Why does PFRS have a federal
maximum wage limit?
PENSION BENEFITS REPORT
I attended the League of Municipalities Convention in Atlantic City in November. One of the
tidbits of information I picked up was that for
Tier 2 and Tier 3 members of the Police and Fireman’s Retirement System (PFRS), the federal
maximum wage based on Social Security deductions for 2016 has stayed at $118,500, the same
amount as 2015. What does that mean for our
PETER
members? Well if you are a Tier 2 or Tier 3 memANDREYEV ber, this wage has significant effect for you and
your pension.
In 2010, Gov. Christie signed into law Chapter 1, P.L 2010
which implemented several changes to all state-administered
retirement plans. This law became effective May 21, 2010 and created the tiers of PFRS.
The PFRS contribution rate for Tier 2 members enrolled after
May 21, 2010 is applied to the pensionable salary up to a compensation limit based on the annual maximum wage for Social Security deductions (again, $118,500 for 2016). Tier 2 members who
earn in excess of the annual compensation limit will be enrolled
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NEW JERSEY COPSI■ DECEMBER 2015
in the Defined Contribution Retirement Program (DCRP) in addition to the PFRS. A contribution of 5.5 percent of salary in excess
of the limit (plus 3 percent from the employer) is forwarded to a
DCRP account.
The same applies to Tier 3 members enrolled after June 27,
2011.
The Defined Contribution Retirement Plan is essentially a
state-operated 401(k)-style pension plan through a tax-deferred
investment account established and maintained by Prudential
Financial, which jointly administers DCRP investments with the
state's Division of Pensions and Benefits. Enrollment is voluntary;
members can waive participation if they so choose. Tier 2 and 3
members can also enroll into the plan at any time if they previously waived participation, but new enrollment takes effect Jan.
1 of the next calendar year.
If you do waive participation in the DCRP, please see a financial
planner to assist with investment options for retirement. If you
have questions regarding the DCRP, please email or call me at the
NJ State PBA office. d