You Must
Have at Least Three Years of Service Credit and Contributions
Posted to Your Pension Account — Pension credit is “posted”
to your account on a quarterly basis. It normally takes 45 days
after the end of a quarter for your membership credit to be posted
to your account.
You
Must Be an Actively Contributing Member — Only members
who are actively working and making pension contributions may
take a loan. If you have recently returned to work after a leave
of absence without pay or have changed employers within the last
six months, your employer must certify the bottom portion of the
loan application that you have returned to employment.
How Much
You Can Borrow — Loans are made in multiples of ten dollars.
The minimum amount you may borrow is $50. You may borrow up to
one-half of your posted pension contributions to a maximum of
$50,000, whichever is less.
Number
of Loans Per Year — You may borrow twice in any calendar
year. This is determined by the date of the loan check, not the
date of the request. For example, if you make a request for a
loan on December 27, 2008 and the check is dated January 7, 2009,
the loan is considered your first for the year 2009.
Interest and Fees — Interest is charged on the declining balance of the loan at at a commercially reasonable rate set annually by the New Jersey State Treasurer. An administrative processing fee also applies to all pension loans.
- For loan applications received in 2008, the interest rate is 4.69 percent on the declining balance of the loan. The administrative processing fee is $8.00.
- The interest rate is determined using the average closing yield of five-year U.S. Treasury Notes on the run as of the last business days each September, October, and November. Seventy-five basis points are also added as a credit risk.
- The administrative processing fee is set annually and is based on the actual costs associated with administering the pension loan program.
For additional information, please also see the Certifying Officer Letter, "Pension Loan Interest Rate and Administrative Processing Fee — Chapter 92, P.L. 2007,"
The loan interest rate is fixed annually, so if you borrow in 2008 you will have the same interest rate for the life of your loan unless you borrow again after the 2008 calendar year has ended. Every time a member borrows against their available loan balance, the entire outstanding balance is re-certified for the current year's interest rate.
Repayment Amount — The minimum deduction toward the repayment of any new loan is
equal to the normal pension contribution rate of your salary at
the time you apply for the loan (5.5 percent for PERS and TPAF members,
8.5 percent for PFRS members, 7.5 percent for SPRS members, and 3 percent for JRS members). The maximum
deduction toward the repayment of your loan is 25 percent of your
base salary. In most instances, your minimum loan repayment amount
will be the same whether you borrow $500 or $5,000; however, the
repayment of a larger loan will continue for a longer period of
time than for a smaller loan.
LOANS MUST BE REPAID WITHIN FIVE YEARS! IRS regulations require that all loans
taken after January 1, 2004, have a maximum repayment schedule of five years.
Multiple Loans — Members who take multiple loans must repay the outstanding
balance of the original loan and all subsequent loans
taken before the original loan is completely paid off within five years of the issuance of the first loan.
If you have an outstanding loan balance and wish to take another loan before your current balance is paid off, you may still apply for a loan using any of the available methods, but the repayment amount may be substantially higher, to ensure full repayment of the total loan balance within five years of the issuance of the original loan. Furthermore, the new loan amount may be reduced, or the loan request may be rejected, if the payroll deductions required to repay the loan within this five-year period would exceed the 25 percent of pay restriction in State law.
See the poster, Have You Taken a Pension Loan Since January 1, 2004 for more information.
(PDF - size 50k - requires Adobe Acrobat
Reader.)
Canceling a Loan — If you are not satisfied with the loan amount or the repayment schedule when you receive your check, you may cancel the loan by returning the original, uncashed loan check.
When a loan check is returned, the funds are deposited back into your pension account and will be available with the next quarterly posting.
Note: by cashing the loan check you are agreeing to the loan amount and
the terms and conditions of the
repayment schedule.
Timely Repayment — IRS
regulations require members to make timely payments toward
outstanding loan balances. If you take a leave of absence
without pay for more than three months, you will be notified
of non-payment toward the balance of your outstanding
loan and offered the choice of making a lump-sum payment
for the balance and interest; or repayment of the loan
through monthly installments through personal billing.
Failure to Repay — Failure
to repay a loan as scheduled may result in the unpaid
loan balance being declared a taxable distribution. If
the loan is determined to be in default, the loan will
be considered a distribution from your pension account
and reported to the IRS. For the tax year in which the
default occurs, the Division of Pensions and Benefits
will send you a Form 1099-R for tax filing purposes
in January of the following year.
For
Additional Loan Regulations and Information — See
Fact Sheet #81, Pension Loans.
