10 Jul How long can a teacher delay taking pension benefits?

Q. I am a public school teacher in New Jersey and I’m eligible to receive a pension. However, I plan to delay collecting my pension at this time. Is there a law or requirement that says I must begin collecting my pension by a certain age?
— Teacher

A. Congrats on your pending retirement.

If you’re a public school teacher in New Jersey and eligible to receive a pension, we’re going to assume that you’re a member of the Teachers’ Pension and Annuity Fund (TPAF), a defined benefit pension plan administered by the New Jersey Department of the Treasury’s Division of Pensions and Benefits.

Federal tax law requires that participants in a qualified retirement plan such as TPAF begin receiving distributions no later than a required beginning date and in an amount that’s at least equal to the required minimum distribution (RMD), said Gene McGovern, a certified financial planner with McGovern Financial Advisors in Westfield.

He said the required minimum distribution from a defined benefit plan such as TPAF is generally equal to the amount of a life annuity – whether single or joint – paid from the plan.

“Generally speaking, the required beginning date is no later than April 1 following the calendar year in which you turn 70 ½, or the April 1 following the calendar year in which you retire, if that’s later,” he said. “So, for example, if you turn 70 ½ in 2021, and have retired, your required beginning date would be no later than April 1 of 2022.”

However, McGovern said, retirement plans don’t have to allow all the options available under the tax law. The plan documents ultimately control, and according to the New Jersey Department of Pensions and Benefits Fact Sheet #14, “Deferred Retirement” (December 2018), TPAF members “are required to start receiving benefits no later than April 1st of the calendar year following the calendar year in which you attain age 70 ½.”

Note that, according to the Fact Sheet, if you wait until age 70 ½ to begin receiving an annuity from the plan, you will only be eligible to receive the Maximum Option pension benefit, McGovern said.

“The Maximum Option is a single life annuity that ends upon your death,” he said. “There are no survivor benefits payable, other than the return of any of your unused pension contributions.”

So waiting until age 70 ½ would prevent you from electing any of the joint and survivor annuity options that are otherwise available at retirement, he said.

Also note that if you don’t begin collecting your pension benefits by the April 1 deadline, you could be subject to a 50 percent penalty on the amount of any distribution you should have taken, he said.

You can find additional information on your pension options and requirements online via the Member Benefits Online System (MBOS).

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This story was originally published on July 10, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.