PENSION BENEFITS REPORT
How the Defined Contribution
Retirement Plan affects PFRS members
I have been fielding a lot of questions regard-
ing tier structure within the PFRS lately. Last
month, I wrote an article explaining the tier
levels and how our retirement system classifies
our members based upon when they were en-
rolled into the Police and Fire Retirement Sys-
tem (PFRS). Tier 1 encompasses all the mem-
bers who were enrolled into the PFRS prior to
May 21, 2010. Tier 2 comprises those members
enrolled on or before May 21, 2010 to June 28,
2011. Tier 3 members are all of our members
enrolled after June 28, 2011.
I want to further inform our readers that there is an addition-
al pension that Tier 2 and Tier 3 members will receive, should
they decide to voluntarily enroll. That additional pension is the
Defined Contribution Retirement Plan.
The Defined Contribution Retirement Plan (DCRP) was es-
tablished for PFRS members when Governor Christie signed
Ch. 1 P.L 2010 into law, creating Tier 2 of the PFRS when it took
effect on May 21, 2010. Tier 3 members were created when Gov-
ernor Christie signed Ch. 78 P.L 2011 into law, and it took effect
on June 28, 2011.
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NEW JERSEY COPS
■ MARCH 2018
Under this law, a Tier 2 or Tier 3 member who surpasses the
annual maximum salary in any year can become a participant
of the Defined Contribution Retirement Program, unless the
member chooses to waive participation in the DCRP. If a mem-
ber decides to waive participation and wants to join at a later
date, the member can apply to enroll at that time, and mem-
bership into the DCRP would become effective on Jan. 1 of the
following calendar year.
For the 2018 calendar year, the maximum compensation lim-
it based on Social Security deductions is $128,400. The amount
that is earned in excess of $128,400 will have an employee con-
tribution of 5.5 percent into the DCRP. Employers will be re-
sponsible for the DCRP’s matching 3 percent contribution. In
other words, if a Tier 2 or Tier 3 member is currently earning
$133,400, the excess — which in this case is $5,000 — would be
placed into the DCRP. The Tier 2 or Tier 3 member would then
contribute 5.5 percent, and the employer would make a 3 per-
cent contribution on the $5,000.
Those members who participate in the DCRP and have sal-
aries above the maximum salary limit of $128,400 for 2018 will
receive additional income in addition to the PFRS pension
through the DCRP, based on the amount of money invested. In
other words, when a Tier 3 member retires in 25 years, he or she
will receive 60 percent of the average salary upon which pen-
sion contributions were based for any three fiscal years before
retirement that provides the largest possible benefit, plus the
excess salary that has been invested into the DCRP during the
years that he or she has participated in the Defined Contribu-
tion Retirement Plan.
When an active PFRS member becomes a participant in the
DCRP, that member will be eligible for life insurance from the
DCRP as well as PFRS. The active PFRS member enrolled in the
DCRP is covered by employer-paid life insurance, payable to
their designated beneficiaries in the amount of 1.5 times the an-
nual base salary on which DCRP contributions were based. This
coverage is available without a medical examination to mem-
bers under age 60. Newly enrolled members 60 years of age or
older must undergo a medical examination to join. Members
enrolled in the DCRP will continue to be insured for up to two
years if they are on an approved leave of absence without pay
for personal illness.
Upon retirement, life insurance under the DCRP is reduced
to 3/16 of the annual base salary on which DCRP contributions
were based. This life insurance coverage is available in retire-
ment to PFRS members enrolled in the DCRP who are age 60
or older. If the member has completed 10 years of participation
in the DCRP (or is enrolled in the DCRP, at any age, as long as
the member has completed 25 years of participation in the pen-
sion systems), he or she will be eligible for the life insurance.
The member must also have been an active employee in the 12
months before getting the first payment of a retirement annuity
from the DCRP in order to qualify for the benefit.
As always, I am available at the State PBA office should you
have any further questions on this topic. d