Current Pension Topics: Disability Payoff Better But Must Prove Case

Current Pension Topics
Disability Payoff Better But Must Prove Case


Q.: I am 60 and have 19 years of credited service with the Public Employees' Retirement System of New Jersey (PERS). I suffer from a disability. Should I retire under a disability pension or a regular one?

Mr. Frank is a fee-only Retirement Financial Planner and a retired city high school Teacher of Accounting. He can be reached by telephone at (732) 536-9472, or via e-mail at rollover@optonline.net.

D.P.

A.: You have met all requirements to receive a service retirement allowance on demand. With an ordinary disability retirement allowance, however, you must prove your disability. This is particularly crucial in your case because the disability retirement allowance yields a greater benefit than your retirement for service.

Having said that, your service retirement benefit formula used to compute your maximum retirement allowance is as follows: Years of Service divided by 55 times Final Average Salary (FAS), defined as average annual salary earned during the last three years. If we assume an FAS of $50,000, your maximum pension will be: 19 divided by 55 times $50,000 equals 0.3455 X $50,000, equals $17,275 per year for the balance of your life. The pension payments will stop upon your death. There is no provision for a beneficiary.

Now let's see what your ordinary disability retirement benefit would be. It is equal to 0.436 of your FAS, or $21,800 per year for the balance of your life. The disability pension payments will stop upon your death. There is no provision for a beneficiary.

The following information comes from Fact Sheet 15 at: www.state.nj.us/treasury/pensions/epham/exhibits/pdf/sc0530.pdf.

"To qualify for an Ordinary Disability retirement benefit you must:

[1.] have an active pension account (active membership ceases after discontinuance of pension contributions for more than two consecutive years or withdrawal of member contributions from the retirement system); and

[2.] have 10 or more years of New Jersey service credit in the pension system (the purchase of out-of-state, military and federal government civilian service cannot be used to attain the 10 years); and

[3.] be considered totally and permanently disabled (you must prove that you are physically and or mentally incapacitated from performing your normal or assigned job duties with no possibility for significant improvement).

If the medical documentation supplied by you is not sufficient to support your claim of disability you may be examined by physicians selected by the retirement system at no cost to you. The examination will be scheduled by the New Jersey Division of Pensions and Benefits."

Your possible disability pension from the PERS is greater than your ordinary pension. I would, therefore, apply for a disability pension as soon as possible. If your claim is denied, you may appeal the decision or retire immediately on a service retirement. Additionally and as soon as possible, I would apply for a disability income benefit from Social Security. Again, if your claim is denied, you may appeal the decision or wait until age 62, when you will be entitled to an ordinary retirement benefit from Social Security.

Q.: I am a soon-to-be retired member of the Public Employees Retirement System of New Jersey (PERS). I have an outstanding loan that will not be paid off at my retirement date of Jan. 1, 2009. The loan balance at that time will be about $11,000. May I still retire?

P.A.

A.: Yes, you may. The PERS provides you with two options as far as paying off your loan. You may pay your loan balance in a lump sum and start to receive your full retirement allowance, or continue your schedule of monthly loan payments into your retirement. Instead of these monthly amounts being deducted from your paycheck, they will continue to be deducted from your pension check. Your pension will increase by the amount of the loan upon your last monthly payment.

Of Note: In conjunction with your PERS retirement, you may take out a new loan. It must be paid off over 48 months. Instead of these monthly amounts being deducted from your paycheck, they will be deducted from your pension check. Your monthly pension will increase by the amount of the loan upon your last monthly payment (after 48 months).