0.063
30 0.036 43 0.047 56 0.065 69 0.062
31 0.037 44 0.048 57 0.067 70 0.060
32 0.037 45 0.049 58 0.069  

 


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Estimating the Cost of Purchasing Service Credit for the PFRS

The following types of service credit may be purchased on a "shared cost" basis by PFRS members: Former Membership in a New Jersey State-administered retirement system, Leaves of Absence, Uncredited Service, and Out-of-state Service.

A "shared cost" purchase is one where the total cost is shared equally between the member making the purchase and the employers across the state. The member will pay the cost of purchase through payroll deductions ("arrears"), or by making a lump sum payment, or a combination of both. The employers will pay their share based upon an actuarial assessment that depends on the future liability the pension fund will face given the increased retirement benefit the purchased service will secure for the member at retirement. The employer share of each purchase cost will be indexed based upon the relative size of each employer's workforce.

The following types of service credit may be purchased only on a "full cost" basis: Military Service, US Government Civilian Service, Layoff, or Local Retirement System Service.

A "full cost" purchase is one where the member is responsible for the total cost of the purchase. There is no employer liability as in a "shared cost" purchase.

A Purchase Cost Worksheet is available to members in Fact Sheet #3: Estimating the Cost of Purchasing Service Credit: Police and Firemen's Retirement System.

The formulas used to estimate the cost of purchasing service credit are reproduced here.

Shared Cost Purchases

Multiply the factor corresponding to the age of the member, times the current or highest reported fiscal-year's salary as a member; this equals the cost of purchasing one year of service credit.

Multiply the cost of one year of service credit, times the number of years the member is eligible to purchase; this equals the total estimated cost of the purchase.

Full Cost Purchases

Multiply the estimated cost of a shared cost purchase by two to obtain the estimated "full cost" purchase price.

The Age Factor Table is reproduced here. The cost factors have been rounded so the actual cost may vary.

PFRS Age Factor Table for Purchasing Service Credit
The cost factors have been rounded so the actual cost may vary.
The cost of a layoff purchase is calculated using the salary for the 12 months prior to the layoff, not the highest annual salary.

Age at Purchase

Purchase Factor

Age at Purchase

Purchase Factor

Age at Purchase

Purchase Factor

33 and under

0.075

46

0.106

59

0.127

34

0.076

47

0.109

60

0.128

35

0.077

48

0.113

61

0.130

36

0.079

49

0.116

62

0.131

37

0.081

50

0.120

63

0.132

38

0.083

51

0.121

64

0.134

39

0.085

52

0.121

65 and over

0.135

40

0.088

53

0.122

 

41

0.090

54

0.123

42

0.093

55

0.123

43

0.096

56

0.124

44

0.099

57

0.125

45

0.102

58

0.126

Application Process

To apply to purchase service credit, the member should complete the Purchase Application program of the Member Benefits Online System (MBOS)

Instructions for completing the Purchase Application program using the Member Benefits Online System (MBOS) are available in the MBOS Users' Guide.

The employer may be responsible for completing the Employment Verification Form.

Click here for instructions for completing the Employer Verification Form.

Special Note Regarding Purchases for Unpaid Union Leaves Taken Prior to the Enactment of Chapter 368: A public employee who had been granted and had taken an approved unpaid leave of absence prior to the effective date of Chapter 368 and who has not received PERS credit for that service, had up to one year after the law's effective date to purchase that period of previous service credit, in accordance with the guidelines below.

  • County, municipal, and State monthly employees may purchase approved unpaid leave that ended on or before 12/31/2005;

  • State biweekly employees may purchase approved unpaid union leave that ended on or before January 6, 2006.

Employees wishing to purchase prior unpaid leaves for union business had to submit their purchase request by January 12, 2007.

Issuance of Quote Letter and Authorization Form

If the Division of Pensions and Benefits determines that service credit is eligible for purchase, a letter quoting the cost to purchase service and an authorization form will be mailed to the member. In order to authorize the purchase, the member must complete the authorization form and return it to the Purchase Section of the Division of Pensions and Benefits before the date specified on the cost quotation letter — the member is allowed 90 days from the date of the purchase quote to authorize the purchase. If a member is not interested in purchasing service credit, no response is required.

Payment Options

There are several conditions that may affect the payment options available to a member who wishes to purchase service credit.

  • An actively contributing member who elects to authorize a purchase of service credit has the following options to pay for the purchase:
    1. In one lump-sum payment, or;

    2. By having extra payroll deductions withheld from regular pay. The minimum deduction is equal to one-half of the full rate of contribution to the pension system over a maximum period of 10 years, and includes interest of 8.25%*; or

    3. By paying a single down payment of any amount, and having the remainder paid through payroll deductions.

    4. With a direct rollover or trustee-to-trustee transfer of tax-deferred funds from a qualified retirement plan. These include:
      - 401(a) qualified plan (including 401(k) plan) and 403(a) qualified annuity
      - 403(b) Tax-Sheltered Annuity Plan
      - 457(b) State and Local Government Deferred Compensation Plan
      - IRA with tax-deferred funds
      - Traditional IRA
      - Simple IRA (must be over 2 years old)
      - Simplified Employee Pension Plan (SEP)
      - Conduit IRA
      - Rollover IRA

      Note: The Division cannot accept rollovers from a Roth IRA or a Coverdell Education Savings Account (formerly known as an education IRA).

    *In the case where members of the PERS, TPAF, PFRS, SPRS and JRS enter active military service following enrollment, the member's purchases (or loans, back deductions or other obligations to the retirement systems) incurred prior to active military service shall not bear interest at a rate exceeding 6%, for the entire duration of the member's active military service. Interest in excess of 6% per year will be waived. In such cases, the interest on purchases, loans, back deductions or other obligations must be recalculated, using the 6% rate for the period of time corresponding to the period of active military service, and a new certification of deductions would then be produced. (More information about this waiver of interest is available through the link, "Military Service and the Maximum Rate of Interest on Debts Incurred before Military Service".)

  • Inactive members who wish to purchase service credit may only pay for purchases by making a lump sum payment.

  • Members who indicate on their online Purchase Application submitted through the Member Benefits Online System (MBOS) that they intend to terminate membership or plan to retire within six months of the request date may only pay for purchases by making a lump sum payment.

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Direct Rollover or Trustee-to-Trustee Transfer of Funds for the Purchase of Additional Service Credit

It is possible, in some cases, for PERS, TPAF, PFRS, and SPRS members to pay for the purchase of additional service credit through a direct rollover of funds from a qualified retirement savings plan (or through a trustee-to-trustee transfer).

The types of plans eligible for direct rollover (or trustee-to-trustee transfer) include:

  • 401(a) qualified plan, including a 401(k) plan, and a 403(a) qualified annuity

  • 403(b) — tax-sheltered annuity plan

  • 457(b) — State and local government deferred compensation plan

  • IRA — with tax-deferred funds
    • Traditional IRA
    • Simple IRA (must be over 2 years old)
    • Simplified Employee Pension Plan (SEP)
    • Conduit IRA
    • Rollover IRA

    The Division cannot accept rollovers from a Roth IRA or a Coverdell Education Savings Account (formerly known as an education IRA).

Members who are unsure about whether their plan is eligible for this type of rollover should consult with the administrator of their financial institution or disbursing plan.

Members must first receive a Purchase Cost Quotation Letter from the Division of Pensions and Benefits before submitting a Direct Rollover/Trustee-to-Trustee Transfer of Funds for the Purchase of Additional Service Credit form to implement a direct rollover of funds for a service credit purchase.

For more information about this method of payment for a service credit purchase, please click on the form, Direct Rollover/Trustee-to-Trustee Transfer of Funds for the Purchase of Additional Service Credit.

Paying off a Purchase Balance

Written Requests for the Cash Discount Value of an Arrears Obligation

A member choosing to pay for all or a part of a service credit purchase through payroll deductions (payment option #2 or #3 above), may elect to pay off the balance remaining on the service credit purchase, with interest, at any time after deductions have been scheduled. To make a lump sum payment of the service credit purchase balance, the member must make a request, in writing, for an "arrears payoff quotation" letter for the cash discount value of the remaining balance owed.

This written request should be made to the Adjustment Section, Division of Pensions and Benefits, PO Box 295, Trenton, NJ, 08625-0295.

According to New Jersey Administrative Code [N.J.A.C. 17:1-4.1(b)], members may make only one request for the cash discount value of an outstanding arrears balance, i.e. the balance on a service credit purchase, in a calendar year.

Cancellation and Prorating of Purchases

Changes to the administrative code governing the purchase of service credit now allow for the cancellation and/or prorating of service that has previously been authorized using periodic payments through payroll deductions.

Cancellations will be processed under the following conditions:

  • The cancellation and prorating will be projected for the next available payroll certification date. This will be approximately 1 month for "monthly" members and 3 pay periods for "biweekly" members.

  • The member can choose to cancel one or all purchases and can specify which purchase types they wish to have canceled.

Prorating will be performed under the following conditions:

The member MUST make the request in writing, by fax, or by e-mail. (Written or faxed requests must include the signature of the member. E-mail requests MUST come from an e-mail address that bears the member's name.)

Requests for service to be prorated for a specific future date will be accepted, but only from members who have a retirement application on file.

Requests for service to be prorated for a specific projected amount of service - in order to qualify for benefits - will be accepted only from members anticipating retirement or termination of employment within the next 6 months.

Projected Estimates of Service  

Upon request, the Division will estimate the amount of service credit a member will have after the purchase is prorated. This will be done ONLY under the following conditions:

  • The Division receives a written, faxed, or e-mail request from the member.

  • Only one request will be honored from a member per fiscal quarter.
  • Only one future date for a prorating or cancellation will be calculated per request.

Additional Purchase Guidelines

The following items have also been revised due to changes in the administrative code.

  • Outstanding arrears balances will now accrue interest. A letter will be forwarded to those members who have left their position for two years or more and still have an outstanding arrears balance. These members will have the opportunity to purchase the remaining amount in a lump sum; however, interest will be added to the arrears balance for the cost of the purchase if the member returns to employment.
  • In the case where members of the PERS, TPAF, PFRS, SPRS and JRS enter active military service following enrollment, the member's purchases (or loans, back deductions or other obligations to the retirement systems) incurred prior to active military service shall not bear interest at a rate exceeding 6%, for the entire duration of the member's active military service. Interest in excess of 6% per year will be waived. In such cases, the interest on purchases, loans, back deductions or other obligations must be recalculated, using the 6% rate for the period of time corresponding to the period of active military service, and a new certification of deductions would then be produced. (More information about this waiver of interest is available through the link, "Military Service and the Maximum Rate of Interest on Debts Incurred before Military Service".)
  • Members paying arrears balances who have filed for bankruptcy cannot automatically suspend their payments. Members will be able to cancel the purchase. The member may also complete a request to purchase the same service credit again at a later date. A new cost quotation will be subject to the age, salary, and purchasing rules that apply at the later date.

IMPORTANT NOTES

  • Effective November 1, 2008, Out-of-State service and US Government service credit cannot be used to qualify for employer paid health care benefits in retirement for members of the Teachers’ Pension and Annuity Fund (TPAF) and the Public Employees’ Retirement System (PERS).  The purchaseof Out-of-State and/or US Government service may be used to increase a member’s monthly retirement allowance.

  • A non-veteran may be eligible to purchase an aggregate of 10 years of service credit for work outside New Jersey (Out-of-state, Military, and US Government Service).

  • A member who qualifies as a veteran may be eligible to purchase an additional 5 years of military service rendered during periods of war for an aggregate of 15 years of service outside New Jersey (Out-of-state, Military, and US Government Service).

  • When statute specifically provides that the employer shall not be liable for any costs of the purchase, the member must pay the full cost. Full cost purchases are the sole responsibility of the member. Therefore, the cost to the member for purchasing these types of service will be twice the cost of other types of purchase.

  • To qualify for an Ordinary Disability Retirement, PERS and TPAF members need 10 years of New Jersey service; PFRS and SPRS members need four years of New Jersey service. Therefore, the purchase of US Government, Out-of-state, or Military Service cannot be used to qualify for this type of retirement.

  • Members may obtain a quotation of the cost for purchasing additional service credit by submitting the appropriate Application to Purchase Service Credit to the Division of Pensions and Benefits (see below for address). These forms are intended to be available from you, the employer, or by writing to the Division of Pensions and Benefits at the address below. With the exception of purchase requests for PFRS Layoff Time and Military Service after Enrollment, members can receive an estimate of the cost of purchasing service credit by calling (609) 292-7524.

  • Estimates of the cost to purchase PFRS Layoff Time and Military Service after Enrollment can only be obtained through written request to the Division of Pensions and Benefits.

  • The payments a member makes toward the purchase of service credit are considered "voluntary" pension contributions according to the Internal Revenue Code 414(h). Therefore, payments made towards a purchase cannot be considered tax deferred. For additional questions, please refer to a tax advisor.

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Employer Responsibilities

  1. After members submit the Application to Purchase Service Credit using MBOS, the Purchase Section of the Division of Pensions and Benefits will send the Employment Verification Form (PDF) to the employer, along with a letter indicating the dates that are being requested. The employer is responsible for completing the verification form when required by the Purchase Section. The form should be completed according to instructions in order to avoid a delay in processing.  

    For Example: A member who is hired in a temporary or provisional status on February 6, 1995 and is not eligible to be enrolled in the pension system until February 17, 1996, may request a purchase quotation of the first year of employment. The Purchase Section would send a verification form along with a letter to the employer requesting verification of the member's service prior to February 17, 1996. The employer should certify the members hire date, title, permanent appointment date, dates of employment, and salary.

  2. The information certified must be supported by official documentation. In the event that there is a question regarding the information provided, the Purchase Section may request a copy of the documentation used to verify the member's service.

  3. Board of education locations are to certify time by school year (Sept. - June), not by calendar year.

  4. Once a member has authorized a purchase, and if payroll deductions are elected, a Certification of Payroll Deductions will be sent to the employer. The payments will be scheduled as "arrears" and the schedule should be followed as certified. If there is already an existing arrears schedule, it will be automatically combined with the new purchase payment schedule.*

  5. Deductions for a purchase should only be taken upon receipt of a Certification of Payroll Deductions from the Division of Pensions and Benefits. The schedule must be followed exactly. The only time the employer should deviate from the schedule is if the member is on an unpaid leave of absence.*

  6. If the member returns from a leave of absence of less than two years, the arrears schedule should be picked up automatically. If the leave of absence is longer than two years, the Division should be notified so that an updated Certification of Payroll Deductions can be forwarded to the employer.

*In the case where members of the PERS, TPAF, PFRS, SPRS and JRS enter active military service following enrollment, the member's purchases, loans, back deductions or other obligations to the retirement systems incurred prior to active military service shall not bear interest at a rate exceeding 6%, for the entire duration of the member's active military service. Interest in excess of 6% per year will be waived. In such cases, the interest on purchases, loans, back deductions or other obligations must be recalculated, using the 6% rate for the period of time corresponding to the period of active military service, and a new certification of deductions would then be produced. (More information about this waiver of interest is available through the link), "Military Service and the Maximum Rate of Interest on Debts Incurred before Military Service".)

Forms Available for Downloading:

Purchase requests must be submitted to the Division of Pensions and Benefits using the Purchase Application program of the Member Benefits Online System (MBOS). The paper version of the Application to Purchase Service Credit is no longer available.

MBOS provides registered members with fast, efficient processing of purchase requests, and members receive immediate confirmation and a follow-up e-mail indicating that the application was received.

Information about MBOS and the online Purchase Application can be found in the MBOS Users’ Guide, at:
www.state.nj.us/treasury/pensions/mboskit.htm

Members who need assistance registering for MBOS should be directed to call the MBOS Help Desk at (609) 777-0534 or to send an e-mail with the subject line "MBOS E-mail" to: pensions.nj@treas.state.nj.us

Employment Verification Form

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Last Updated: April 1, 2011