Employers' Pensions and Benefits Administration Manual (EPBAM)
Winter 2003
   

 

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Maximum Rate of Interest on Debts
Incurred before Military Service


For members of the State-administered retirement systems listed below who enter active military service following enrollment, purchases, loans, back deductions or other obligations to the retirement systems incurred prior to active military service shall not bear interest at a rate exceeding 6%, for the entire duration of the member's active military service. Interest in excess of 6% per year will be waived.

Members of the following New Jersey State-administered retirement systems are affected:

  • Public Employees' Retirement System (PERS)
  • Teachers' Pension and Annuity Fund (TPAF)
  • Police and Firemen's Retirement System (PFRS)
  • State Police Retirement System
  • Judicial Retirement System

In order for a member to have the interest in excess of 6% per year waived on purchases, loans, back deductions or other obligations to the above retirement systems:

  1. The member must request, in writing, that the purchase, loan, back deduction or other obligation be subject to the interest rate limitation.
  2. The request must include a copy of the military orders calling the member to military service and any orders further extending military service, and
  3. The request must be received by the Division of Pensions and Benefits within 180 days after the date of the member's termination or release from military service.

Active military service qualifying for the waiver of interest in excess of 6% per year shall also include periods of service in the National Guard under a call to active service authorized by the President, the Governor, or the Secretary of Defense, for a period of more than 30 consecutive days.

For members meeting the above requirements, the interest on purchases, loans, back deductions or other obligations must be recalculated, using the 6% rate for the period of time corresponding to the period of active military service, and a new certification of deductions would then be produced. (Of course, in cases where the interest rate for an obligation is already lower than the 6% maximum, there is no change in interest rate, and a new certification of deductions is not needed.)

For example, if a State-administered retirement system member is on active duty for one year and has a purchase outstanding with an interest rate of 8¾%, then the interest on the purchase would be reduced to 6% for a one year period. The repayment schedule would be recalculated based on the reduction in the interest rate.

This waiver of interest outlined above is in accordance with the Soldiers' and Sailors' Civil Relief Act of 1940 (50 U.S.C. App. 501 et seq.) Section 207, as amended by the Service Members Civil Relief Act of 2003, which requires that the interest rate on debts incurred before entering active military service not exceed 6% during the period of active military service, and the interest in excess of 6% be waived.

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Last Updated: September 7, 2004