Chapter 78 NJ Health Benefits for Retirees: The 25-Year Rule and Premium Sharing

The Biggest Variable in Your Retirement Budget

Your pension check is only half the equation. What you pay for health insurance in retirement can take a meaningful share of your monthly pension — and the rules governing those costs changed dramatically with Chapter 78 in 2011. Understanding what you will owe, and whether you qualify for coverage at all, is as important as knowing your pension formula.

The 25-Year Service Credit Threshold

Under Chapter 78 (P.L. 2011, c. 78), you generally need 25 or more years of credited service in a New Jersey state-administered retirement system to qualify for employer-paid retiree health coverage through the State Health Benefits Program (SHBP) or School Employees' Health Benefits Program (SEHBP).

With fewer than 25 years, you generally do not qualify for state- or employer-paid retiree health coverage under the general rule. Check with your employer and the applicable program about any coverage that may be available to you.

State employees with 20 or more years of service credit as of June 28, 2011, are grandfathered at a 1.5% contribution for post-retirement health coverage, but must still have 25 years of pension service credit before retirement to qualify for employer- or State-paid contributions.

How Premium Sharing Works Under Chapter 78

Even retirees who qualify for employer-paid health coverage are not getting it for free. Chapter 78 requires retirees to pay a percentage of their health insurance premium, calculated based on their total annual pension allowance.

The contribution is structured as a sliding scale — the higher your pension, the higher the percentage you pay. The exact brackets are updated periodically by the Division, but the principle is consistent: retirees with larger pensions contribute more toward their health coverage.

These contributions are deducted directly from your monthly pension check. You will see the deduction on your pension statement alongside federal and state tax withholding.

Chapter 44: Different Rules for Education Employees

Chapter 44 (P.L. 2020, c. 44) created an alternative framework for school employees enrolled in the New Jersey Educators Health Plan (NJEHP) or the Garden State Health Plan (GSHP). Under Chapter 44, premium contributions are calculated as a fixed percentage of base pension income rather than the sliding scale used under Chapter 78.

If you are a TPAF member or a PERS-covered school support employee, you may fall under Chapter 44 rather than Chapter 78 depending on which health plan your employer participates in. The plans have different premium structures, provider networks, and prescription coverage — and you should know which one applies before you file your retirement application.

SHBP vs SEHBP: Which Program Covers You?

SHBP (State Health Benefits Program): Covers state government employees, county employees, and municipal government employees. When you retire, you transition from the active employee group to the SHBP Retired Group.

SEHBP (School Employees' Health Benefits Program): Covers public school employees — both TPAF members (certified educators) and PERS-covered school support staff. You move to the SEHBP Retired Group upon retirement.

Each program has its own annual open enrollment window. SHBP open enrollment for 2026 runs October 1 through October 31. SEHBP open enrollment runs October 26 through October 31. Outside of open enrollment, coverage changes require a qualifying life event.

Medicare Integration at Age 65

When you turn 65 (or become Medicare-eligible due to disability), you must enroll in Medicare Parts A and B. This is not optional — SHBP and SEHBP require it. Once enrolled, your state health coverage becomes secondary to Medicare.

Eligible retirees get reimbursed for the standard Medicare Part B premium, provided they meet the statutory service requirements. The state or employer makes the reimbursement — it is not automatic through Medicare.

The transition to Medicare typically reduces your overall health care costs because Medicare becomes the primary payer. But you need to enroll during the correct enrollment period to avoid late enrollment penalties. The Initial Enrollment Period starts three months before the month you turn 65.

What This Means for Your Net Pension Check

Before selecting your retirement date, calculate your net pension check — not the gross amount. Take the gross pension, subtract federal tax withholding, subtract NJ state tax (though the state pension exclusion may reduce this for retirees 62 and older), and subtract your Chapter 78 or Chapter 44 health premium contribution.

The number that remains is what actually hits your bank account. Your health contribution depends on the plan and contribution rules that apply to you, so calculate it from your applicable premium and contribution schedule rather than relying on a general percentage estimate.

The NJ PERS & TPAF Retirement Guide includes a first-year cash flow planner that walks through every deduction — health premiums, tax withholding, and outstanding pension loan payments — so you see the real number before you commit.

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