New Jersey Administrative Code
Title 17 - TREASURY - GENERAL
Chapter 2 - PUBLIC EMPLOYEES' RETIREMENT SYSTEM
Subchapter 4 - MEMBERSHIP
Section 17:2-4.9 - Loans

(a) Only active contributing members of the System may exercise the privilege of obtaining a loan. The member's total outstanding loan balance shall not exceed the lesser of 50 percent of the accumulated deductions posted to the member's account or $ 50,000. The loan is subject to I.R.C. § 72(p) (2007) of the Internal Revenue Code.

(b) The rate of interest per annum for loans from the State-administered retirement systems shall be a commercially reasonable rate as required by the Internal Revenue Code to be determined by the State Treasurer on January 1 of each calendar year. An administrative fee in an amount set by the State Treasurer for each calendar year may be charged for any loan requested pursuant to 43:15A-34.

(c) All pension loans must be repaid within a period not to exceed five years. If the member has an outstanding loan balance and applies for a new loan, the entire balance must be repaid within five years of the date of the first loan. Furthermore, the new loan amount, when added to the highest balance due (without interest) during the prior 12-month period for all loans from all retirement plans cannot exceed $ 50,000. The $ 50,000 maximum limit includes all retirement plans the member has an interest in due to his or her employment relationship with the State and/or any other governmental plans sponsored or administered by a public sector employer in New Jersey. Loan amounts above the $ 50,000 aggregate limit shall be deemed a distribution, which is subject to additional tax.

(d) If a member's loan, or portion of a loan, is deemed a distribution pursuant to (c) above, the member is still required to repay the full amount of the outstanding loan, including any portion deemed a distribution, unless the member terminates his or her account by withdrawing his or her contributions. If the member withdraws from the retirement system, the settlement will be the net amount of the member's contributions minus the outstanding loan. If the member returns to work and the member's account is reactivated, or the member retires, the member must repay the full amount of the outstanding loan with additional interest computed from the date the member stopped making loan payments.

(e) Pursuant to I.R.C. § 72 (p)(2)(C), members must make regular periodic payments to repay their outstanding loans. If a member obtains a loan and fails to make required loan repayments for three consecutive months, the Division will send a letter to the member requesting payment within 30 days. If the payment is not made, the Division will treat the outstanding loan as a deemed pension distribution. A deemed distribution cannot be canceled by resuming loan payments or repaying the loan in full. Unlike a normal pension distribution, a loan treated as a distribution cannot be rolled over to an Individual Retirement Account (IRA) or another qualified retirement plan.