Tiers 4 and 5: Years of service / 60 x Final Average Salary = maximum annual allowance. Guidebook p. 25, Service Retirement
The guidebook's example: a Tier 1 member with 22 years gets 22/55, or 40%, of final average salary. Months count too: each extra month raises the percentage a little (see one more year). Your divisor depends on your tier. Guidebook p. 25, Retirement Calculation Definitions; pp. 11-12, Service Credit; p. 14, Overview
Same salary and service, different tier
A $70,000 final average salary and 30 years, retiring at the tier's full-pension age:
| Tier | Formula | A year | A month |
|---|---|---|---|
| Tier 1 (age 60) | 30 ÷ 55 | $38,182 | $3,181.82 |
| Tier 2 (age 60) | 30 ÷ 55 | $38,182 | $3,181.82 |
| Tier 3 (age 62) | 30 ÷ 55 | $38,182 | $3,181.82 |
| Tier 4 (age 62) | 30 ÷ 60 | $35,000 | $2,916.67 |
| Tier 5 (age 65) | 30 ÷ 60 | $35,000 | $2,916.67 |
Our arithmetic with the guidebook formula. Maximum Option, before any payment option or early-retirement cut. Guidebook p. 25, Service Retirement
Final average salary
- Tiers 1-3: Average salary for the 36 months (30 months on a 10-month contract) immediately before retirement, or the three highest fiscal years (July-June) if higher. Guidebook p. 25, Retirement Calculation Definitions
- Tiers 4-5: Average salary for the 60 months (50 on a 10-month contract) before retirement, or the five highest fiscal years if higher. Each year's salary counts only up to that year's maximum compensation limit. Guidebook p. 25, Retirement Calculation Definitions; Fact Sheet #79 p. 1
- Tiers 1-3: the average of the last 36 months of salary (30 months on a 10-month contract), or your three highest fiscal years (July-June) if those are higher. Tiers 4-5: the last 60 months (50 on a 10-month contract) or the five highest fiscal years.Guidebook p. 25; N.J.S.A. 18A:66-2(f)
- Only base salary counts: not overtime, bonuses, raises given mainly because you are about to retire, or extra pay for duties beyond the regular school day or year.Guidebook pp. 9, 25
- For Tiers 2-5, each year's salary counts only up to the Social Security wage limit for that year: $176,100 in 2025 and $184,500 in 2026. Tier 1 is limited only by the federal 401(a)(17) limit ($360,000 in 2026).Fact Sheet #79 p. 1; Guidebook p. 10
Pay above the limit: the DCRP
Tier 2-5 members' pensionable salary is limited to the Social Security maximum wage for the year; it changes each January. Final salary at retirement is limited to the amounts in effect when the salary was earned. Fact Sheet #79 p. 1, PERS/TPAF Annual Maximum Wage; N.J.S.A. 18A:66-2(d)(2); N.J.S.A. 43:15C-2
Tier 2-5 members earning over the limit are also enrolled in the Defined Contribution Retirement Program (DCRP): 5.5% of salary above the limit from the member plus 3% from the employer goes to a DCRP account (Empower). Members can waive DCRP; a later election takes effect January 1. They keep earning TPAF service credit, and DCRP service from excess pay doesn't affect SEHBP credit earned through the TPAF. Members are immediately vested in the DCRP. Guidebook p. 10; Fact Sheet #79 pp. 1-2; Employers' Manual p. 6, Maximum Compensation
Tier 1 has no Social Security limit, only the much higher federal limit.
Tier 1 salary is capped only by a high federal limit ($360,000 in 2026).
We warn when a Tier 1 FAS is over $360,000.
Fact Sheet #79 p. 1; Guidebook p. 10The Tiers 2-5 pay limit by year
| Year | Limit |
|---|---|
| 2026 | $184,500 |
| 2025 | $176,100 |
| 2024 | $168,600 |
| 2023 | $160,200 |
| 2022 | $147,000 |
| 2021 | $142,800 |
| 2020 | $137,700 |
| 2019 | $132,900 |
| 2018 | $128,400 |
| 2017 | $127,200 |
| 2016 | $118,500 |
| 2015 | $118,500 |
| 2014 | $117,000 |
| 2013 | $113,700 |
Fact Sheet #79 p. 1, PERS/TPAF Annual Maximum Wage; N.J.S.A. 18A:66-2(d)(2); N.J.S.A. 43:15C-2
If your salary is above the Social Security wage limit, each year counts only up to that year's limit, and the limit changes in January. How NJ applies it to a July-June year isn't spelled out.
The FAS helper caps each year at the limit of the calendar year you assign to it; the estimate caps FAS at the limit for the retirement year (or the latest known year).
Fact Sheet #79 p. 1; Guidebook p. 25Veterans
Same for all tiers. A qualified veteran age 55+ with 25 years, or age 60+ with 20 years, gets 54.5% of the highest 12 consecutive months of base salary. Age 55+ with 35 years: years / 55 x highest 12 consecutive months. A veteran may take a Service Retirement instead if it pays more. Must be in active employment until retirement (or have qualified at termination) and have veteran status on file (DD 214 to the NJ Department of Military and Veterans Affairs). Guidebook pp. 25-26, Veteran Retirement; Planning Guide p. 6
Example: a veteran at 55 with 25 years whose highest 12 months of salary were $80,000 would get $43,600 a year.
What you pay in
Members contribute 7.5% of base salary (since July 1, 2018), applied to pensionable salary up to the federal limit (Tier 1) or the maximum compensation limit (Tiers 2-5). Base salary excludes overtime, bonuses, retirement-anticipation increases and extra pay for duties beyond the regular school day or year. Contributions are federally tax-deferred (IRC 414(h)) since January 1987. Guidebook pp. 9-10, Member Contribution Rate; Employers' Manual p. 6, Contribution Rate; N.J.S.A. 18A:66-29
What the NJDPB says
- Tiers 1, 2 and 3: years of service divided by 55, times your final average salary. Tiers 4 and 5: years of service divided by 60, times your final average salary. The result is the yearly Maximum Option allowance.Guidebook p. 25; N.J.S.A. 18A:66-44
- Example: a Tier 1 member with 22 years gets 22/55, or 40%, of final average salary. Each extra month of service adds a little more.Guidebook p. 25
- If you are in Tiers 2-5 and earn more than the yearly limit ($184,500 in 2026), you are also put in the Defined Contribution Retirement Program for the excess: 5.5% from you and 3% from your employer go to an investment account with Empower. You can waive it.Guidebook p. 10; Fact Sheet #79 pp. 1-2
- People who would be in Tier 3 except for the minimum salary, or Tiers 4-5 except for the 32-hour rule, may be put in the DCRP instead if they earn at least $5,000.Guidebook p. 23
Questions
What is the TPAF pension formula?
Years of service ÷ 55 × final average salary for Tiers 1-3, and years ÷ 60 × final average salary for Tiers 4-5. The result is the Maximum Option, your yearly pension before any payment option.
What is final average salary?
Average salary for the 36 months (30 months on a 10-month contract) immediately before retirement, or the three highest fiscal years (July-June) if higher. Tiers 4 and 5 use 5 years (60 months, or 50 on a 10-month contract).
What happens to pay above the limit?
In Tiers 2-5, pay above the Social Security wage limit ($184,500 in 2026) doesn't count toward your pension. Instead 5.5% from you and 3% from your employer go into a DCRP account.
Source: TPAF Member Guidebook, July 2026 (SP-0733-0726), pp. 7, 9-12, 14, 23, 25-26. Also: NJDPB Fact Sheet #79 (Feb. 2026), pp. 1-2. Also: Employers' Pensions and Benefits Administration Manual, TPAF (June 2026), p. 6. Also: Retirement Planning Member Guidebook (March 2025), p. 6. Statute: N.J.S.A. 18A:66-2, 18A:66-29, 18A:66-44, 43:15C-2. Last reviewed .