2. a. Notwithstanding any other law affecting the salary or compensation of a borrowing member to the contrary, including any law restricting the amount or level of deductions from an employee’s salary or compensation, the additional deductions required to repay the loan shall be made as necessary to comply with the requirements governing loans from the retirement system pursuant to section 1 of P.L.1987, c.171 (C. 43:13-22.67).

b. If a member employed by the city fails to make timely payments on the member’s outstanding loan, the retirement system shall offset, to the extent possible, a member’s benefit for the unpaid loan balance, including interest accrued, and shall report the unpaid loan balance as taxable income to the member pursuant to the federal Internal Revenue Code of 1986, as amended.

c. If a member terminates employment with the city without commencing the receipt of a benefit under the retirement system, any unpaid loan balance, including interest accrued, shall become immediately due and payable. If the unpaid loan balance is not repaid by the time set by the commission, the member’s remaining benefit in the retirement system shall be reduced by the unpaid loan balance, including interest accrued, at the time of the reduction. The unpaid loan balance and accrued interest shall be reported to the federal Internal Revenue Service as income pursuant to the federal Internal Revenue Code of 1986, as amended.

d. If a member terminates employment with the city and commences the receipt of a benefit under the retirement system, the unpaid loan balance, including interest accrued, shall be deducted from the benefit otherwise payable. Such deduction shall be applied as follows:

(1) If a member elects to receive a single-sum payment of the member’s benefit, the amount paid to the member shall be reduced by the unpaid loan balance, including interest accrued.

(2) If a member elects to receive the member’s benefits as an annuity, loan payments, including interest, shall be deducted from the benefit payments.

e. The retirement system shall administer the provisions of subsections b., c. and d. of this section in compliance with the requirements of the federal Internal Revenue Code of 1986, as amended.

f. If a member or retiree dies before the outstanding balance of the loan and interest has been repaid, the remaining balance shall be repaid from the proceeds of any other benefits payable on the account of the member or retiree, such as monthly payments to the member’s beneficiaries or lump sum payments for pension or group life insurance.

L.1987, c.171, s.2; amended 2013, c.282, s.9.