Understanding Your NJ ABP Pension Program

nj abp pension plan

 

The New Jersey Alternate Benefit (NJ ABP) Program Pension Program is a tax-sheltered defined contribution retirement program (a mandatory retirement plan for employers and employees to make contributions on a regular basis) for higher education full-time, part-time or adjunct faculty and certain administrators.

You are required to possess a college degree or its equivalent and must participate in the ABP upon employment with institutions of higher education. A retiree from any New Jersey State-administered retirement system is ineligible to participate in the Alternate Benefit Program. The ABP provides retirement benefits, life insurance and disability coverage, when combined with Social Security and other tax- deferred plans can provide security in retirement.

Your Human Resources representative will assist you with the ABP enrollment process. You will receive an ABP Enrollment Application form with your onboarding paperwork. Additionally, you will receive a Provider Election and Allocation form, where you will select one investment provider, if you are delayed vesting status (status during the first year of employment).

If you are vested (vested in the second year of eligible employment or existing account), you can select more than one investment provider and allocate the percentage of your contributions to each one, totaling 100%. You must establish a valid account with the provider you select. Therefore, prior to completion of the forms, you may want to set up a meeting with an investment provider to discuss your financial goals.

The employee’s mandatory rate of contribution is established at a flat rate of 5% of base or contractual salary. The employer’s rate is currently 8% of a member’s base salary. For most ABP members, mandatory “employee” and “employer” contributions are held in a delayed vesting status during the first year of ABP eligible employment. The ABP member is vested in the ABP beginning in the second year of employment.

However, if a new ABP member has an existing account based on employment at another institution of higher education, the ABP member is considered immediately vested. As a vested member, all contributions and accumulations in the ABP account belong to the member and provide benefits when the member is eligible to receive them.

While in delayed vesting status, loans or transfer of funds between carriers is not permitted. Furthermore, if an ABP member leaves eligible employment before becoming vested, only the “employee” contribution, including any loss or gain, can be refunded. The “employer” contributions are returned to the employer. Additionally, the refund of contributions to a non-vested member is considered a withdrawal from ABP.

Once vested, you are eligible to apply through your provider for loans made from the member’s account balance. Your investment provider will be able to assist with the loan process and repayment.

All ABP members are covered by employer life insurance, in the amount of three and one-half times the employee’s annual base salary. The coverage is available without a medical examination to members under age 60. Newly enrolled members 60 years of age or older must undergo a medical examination to qualify.

The Internal Revenue Service classifies all employer paid, group life insurance coverage over $50,000 as a fringe benefit subject to taxation. The amount of the life insurance coverage is not taxable, but the premium required to pay for the life insurance coverage is taxable.

A member is eligible for employer-paid, long-term disability insurance coverage after one year of participation in the ABP. If a member is totally disabled due to an occupational or non-occupational condition, the member is eligible to receive a monthly benefit of up to 60% of the base salary earned during the 12 months preceding the onset of the disability.

This monthly benefit is offset by another periodic benefit the member may be receiving. The member becomes eligible for the disability benefit after six consecutive months of total disability.

Another tax-deferred program offered to ABP members is the Additional Contributions Tax-Sheltered (ACTS) Program which allows employees to obtain supplemental tax-deferred annuities with their investment provider. You can join the ACTS Program by obtaining the necessary forms from your HR Representative, a completed Salary Reduction Agreement and the Provider Election and Allocation form.

It is important that you meet with your investment provider to ensure that an account has been setup so contributions can be processed, if an account is not setup, your contributions will be returned to your employer causing a delay.

The professional wealth managers at Gitterman Wealth Management are great resources; they can assist you with the planning of your financial goals in retirement. For more information regarding enrolling within the New Jersey ABP, please visit our NJ ABP page and click on the “Getting Started” tab.

RESOURCES: New Jersey Division of Pensions and Benefits website, New Jersey Division of Pensions and Benefits Publication – Fact Sheet 34 and 38.

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Author Jeff Gitterman

Jeff Gitterman is a co-founding partner of Gitterman Wealth Management, LLC, and a thought leader in the field of Sustainable, Impact, and ESG (Environmental, Social, and Governance) Investing. He is the creator of his firm’s SMART (Sustainability Metrics Applied to Risk Tolerance)® Investing Services, which offer investment opportunities for individual clients, as well as research and investing services for other financial professionals in the Sustainable, ESG, and Impact arenas.

Noted as an “ESG expert” by Financial Advisor magazine, Jeff has also been featured in the past in Money Magazine, Barron’s, Morningstar Magazine, The Wall Street Journal, CNN, and Affluent Magazine, among many others.

Jeff deeply believes that the migration of investor capital towards more Sustainable, Impact, and ESG investments is one of, if not the most effective way to help realize the United Nations’ Sustainable Development Goals (SDGs), and he is committed to helping both investors and other financial professionals navigate the rapidly growing Sustainable, Impact, and ESG Investing landscape.

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