Information by Employer Task

Revaluation of a Loan Schedule

If a member is off payroll and misses a scheduled loan deduction(s), any outstanding loan must be revalued and additional interest charged. In this situation please contact the Division of Pensions and Benefits, Office of Client Services, at (609) 292-7524, and opt for the Employer Menu.

Calculation of an Additional Loan

When a member applies for a loan and already has an existing loan balance, the present value (principle amount) of the existing loan is calculated and added to the new loan. The resulting increased obligation is scheduled in the same manner and subject to the same conditions as the original loan.

Payment of a Loan Prior to Completion

An active member may make a lump sum payment against the total value of the loan at any time. The member may use the Automated Information System to obtain an estimate of the loan balance. We advise that the member call or write to the Office of Client Services at (609) 292-7524 and request the lump sum payoff figure. The request will generate a quote which will be mailed to member along with the date the payment is due at the Division of Pensions and Benefits. The Division of Pensions and Benefits will not accept any payment unless a payoff figure has been quoted.

The member should remit a copy of the payoff quote letter along with the payment to ensure the proper credit is made to the account.

*****PLEASE NOTE******

Loan instructions and provisions are also located on the back of the Loan Application for All Funds except JRS, and JRS Loan Application. The most commonly asked questions concerning loans can also be found on the applications.

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Instructions for Completing the Loan Application

Items 1-4

The member must give the Division of Pensions and Benefits basic account information so the loan can be processed. 

For Item 1, the employee checks the State-administered retirement system of which he/she is a member.

The member enters his/her Social Security number or pension membership number for Item 2. The pension membership number can be found on the member's payroll check stub or can be obtained from personnel.)

The member's date of birth is also required for Item 3.

In Item 4, the member's daytime telephone number must be entered. The Division requests the member's daytime phone number in case there are any questions that need to be answered while processing the loan request.

Items 5-6

The member's name, and address are required for Items 5 and 6.  

The address that appears on the Loan Application is the address to which the loan check will be sent.  

The Division suggests that members use their home addresses rather than work addresses, especially if the member works for a large employer. 

Loan checks must be mailed.  They cannot be picked up at the Division of Pensions and Benefits. 

Step 1: How Much Is Available for a Loan?

The first step a member should take when requesting a loan is to find out how much the member has available to borrow. Calling the Automated Information System at (609) 777-1777 is a convenient way for a member to learn the amount available. (The Automated Information System makes many types of basic account information available to pension members, in addition to loans.)

The member will need to use a touch tone phone to access the Automated Information System. The member will need to have his or her Social Security number on hand, and a pen for notes. Once the member learns how much is available to borrow and the repayment rate, he or she can proceed to Steps 2 and 3.

Additional sources of information are: Client Services Phone Counselors, at (609) 292-7524, 8:00 AM - 4:30 PM, Monday - Friday.

Also, the Interview Counseling Section at the Division of Pensions and Benefits, 50 West State Street, First Floor, Trenton, NJ 08625 can provide answers to all loan questions (Counselors are available from 7:40 AM - 4:00 PM, Monday - Friday..

Step 2:  Amount of Loan Requested

Loans are made in multiples of $10 and may not exceed 50% of the total contributions posted to a member's account. 

When a member has an outstanding loan balance at the time a new loan is requested, the total loan balance (old plus new loans) may not exceed the 50% of total contributions.

The minimum loan amount is $50.  In this case the member may write "$50" or simply "minimum".

If a member wishes to obtain the maximum loan available, simply write "maximum" in Step 2.

Please also see Loan Compliance for IRS Requirements—Maximum Loan Balance and Repayment Period and Loan Compliance for IRS Requirements in 2004—Repaying Multiple Loans

Step 3: Loan Repayment Requested

The minimum repayment is scheduled in equal payments, which will be equal to, or slightly greater than, the monthly or biweekly base salary multiplied by the full rate of contribution:

5.5% for PERS and TPAF (8.5 % for PERS Prosecutors Part)

8.5% for PFRS

7.5% for SPRS

• By law, the member cannot pay less than the minimum amount, nor may the payment amount exceed 25% of base salary.
  
  
• If the member is paid through Centralized Payroll, the requested repayment amount should be indicated in the "biweekly" space. If the member is not paid through Centralized Payroll, the requested repayment amount should be indicated in the "monthly" space.
  
  
• If the member wishes to pay the minimum amount, write "minimum" in the space provided in Step 3.
  If the member wishes to pay the maximum amount, write "maximum" in the space provided in Step 3.
  
  
• If the member wishes to specify an amount in between minimum and maximum, state the amount requested in the space provided in Step 3, and the Division will calculate the repayment schedule as closely as possible to the requested figure.
  
  
• If a member wishes to repay within a specific period of time, check the box provided and write "Repay by (date)" in the space that follows.

Please also see Loan Compliance for IRS Requirements—Maximum Loan Balance and Repayment Period and Loan Compliance for IRS Requirements in 2004—Repaying Multiple Loans.

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Signature Line

The member must sign and date the application.  Unsigned or improperly completed applications will not be processed.  The Division also cannot accept photocopies of completed applications.

Employer's Certification

The bottom of the application is to be filled out by the employer only if the member has been out of work without pay for two weeks or more within the last 6 months or has recently transferred employment. The items requested on the certification are self-explanatory.

The certification enables the Division to ascertain that the member is actively on payroll and that certifications for loan repayments may be made with confidence. In addition, employer certification enables otherwise eligible members who want a loan to receive one before the next quarterly posting to their accounts.

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Loan Compliance for IRS Requirements (2002)
Maximum Balance Allowed and Maximum Repayment Period

Internal Revenue Service regulations effective January 1, 2002 resulted in changes to the Division of Pensions and Benefits loan policies. Internal Revenue Section Code 72(p) requires that loan balances not exceed $50,000, and requires that they be paid within five years. As a result, for any loan checks dated after January 1, 2002, loan balances cannot total more than $50,000 and must be repaid within five years. Further, members must make timely payments toward outstanding loan balances, regardless of the members' employment status (i.e., "active" or "inactive").

The following policy changes will apply only to loan checks dated after January 1, 2002:

• After January 1, 2002, if a member applies for a loan and that loan added to any existing loan balance totals $50,000 or more, a loan check will be sent for the difference under the $50,000 limit. The Division will notify the member that the requested loan amount would have caused the loan balance to exceed the $50,000 limit. If the member is not satisfied with the payment schedule or the check amount, the uncashed loan check can be returned.
  
  
• Loan checks dated after January 1, 2002 will have a maximum repayment schedule of five years. Because the repayment schedule must be within a five-year period - upon taking a new loan, those members with large existing loan balances will either have an increase in the repayment schedule or may be required to take a smaller loan amount due to the requested payment exceeding 25 percent of the base salary per month. If the member is not satisfied with the payment schedule or the check amount, the uncashed loan check can be returned.

The new IRS regulations also stipulate that if regular payments are not made on a pension loan, then the loan is to be considered in default and determined to be a taxable distribution to the member. Therefore, members who take a loan after January 1, 2002 and subsequently fail to remit loan payments may also be subject to IRS limitations as follows:

Members will be notified after there have been two consecutive quarters of nonpayment (zero contributions) toward the balance of their outstanding loan, and offered the following options:

• Pay the loan off through a lump sum payment*;
• Repay the loan in monthly installments through personal billing* (for loans taken after January 1, 2002 only);
• Take a taxable distribution; or
• If returning to employment, repay through employer payroll deductions*.

  *The member must return option selection within 30 days of receiving notification. Failure to respond within the 30-day period will result in the unpaid loan balance being declared a taxable distribution.

When a loan balance has been determined to be a taxable distribution, it is reported to the IRS. The Division of Pensions and Benefits will send the member a Form 1099-R for tax filing purposes in January of the following year. The member will be required to include the portion of the loan representing before-tax contribution as income on his or her federal return. In addition, if the member is under age 59½, he or she will be required to pay an additional ten percent tax for taking an early pension distribution.

A “taxable distribution” cannot be canceled by resuming loan payments or repaying the loan in full prior to the end of the tax year in which the deemed distribution occurs. Please note that unlike a normal pension distribution, a loan treated as a distribution cannot be rolled over to an IRA or another qualified retirement plan.

Please be advised that the outstanding loan balance being deemed a taxable distribution does not cancel the loan obligation, and the loan balance is still due. The balance can be recuperated at the time of withdrawal, retirement, or death of the member.

IRS Loan Compliance Regulations
Multiple Loans Taken after January 1, 2004

Effective January 1, 2004, Internal Revenue Service regulations require the Division of Pensions and Benefits to change its loan policies regarding members who take multiple loans concurrently (taking a new loan before the balance of an existing loan has been paid off). Under the new IRS regulations, a member taking multiple loans must repay the combined total of the outstanding balance of the original loan taken after January 1, 2004, plus all subsequent loans taken prior to payoff of the original loan, within five years of the issuance date of the first loan.

This loan policy change does not come into play in the case of a member who takes a single loan after January 1, 2004 and pays it off before taking another pension loan, but rather when a member takes additional loans while a balance on the original loan taken after January 1, 2004 remains. In such instances, the loan repayment schedule will be set up so that the total loan balance is paid off within five years of the issuance date of the original loan, to prevent the unpaid balance from being declared a taxable distribution.

Therefore, in cases where a member takes multiple loans, it is the date of issuance of the first loan taken after January 1, 2004 that will establish the maximum five-year payoff period for the combined outstanding balance of the original loan and all subsequent loans taken prior to payoff of the original loan.

(The five-year maximum repayment schedule policy resulted from a previous loan policy change in compliance with IRS regulations—see above).

Loan Policy Change Implications

Under the above regulations, if a member is issued a new pension loan before the first loan taken after January 2004 is paid off, a substantial increase in the member’s repayment amount may result, in order to ensure full repayment of the total loan balance within five years of the issuance of the original loan.

Or, the new loan amount requested may be reduced, so that the payroll deductions required to repay the loan within this five-year period do not exceed the 25% of pay restriction in State law.

For additional information, please consult the applicable Certifying Officer letter dated November 10, 2003, "New Pension Loan Policy":

State Certifying Officers
Pension Certifying Officers

For a sample letter to use to inform members about this loan policy change, click here.

Members or employers with questions can contact Client Services by phone, at (609) 292-7524 or by e-mail, at pensions.nj@treas.state.nj.us

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