New Jersey Chapter 78, formally P.L. 2011, c. 78, is the 2011 law that overhauled how public employees in New Jersey pay for their pensions and health insurance. Signed on June 28, 2011, it raised pension contribution rates, replaced flat health premium payments with a percentage-of-premium model tied to salary, froze cost-of-living adjustments for retirees, and created a less generous pension tier for anyone hired on or after that date. About 800,000 active and retired members of the state’s public retirement systems live with its effects on every paycheck and pension check.
Who the Law Covers
Chapter 78 reaches nearly every public employee in the state: workers at state agencies, counties, municipalities, local boards of education, and independent authorities. It applies across the Public Employees’ Retirement System (PERS), the Teachers’ Pension and Annuity Fund (TPAF), the Police and Firemen’s Retirement System (PFRS), the State Police Retirement System (SPRS), and the Judicial Retirement System (JRS).1Department of the Treasury. Division of Pensions and Benefits – Pension and Health Benefits Reform
Health coverage is delivered through two programs that use the same Chapter 78 contribution rules: the State Health Benefits Program (SHBP) for state and local government workers, and the School Employees’ Health Benefits Program (SEHBP) for school employees.2State of New Jersey – Department of the Treasury. Health Benefits Information for Active Employees
How Much You Pay for Health Coverage
Before Chapter 78, most public employees paid a flat 1.5% of salary for health insurance. The law replaced that with a percentage of the actual premium, and the percentage grows with your salary. Two workers in the same plan can pay very different amounts if their pay differs.
For family coverage, contributions run from 3% of the premium at salaries under $25,000 up to 35% at $110,000 and above. Single coverage starts at 4.5% below $20,000 and reaches 35% at $95,000 and above.3Justia Law. New Jersey Revised Statutes 52:14-17.28c Member-and-spouse and parent-and-child arrangements have their own scales. A few brackets from the 2026 charts for local government employees show how the percentages climb:
- Under $30,000: 7.5% of premium for single coverage, 4% for family
- $45,000 to $49,999: 14% for single, 9% for family
- $65,000 to $69,999: 29% for single, 19% for family
- $95,000 and over: 35% for single; family coverage reaches 35% at $110,000 and over
The Division of Pensions and Benefits publishes full contribution charts each year.4New Jersey Division of Pensions and Benefits. Percentage of Premium Calculation Charts 2026
The 1.5% Salary Floor
No matter what the percentage-of-premium calculation produces, every employee must contribute at least 1.5% of base salary toward health benefits. The floor mostly affects lower-paid workers in inexpensive single-coverage plans, where a small percentage of a small premium can come in below the 1.5% figure. When it does, the employee pays 1.5% of salary instead.4New Jersey Division of Pensions and Benefits. Percentage of Premium Calculation Charts 2026
The Four-Year Phase-In
The full contribution rates did not hit workers all at once. Chapter 78 phased them in over four years: 25% of the calculated contribution the first year, then 50%, 75%, and finally 100%. That fourth year of full payment is commonly called “Tier 4,” and the label matters for what happens under collective bargaining.1Department of the Treasury. Division of Pensions and Benefits – Pension and Health Benefits Reform
Higher Pension Contributions
Chapter 78 also increased the amount taken from each paycheck for the pension itself. PERS and TPAF members went from 5.5% to 6.5% of pensionable salary immediately when the law took effect. An additional 1% phased in over seven years in equal annual steps of roughly 0.14%, reaching the current 7.5% with the first paycheck on or after July 1, 2018.5New Jersey Division of Pensions and Benefits. Pension Contribution Rate Change for the PERS and the TPAF
PFRS members saw a sharper, immediate increase from 8.5% to 10% of salary, effective with the first paycheck on or after October 1, 2011. Prosecutors in the retirement system contribute at the same 10% rate.6New Jersey Legislature. P.L. 2011, c.78
What Changed for Workers Hired After June 28, 2011
The law created Tier 5 in PERS and TPAF and a parallel Tier 3 in PFRS for anyone enrolled on or after June 28, 2011. The differences compound over a full career.
PERS and TPAF Tier 5
Normal retirement age moved to 65, up from 62 in Tiers 3 and 4 and 60 in Tiers 1 and 2. Early retirement now requires 30 years of service instead of 25. Retiring before 65 with 30 years of service triggers a 3% reduction for each year under 65.7State of New Jersey. Public Employees’ Retirement System Member Guidebook
The benefit formula changed too. Tier 5 (like Tier 4) divides years of service by 60 and multiplies by final average salary; Tiers 1 through 3 use a divisor of 55, which produces a larger annual benefit for the same years worked. Final average salary for Tier 5 and Tier 4 uses the highest five fiscal years; Tiers 1 through 3 use the highest three.7State of New Jersey. Public Employees’ Retirement System Member Guidebook
The combined effect is real money. A Tier 5 PERS member retiring at 65 with 30 years receives 50% of a five-year average salary. A Tier 1 member with the same 30 years retiring at 60 receives 54.5% of a three-year average, which is almost always higher. Across a long retirement the gap adds up.
PFRS Tier 3
PFRS members enrolled after June 28, 2011, fall into Tier 3. They can still reach “special retirement” at any age with 25 years of service, but the formula is 60% of final compensation plus 1% for each year over 25, capping at 65%. Final compensation is the average of the last three years. Mandatory retirement is age 65.8State of New Jersey. Police and Firemen’s Retirement System Member Guidebook
The COLA Suspension
Chapter 78 suspended cost-of-living adjustments for all pension retirees, effective June 28, 2011. Before the law, retirees received periodic increases tied to inflation. Those increases are frozen until each pension system reaches a target funded ratio. The regulation sets an initial trigger of 75%, with a required progression to 80% over seven fiscal years, and any reactivated COLA cannot cause the funded ratio to drop below the target in a 30-year projection.9Legal Information Institute. New Jersey Administrative Code 17:1-8.5 – Calculation of Cost-of-Living Adjustment
As of early 2026, the combined funded ratio for state pension systems sits just below 56%. Even with full annual contributions, projections estimate the systems will not reach the 80% threshold until roughly 2042. Current retirees have gone more than 14 years without a COLA, and many will go decades more.
The Sunset and Collective Bargaining
The health contribution percentages are not permanent. Chapter 78 built in a sunset: once an employee group completes the fourth year of the phase-in (Tier 4), the statutory percentages expire for that group’s next contract, and health contribution rates become a mandatory subject of collective bargaining.1Department of the Treasury. Division of Pensions and Benefits – Pension and Health Benefits Reform
Unions can then negotiate contribution rates below the Tier 4 percentages. A 2019 Public Employment Relations Commission ruling confirmed that after full Chapter 78 implementation, the statute no longer preempts negotiated terms for retiree health contributions, and in certain circumstances the 1.5% salary floor does not apply after the sunset.10Public Employment Relations Commission. I.R. No. 2020-8
Until a new agreement is ratified, Tier 4 contribution levels stay in place as the status quo. Employers cannot unilaterally change contribution percentages between contracts. If negotiations drag on, employees keep paying what they were paying at the end of the last deal.
Pension contributions are a different story. The 7.5% rate for PERS and TPAF members and the 10% rate for PFRS members are fixed by statute and cannot be negotiated downward.
Retiree Health Contributions and the 20-Year Protection
Chapter 78 imposed health contributions on many retirees, which had not existed before. Retirees eligible for employer-paid coverage keep it; those who do not qualify have their premiums deducted directly from their monthly pension checks.11State of New Jersey Department of the Treasury. Health Benefits Coverage – Enrolling as a Retiree
The law carved out a protection for long-tenured workers: employees who had at least 20 years of creditable service as of June 28, 2011, and who eventually retire with 25 or more years, are exempt from paying health contributions in retirement.12State of New Jersey. Keys to Pension and Health Benefit Reforms P.L. 2011 c. 78 Workers who did not clear the 20-year mark by that date pay the standard contributions both while working and in retirement, which makes June 28, 2011, one of the most consequential dates in the law.
TPAF members and school-board PERS members who retire with 25 or more years of service credit can enroll in the retired group of the SEHBP whether or not their employer participated in the program. Eligibility is not the same as premium-free coverage: whether a retiree pays depends on hire date, years of service, and the 20-year window.
A Note for School Employees
If you were hired by a New Jersey school district on or after July 1, 2020, Chapter 78 may not be the framework that governs your health premiums. P.L. 2020, c. 44 created two new plans, the New Jersey Educators Health Plan (NJEHP) and the Garden State Health Plan (GSHP), that use a percentage of salary rather than a percentage of premium. The rates run lower than the Chapter 78 equivalents; for instance, an employee earning $60,001 to $70,000 with family coverage pays 5.0% of salary under the 2026 NJEHP schedule.13State of New Jersey. Aetna NJEHP and Horizon NJEHP Annual Member Contributions 2026 Chapter 44 is scheduled to expire on December 31, 2027, at which point workers in those plans would be allowed to move to any available plan, including plans still governed by Chapter 78.