Category: Pensions

If you have a legacy pension from a corporate employer and the plan offers a lump sum instead of the monthly benefit, the size of that lump sum is not a negotiation. It is an arithmetic result of your promised monthly amount, an IRS mortality table, and three interest rates that the IRS publishes every month under section 417(e)(3) of the tax code. When those rates rise, the lump sum for the same pension falls.

What moved

In January 2026 the three segment rates were 4.03%, 5.20% and 6.12%. For July 2026, the most recent month published, they were 4.62%, 5.62% and 6.51%. The first rate discounts payments in the first five years, the second covers years five to twenty, and the third everything after.

Using the IRS mortality table that applies for 2026, a $2,000 a month single-life pension starting at 65 is worth about $309,100 at the January rates and about $296,000 at the July rates, roughly 4.2% less for the identical promise. At 60 the gap is nearer 4.7%, because more of the payments sit in the later, higher-rate segments. These are illustrations from the published tables, not a quote from any plan.

Which month your plan uses

Plans do not use the current month. Each plan document names a lookback month and a stability period; one design fixes the lump-sum basis for a whole calendar year from the rates of a month in the prior year, for example August, October or November. That has two consequences. First, if your plan’s 2027 basis is set from a late-2026 month, the offers you see next year will reflect this year’s higher rates. Second, if you are already eligible to retire, the offer available in 2026 was set from a 2025 month, and it may be the larger of the two. The plan document states the month and the period, and the plan administrator can tell you which apply to you; ask before you rely on an offer.

Smaller lump sum does not mean take the pension

A lower lump sum is the same promise priced at a higher rate, so in principle the two are still equivalent. The choice turns on things the formula ignores: your health and your spouse’s, whether the plan is well funded and what the Pension Benefit Guaranty Corporation would cover if it were not, whether you need the money to be flexible or need it to be automatic, and what the lump sum would have to earn to replace the pension for as long as you both live. On the last point, the annuity calculator on the Calculators page turns a balance back into a monthly figure on the same IRS basis, so you can compare a lump sum against what it would buy.

Who this applies to in North Jersey

This is a corporate-plan decision. PERS and TPAF do not offer a lump sum in place of the monthly allowance; the choices there are the survivor options at retirement. Where the question does arise locally is with a legacy pension from a pharmaceutical, telecom or financial employer, and with hospital systems that have frozen a defined benefit plan. New Jersey taxes both the pension and a rolled-over lump sum when withdrawn, and either counts toward the $150,000 total income test for the state pension exclusion.

If an offer is on your desk

Get the plan’s relative value disclosure, the lookback month, and the monthly benefit at your normal retirement age, then compare the offer to what the same monthly amount costs on the open market. If you would like that comparison run with you, start here.

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Reviewed September 12, 2026. Sources: IRS Notice 2026-51 (July 2026 segment rates, Internal Revenue Bulletin 2026-38); IRS minimum present value segment rates table; IRS Notice 2025-40 (applicable mortality table for 2026); Internal Revenue Code section 417(e)(3).

This article is general educational information and is not investment or tax advice. The illustrations use published IRS tables and are not a quote from any plan; your plan’s own basis, lookback month and benefit formula govern. Confirm figures with your plan administrator before deciding.

If you plan to retire from a North Jersey county job, a school district, or state service in 2027, the paperwork is more time-sensitive than the decision. The Division of Pensions and Benefits publishes the rules in Fact Sheet #4, and the dates in it are firm.

When to file

The application is filed online through the Member Benefits Online System, MBOS. Paper applications are not accepted. You may file up to one year before your retirement date, and the Division recommends four to six months. It cannot be filed later than the retirement date itself: under no circumstances can a retirement take effect before the date the online application is received. A January 1 retirement filed on January 3 becomes a February 1 retirement.

All PERS and TPAF retirements are effective on the first of a month. For a teacher that can mean July 1 or September 1, and the school year contract can decide which; for a county employee it is whichever first of the month follows the last day worked. The month you choose sets the final salary period, the service credit, and, if you are under normal retirement age for your tier, the age reduction. The pension estimator on the Calculators page shows what one more month or one more year of service does to the figure.

What to have ready

• Proof of age: a photocopy of a birth certificate with a visible seal, a passport, a current driver’s license or naturalization papers. Do not send originals.
• Your beneficiary and option decision. The payment option chosen on the application governs what a survivor receives, and it is the one part of this process that is difficult to revisit.
• An estimate. Members within two years of retirement can run one in MBOS from the current account record, which is more accurate than any outside calculation, including ours.

The window to change your mind

You may change or cancel a retirement up to 30 days after your retirement date, or 30 days after the Board of Trustees approves it, whichever is later. After that, the retirement and the option are final. Because the Board meets monthly and approval can lag the retirement date, the practical window can be the first month of retirement. If you are considering a different option or date, decide before the first check, not after.

What happens to the money

The retirement is not final until the Board of Trustees approves it, and the first payment follows approval, so it can arrive after the first of the month you retired. Plan for one month of bridging cash. The allowance is New Jersey taxable income and counts toward the $150,000 total income test for the state pension exclusion; the first retirement year, with a final salary and a first pension in the same year, is the one most likely to cross it. The county employees and teachers pages cover the tier rules in full.

A working timeline

Twelve months out, run the MBOS estimate and settle the date. Six months out, file, with proof of age. Three months out, confirm health benefits continuation with your employer and, if you are 65 or older, your Medicare enrollment. Thirty days after the date, the decision is final. If you would like to walk through the option choice before filing, start here.

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Reviewed September 12, 2026. Sources: New Jersey Division of Pensions and Benefits, Fact Sheet #4, Retirement: How to Apply (rev. February 2026); Member Benefits Online System.

This article is general educational information and is not advice about your retirement application. Filing rules, deadlines and option terms are set by the Division of Pensions and Benefits and can change. Confirm your own dates with the Division and your employer before filing.