New Jersey’s Chapter 78, enacted as P.L. 2011, c. 78 and effective June 28, 2011, raised pension contribution rates for public workers, pushed back retirement ages for new hires, replaced flat health insurance fees with a percentage-of-premium structure tied to salary, and froze cost-of-living adjustments for retirees.1Division of Pensions & Benefits. Pension and Health Benefits Reform If you work for the state, a county, a municipality, or a board of education in New Jersey, the law almost certainly governs what comes out of your paycheck and when you can retire.
Who Chapter 78 Covers
The law reaches the five state-administered retirement systems, which together take in nearly every public employee in New Jersey:1Division of Pensions & Benefits. Pension and Health Benefits Reform
- PERS, the Public Employees’ Retirement System, for state, county, and municipal workers.
- TPAF, the Teachers’ Pension and Annuity Fund, for certified teachers and certain education professionals.
- PFRS, the Police and Firemen’s Retirement System.
- SPRS, the State Police Retirement System.
- JRS, the Judicial Retirement System.
The tier you fall into depends on your enrollment date, and that date drives most of the retirement-age differences below.
What You Pay Into Your Pension
PERS and TPAF members contributed 5.5% of salary before the reform. Chapter 78 raised that to 6.5% immediately, then phased in roughly 0.14% per year over seven years, reaching 7.5% in July 2018.2New Jersey Department of the Treasury. Chapter 78, P.L. 2011 – Pension Changes for the Public Employees’ Retirement System (PERS) and Teachers’ Pension and Annuity Fund (TPAF) That is where the rate sits today.
PFRS members took a sharper, faster hit. Their contribution jumped from 8.5% to 10% of compensation on the effective date, with no phase-in.3New Jersey Department of the Treasury. Chapter 78, P.L. 2011 – Pension Changes for the Police and Firemen’s Retirement System (PFRS) The statute itself sets the rate at 10% of compensation on and after the effective date.4New Jersey Legislature. P.L. 2011, c.78
These percentages apply to base or contractual salary only. Overtime and bonuses are treated as extra compensation and do not count toward pension contributions or retirement benefits. If contributions get withheld on extra compensation by mistake, they are returned to you without interest.5Legal Information Institute. N.J. Admin. Code 17:2-4.1 – Creditable Compensation
Retirement Age If You Were Hired After June 28, 2011
Chapter 78 created Tier 5 for PERS and TPAF members enrolled on or after the effective date. The headline change: the standard service retirement age moved from 62 under Tier 4 to 65 under Tier 5.1Division of Pensions & Benefits. Pension and Health Benefits Reform
The other Tier 5 rules for PERS and TPAF:
- Service retirement at 65 with no minimum years of service.6New Jersey Department of the Treasury. PERS and TPAF Enrollment, Salary, and Retirement Information by Membership Tier
- Early retirement requires 30 years of service, up from 25 under Tier 4. The benefit is reduced by 3% for each year you are under 65. Tier 4’s early retirement penalty was gentler: 1% per year between 55 and 62, and 3% per year below 55.6New Jersey Department of the Treasury. PERS and TPAF Enrollment, Salary, and Retirement Information by Membership Tier
- Deferred retirement still requires at least 10 years of service, but the benefit becomes collectable at 65 instead of 62.6New Jersey Department of the Treasury. PERS and TPAF Enrollment, Salary, and Retirement Information by Membership Tier
The benefit formula itself did not change between Tier 4 and Tier 5. Your pension is years of service divided by 60, multiplied by your final average salary over five years.1Division of Pensions & Benefits. Pension and Health Benefits Reform A 30-year employee ends up with 50% of final average salary. You just have to work longer to collect without a reduction.
For PFRS, Chapter 78 created Tier 3. Standard service retirement is at age 55 with no minimum years of service.7New Jersey Department of the Treasury. PFRS Enrollment by Membership Tier
What You Pay for Health Insurance
Before Chapter 78, public employees paid a flat dollar amount for health coverage. The law replaced that with a percentage of the actual premium, and the percentage depends on your salary and coverage level. Higher earners pay a bigger share.1Division of Pensions & Benefits. Pension and Health Benefits Reform
The Division of Pensions and Benefits publishes updated charts each year. For 2026, local government employees see these ranges:8New Jersey Department of the Treasury. State Health Benefits Program Percentage of Premium Calculation Charts
- Single coverage: 4.5% of premium at salaries under $20,000, up to 35% at $95,000 and above.
- Member and spouse, or parent and child: 3.5% at salaries under $25,000, up to 35% at $110,000 and above.
- Family coverage: 3% at salaries under $25,000, up to 35% at $100,000 and above.
There is a floor. Every employee contributes at least 1.5% of base annual salary toward health benefits, regardless of what the chart produces.8New Jersey Department of the Treasury. State Health Benefits Program Percentage of Premium Calculation Charts To find your monthly deduction, locate your salary band and coverage tier on the chart, then multiply that percentage by your plan’s monthly premium.
The math has real weight. An employee earning $65,000 with family coverage pays 19% of the plan’s full premium. On a $2,800 monthly plan, that is $532 a month. Someone earning $45,000 with the same family plan pays 9%, or $252 a month.
What Happened to Retiree COLAs
Chapter 78 froze cost-of-living adjustments across every state retirement system. If you had already retired, your monthly check was not cut, but it stopped growing. No COLA has been granted since 2011.1Division of Pensions & Benefits. Pension and Health Benefits Reform
The law does create a path back. Pension committees can restore COLAs once a fund reaches a “target funded ratio,” which begins at 75% and rises in equal annual steps over seven years to 80%, where it stays. Even when a fund hits that mark, committees are directed to give COLA reactivation “priority consideration,” not an automatic yes.1Division of Pensions & Benefits. Pension and Health Benefits Reform
The funds are not close. As of the July 1, 2024 actuarial valuation, TPAF’s funded ratio sat at 45.8% on an actuarial value basis.9New Jersey Department of the Treasury. Teachers’ Pension and Annuity Fund of New Jersey – Actuarial Valuation 2024 For most retirees, COLA restoration is not a near-term prospect.
Tax Treatment That Softens the Hit
Your increased pension contributions come out pre-tax. New Jersey’s pension systems use a “pickup” arrangement under Section 414(h) of the Internal Revenue Code, which treats mandatory employee contributions as employer contributions for federal tax purposes.10Office of the Law Revision Counsel. 26 USC 414 – Definitions and Special Rules You do not pay federal income tax on that money now; you pay it later, when the pension pays you.
Health premiums generally work the same way. Most New Jersey public employers offer Section 125 cafeteria plans, which let your health premium contributions come out before federal income and payroll taxes are calculated. Both deductions reduce your taxable income, partially offsetting the higher withholding Chapter 78 introduced.
Social Security Change Retirees Should Know
Some New Jersey public employees participate in Social Security alongside their state pension; others do not. For decades, two federal rules cut Social Security benefits for people who received a public pension from work not covered by Social Security. The Windfall Elimination Provision reduced your own retirement benefit, and the Government Pension Offset reduced spousal or survivor benefits by two-thirds of your public pension amount.11Social Security Administration. Program Explainer: Government Pension Offset12Social Security Administration. Program Explainer: Windfall Elimination Provision
Both were eliminated by the Social Security Fairness Act, signed on January 5, 2025. If your Social Security check was previously reduced because of a New Jersey public pension, that reduction no longer applies.