PENNFED FINANCIAL SERVICES, INC.
                           DIRECTOR'S RETIREMENT PLAN






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                        PENNFED FINANCIAL SERVICES, INC.
                           DIRECTOR'S RETIREMENT PLAN

                             EFFECTIVE MARCH 1, 2003

                                     Purpose
                                     -------

     The  purpose  of the  Plan  is to  provide  retirement  benefits  to  those
Directors  that are selected to be  Participants  herein in  recognition  of the
valuable  services  heretofore  performed and/or  hereinafter  performed by such
Directors  on behalf of the Company or the Bank.  The Plan shall be unfunded for
tax purposes and for purposes of Title I of ERISA.

                                    ARTICLE I
                                   Definitions
                                   -----------

     For  purposes  of the Plan,  unless  otherwise  clearly  apparent  from the
context,  the  following  phrases or terms  shall have the  following  indicated
meanings:

     "Affiliates" shall mean any entity that, directly or indirectly, through
     ------------
     one or more intermediaries, controls, is controlled by, or is under common
     control with the Company.

     "Bank" shall mean Penn Federal Savings Bank.
     ------

     "Board" shall mean the board of directors of the Company.
     -------

     "Change in Control" shall have the same meaning as set forth in the
     --------------------
     employment agreement of the Chief Executive Officer of
     the Company as in effect on January 1, 2003.

     "Claimant" shall have the meaning set forth in Section 13.1.
     ----------

     "Code" shall mean the Internal Revenue Code 1986, as it may be amended
     ------
     from time to time.

     "Committee" shall mean the committee described in Article 10
     -----------

     "Company" shall mean PennFed Financial Services, Inc.
     ---------

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     "Director" shall mean a properly appointed director or advisory
     ----------
     director of the Company or the Bank.

     "Equivalent Actuarial Value" shall mean a benefit of equivalent value to
     ---------------------------
     another form of benefit, computed on the basis of an interest rate factor
     of 7 percent per annum. Notwithstanding the foregoing, the Equivalent
     Actuarial Value of any payment made on account of a Change in Control shall
     be determined by using the discount rate under Proposed Treasury Regulation
     Section 1.280G-1, Q&A 32, or the successor regulation thereto on the date
     of the payment (i.e., as of the effective date of the Plan, 120 percent of
     the applicable Federal rate as determined under Section 1274(d) and the
     regulations thereunder, compounded semiannually).

     "ERISA" shall mean the Employee Retirement Income Security Act of
     -------
     1974, as it may be amended from time to time.

     "Monthly Benefit" shall mean one twelfth (1/12) of the Participant's
      ------------------
      Retirement Benefit.

     "Normal Retirement Date" shall mean, unless provided otherwise in the
     ------------------------
     Participant's Plan Agreement, the later of (i) the date of the
     Participant's Retirement or (ii) the Participant's attainment of age
     sixty-five (65).

     "Participant" shall mean any Director (i) who is selected to participate in
     -------------
     the Plan, (ii) who signs a Plan Agreement, and (iii) whose signed Plan
     Agreement is accepted by the Committee; provided however, no Director who
     is a full time employee of the Company or the Bank shall be permitted to
     become, or to continue as, a Participant in the Plan. A spouse or former
     spouse of a Participant shall not be treated as a Participant in the Plan
     or have a Retirement Benefit under the Plan, even if he or she has an
     interest in the Participant's benefits under the Plan as a result of
     applicable law or property settlements resulting from legal separation or
     divorce.

     "Payout Period" shall mean 120 Months, subject to Section 3.2.
     -------------

     "Plan" shall mean this Director's Retirement Plan, which shall be
     ------
     evidenced by this instrument and by each Plan Agreement, as they may be
     amended from time to time.

     "Plan Agreement" shall mean a written agreement, as may be amended from
     ---------------
     time to time, which is entered into by and between the Company and a
     Participant. Should there be more than one Plan Agreement, the Plan
     Agreement bearing the latest date of acceptance by the Company shall
     supersede all previous Plan Agreements in their entirety and shall govern
     such entitlement. The terms of any Plan Agreement may be different for any
     Participant, and any Plan Agreement may limit the benefits otherwise
     provided under the Plan.

     "Retirement" shall mean the Participant's complete cessation of services as
     ------------
     a Director in any capacity, for any reason other than a Termination for
     Cause.

     "Retirement Benefit" shall mean an annual benefit equal to 70 percent of
     --------------------
     the Participant's annual director fees payable by the Company and the Bank
     to the Participant as of the date of the Participant's Retirement.



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     "Termination   for  Cause"  or  "Terminated   for  Cause"  shall  mean  the
     --------------------------      -------------------------
     involuntary   termination  of  service  of  a  Participant  on  account  of
     dishonesty,  incompetence,  willful misconduct,  breach of a fiduciary duty
     involving  personal profit,  intentional  failure to perform stated duties,
     willful  violation of any law,  rule, or regulation  (excluding  violations
     which  do not have a  material  adverse  affect  on the  Company)  or final
     cease-and-desist  order. No act or failure to act by the Participant  shall
     be considered willful unless the Participant acted or failed to act with an
     absence of good faith and  without a  reasonable  belief that his action or
     failure to act was in the best  interest of the  Company.  The  Participant
     shall  not be deemed to have been  Terminated  for Cause  unless  and until
     there shall have been delivered to the  Participant a copy of a resolution,
     duly  adopted by the  affirmative  vote of not less than a majority  of the
     entire  membership of the Board of Directors at a meeting of the Board duly
     called  and  held  for  such  purpose  (after   reasonable  notice  to  the
     Participant  and an  opportunity  for the  Participant,  together  with the
     Participant's  counsel, to be heard before the Board),  stating that in the
     good faith opinion of the Board of Directors the Participant has engaged in
     conduct described in the preceding  sentence and specifying the particulars
     thereof in detail.

     "Trust"  shall  mean any trust  established  between  the  Company  and the
     -------
     trustee named therein to provide benefits  hereunder,  as amended from time
     to time.

     "Vested" shall mean the  non-forfeitable  portion of the Retirement Benefit
     --------
     to which the Participant is entitled in the event of his Retirement.

     "Vesting Percentage" shall mean the percentage of the Retirement Benefit in
     --------------------
     which  the  Participant  has  Vested.  Such  Vesting  Percentage  shall  be
     determined in accordance with the vesting  schedule,  if any,  contained in
     the  Participant's  Plan  Agreement.   Vesting  shall  continue  until  the
     Participant   experiences  a  Retirement   or  a  Termination   for  Cause.
     Notwithstanding  any other  provision  herein or any vesting  schedule  set
     forth in a Plan  Agreement,  the  Retirement  Benefit  of each  Participant
     serving as a  Director  immediately  prior to a Change in Control  shall be
     100% Vested upon a Change in Control.

                                    ARTICLE 2
                       Selection, Enrollment, Eligibility
                       ----------------------------------

2.1  Selection  by  Committee.  Participation  in the Plan  shall be  limited to
     -------------------------
     Directors  selected by the  Committee in its sole  discretion  from time to
     time.


2.2  Enrollment  Requirements.  As a condition to  participation,  each Director
     -------------------------
     shall complete,  execute and return to the Committee a Plan  Agreement.  In
     addition,  the  Committee  shall  establish  from time to time  such  other
     enrollment  requirements  as it  determines  in  its  sole  discretion  are
     necessary or appropriate.

2.3  Eligibility; Commencement of Participation. Provided a Director selected to
     -------------------------------------------


<PAGE>

     participate  in the Plan has met all enrollment  requirements  set forth in
     the Plan and required by the  Committee,  including  returning all required
     documents to the Committee,  that Director shall commence  participation in
     the Plan on the date his Plan Agreement is executed by the Company.

                                    ARTICLE 3
                                    Benefits
                                    --------

3.1  Retirement  Benefit.  Subject to the provisions of Article 7, a Participant
     -------------------
     shall be entitled to his Vested Monthly Benefit upon his Normal  Retirement
     Date,  payable over the Payout Period.  The Payout Period shall commence on
     the  first  day  of the  month  next  following  the  Participant's  Normal
     Retirement Date.

3.2  No Death Benefit. If the Participant dies while still providing services as
     ----------------
     a  Director,  no  death  benefit  shall  be paid  from  this  Plan.  If the
     Participant  dies after he has commenced  receiving  benefits under Section
     3.1, then Retirement  Benefit payments to the Participant  shall cease with
     the payment  made on the first day of the month in which the  Participant's
     death occurs.

3.3  Retirement Prior to Normal Retirement Date. If the Participant's Retirement
     ------------------------------------------
     occurs before reaching his Normal Retirement Date, the Participant shall be
     entitled  to his Vested  Monthly  Benefit,  commencing  when he reaches his
     Normal Retirement Date.

3.4  Limitation  on  Benefits.  The  Retirement  Benefit  to  be  provided  to a
     ------------------------
     Participant  is subject to forfeiture and certain other  limitations  under
     the provisions of Article 8 of the Plan.

3.5  Tax  Withholding  from  Distributions.  The Company,  an Affiliate,  or the
     -------------------------------------
     trustee of the Trust,  if any,  shall  withhold from any payments made to a
     Participant all federal, state and local income, employment and other taxes
     required to be withheld by the Company, an Affiliate, or the trustee of the
     Trust, in connection  with such payments,  in amounts and in a manner to be
     determined  in the sole  discretion  of the  Company and the trustee of the
     Trust.

                                    ARTICLE 4
                    In-Service Withdrawals and Distributions
                    ----------------------------------------

No in-service withdrawals or distributions are permitted under the Plan.

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                                    ARTICLE 5
                                     Vesting
                                     -------

     The Participant shall become Vested in his Retirement Benefit in accordance
with the vesting schedule in his Plan Agreement.  If no such vesting schedule is
provided in the  Participant's  Plan Agreement,  the Participant  shall be fully
Vested in his Retirement Benefit, subject to the forfeiture provisions and other
limitations set forth in Article 7.

                                    ARTICLE 6
                            Participant Contributions
                            -------------------------

Participant contributions are neither permitted nor required under the Plan.

                                    ARTICLE 7
                                     Funding
                                     -------

7.1  Funding Generally.  The Company's and its Affiliate's obligations under the
     -----------------
     Plan shall be an unfunded and unsecured promise to pay. The Company and its
     Affiliates  shall  not be  obligated  under  any  circumstances  to fund in
     advance its obligations under the Plan, and when the benefit amount is paid
     it shall be  expensed  out of the  general  assets of the  Company  and its
     Affiliates.

7.2  Option to Fund Informally. Notwithstanding Section 7.1, the Company and its
     -------------------------
     Affiliates  may, at its sole option,  or by agreement,  informally fund its
     obligations under the Plan in whole or in part, provided,  however, that in
     no event shall such informal funding be construed to create any trust fund,
     escrow  account or other security for any  Participant  with respect to the
     payment of any benefit under the Plan,  other than as permitted by Internal
     Revenue  Service and Department of Labor rules and regulations for unfunded
     supplemental retirement plans.

                                    ARTICLE 8
                             Forfeiture of Benefits
                             ----------------------

8.1  Termination  for  Cause.  If  a  Participant's  service  as a  Director  is
     ------------------------
     Terminated  for Cause,  no benefits shall be paid to him under the Plan. If
     the  Participant has commenced  receiving his Retirement  Benefit and it is
     subsequently  determined  that  he  was  Terminated  for  Cause,  then  his
     Retirement  Benefit shall  immediately  cease and the Participant  shall be
     obligated to return to the Company or the Bank,  whichever  is  applicable,
     the cumulative amount of the Retirement  Benefit  previously paid under the
     Plan.

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8.2  Regulatory  Provisions.  The  obligations  of the Company to a  Participant
     -----------------------
     under the Plan are subject to the following restrictions:

     (a)  Temporary  Suspension or  Prohibition.  If a Participant  is suspended
          --------------------------------------
          and/or temporarily prohibited from participating in the conduct of the
          Bank's  affairs by a notice served under Section  8(e)(3) or (g)(1) of
          the Federal Deposit  Insurance Act ("FDIA"),  12 U.S.C.  ss.1818(e)(3)
          and (g)(1),  the Company's  obligations to such Participant  under the
          Plan shall be  suspended  as of the date of  service  of such  notice,
          unless stayed by appropriate proceedings. If the charges in the notice
          are dismissed, the Company may in its discretion reinstate in whole or
          in part any of its obligations which were suspended.

     (b)  Permanent  Suspension  or  Prohibition.  If a  Participant  is removed
          ---------------------------------------
          and/or permanently prohibited from participating in the conduct of the
          Bank 's affairs by an order issued under Section  8(e)(4) or (g)(1) of
          the FDIA, 12 U.S.C.  ss.1818(e)(4) and (g)(1),  all obligations of the
          Bank to such  Participant  under the Plan  shall  terminate  as of the
          effective  date of the  order,  but vested  rights of the  contracting
          parties shall not be affected.

     (c)  Default.  If the Bank is in default (as defined in Section  3(x)(1) of
          --------
          the FDIA), all obligations of the Bank to Participants  under the Plan
          shall  terminate as of the date of default,  but this provision  shall
          not affect any vested rights of the contracting parties.

     (d)  Termination  by  Regulators.   All   obligations  of  the  Company  to
          ----------------------------
          Participants under the Plan shall be terminated,  except to the extent
          determined  that  continuation  of  the  Plan  is  necessary  for  the
          continued  operation of the Bank: (i) by the Director of the Office of
          Thrift  Supervision (the "OTS Director") or his designee,  at the time
          the Federal Deposit Insurance  Corporation enters into an agreement to
          provide  assistance  to or on behalf of the Bank  under the  authority
          contained in Section 13(c) of the FDIA; or (ii) by the OTS Director or
          his designee,  at the time the OTS Director or his designee approves a
          supervisory  merger to resolve  problems  related to  operation of the
          Bank or when the Bank is  determined  by the OTS  Director to be in an
          unsafe or  unsound  condition.  Any  rights of the  parties  that have
          already vested, however, shall not be affected by any such action.

     (e)  Other  Regulatory  Restrictions on Payment.  Notwithstanding  anything
          -------------------------------------------
          herein to the contrary, (1) any payments made by the Company under the
          Plan shall be  subject  to and  conditioned  upon  compliance  with 12
          U.S.C.  ss.1828(k) and any regulations  promulgated thereunder and (2)
          payments  contemplated  to be made by the Company under the Plan shall
          not be  immediately  payable to the extent such payments are barred or
          prohibited  by an  action  or  order  issued  by the  Federal  Deposit
          Insurance Corporation.

                                    ARTICLE 9
                     Termination, Amendment or Modification
                     --------------------------------------

9.1  Termination.  Although the Company  anticipates  that it will continue as a
     ------------
     sponsor of the Plan for an indefinite period of time, there is no guarantee
     that it will  continue as a sponsor of the Plan or will not  terminate  its
     sponsorship of the Plan at any time in the future. Accordingly, the Company
     reserves the right to  terminate  its  sponsorship  of the Plan at any time
     with  respect  to any or all of its  Participants,  by action of the Board.
     Upon termination of sponsorship of the Plan by the Company,  the Retirement
     Benefit  of each  affected  Participant  shall be  determined  as if he had
     experienced  a  Retirement  on the date  Plan  sponsorship  is  terminated.
     Benefits  shall be paid to affected  Participants  as  follows:  Prior to a
     Change  in  Control,  the  Company  shall  have  the  right,  in  its  sole
     discretion,  to  pay or  require  its  Affiliates  to  pay  the  Equivalent
     Actuarial  Value  of  the  Retirement  Benefits  in a lump  sum;  otherwise
     payments  shall be made as  provided  for in  Article  3. After a Change in
     Control,  the  Company  and its  Affiliates  shall be  required  to pay the
     Equivalent  Actuarial  Value of the  Retirement  Benefit in a lump sum. The
     termination of sponsorship of the Plan or the termination of the Plan shall
     not adversely affect any Participant who has become entitled to the payment
     of any  benefits  under the Plan as of the date of  termination;  provided,
     however,  that the  Company  shall  have the right to  accelerate  payments
     without a premium or prepayment penalty by paying the Equivalent  Actuarial
     Value of the remaining benefits in a lump sum.

9.2  Amendment.  The Company may, at any time, amend or modify the Plan in whole
     ----------
     or in part by action of the Board; provided,  however, that no amendment or
     modification  shall be  effective  to decrease  or restrict  the value of a
     Participant's  Vested  Benefit  determined  at the  time the  amendment  or
     modification  is made,  calculated as if the  Participant had experienced a
     Retirement as of the effective date of the amendment or  modification.  The
     amendment or  modification of the Plan shall not affect any Participant who
     has become  entitled to the  payment of  benefits  under the Plan as of the
     date of the amendment or modification;  provided, however, that the Company
     shall have the right to accelerate payments without a premium or prepayment
     penalty  by paying the  Equivalent  Actuarial  Value of the unpaid  Monthly
     Benefits in a lump sum.

9.3  Effect of Payment.  The full payment of the  applicable  benefit  under the
     ------------------
     Plan shall completely  discharge all obligations to a Participant under the
     Plan.

                                   ARTICLE 10
                                 Administration
                                 --------------

10.1 Committee Duties. The Plan shall be administered by a Committee which shall
     ----------------
     consist of the Board, or such committee as the Board shall appoint. Members
     of the Committee may be  Participants  under the Plan. The Committee  shall
     also have the discretion and authority to (i) make, amend,  interpret,  and
     enforce all appropriate rules and regulations for the administration of the
     Plan  and  (ii)  decide  or  resolve  any  and  all   questions   including
     interpretations  of the Plan, as may arise in connection with the Plan. Any
     individual on the  Committee who is a Participant  shall not vote or act on
     any matter  relating  solely to  himself.  When making a  determination  or
     calculation,  the  Committee  shall  be  entitled  to rely  on  information
     furnished by a Participant or the Company.

<PAGE>


10.2 Agents. In the  administration of the Plan, the Committee may, from time to
     ------
     time, employ agents and delegate to them such  administrative  duties as it
     sees fit (including acting through a duly appointed representative) and may
     from time to time  consult  with  counsel who may be counsel to the Company
     and its Affiliates.

10.3 Binding  Effect of Decisions.  The decision or action of the Committee with
     ----------------------------
     respect  to  any  question  arising  out  of  or  in  connection  with  the
     administration,  interpretation  and  application of the Plan and the rules
     and  regulations  promulgated  hereunder  shall be final and conclusive and
     binding upon all persons having any interest in the Plan.

10.4 Indemnity of Committee.  The Company shall  indemnify and hold harmless the
     ----------------------
     members  of the  Committee,  and any  person  to  whom  the  duties  of the
     Committee may be delegated,  against any and all claims,  losses,  damages,
     expenses  or  liabilities  arising  from any  action or failure to act with
     respect  to the  Plan,  except  in the  case  of  gross  misconduct  by the
     Committee or any of its members or any such delegate.

10.5 Information.  To enable the Committee to perform its functions, the Company
     -----------
     and  its  Affiliates  shall  supply  full  and  timely  information  to the
     Committee as the Committee may reasonably request.

                                   ARTICLE 11
                          Other Benefits and Agreements
                          -----------------------------

     The benefits  provided for a Participant  under the Plan are in addition to
any other benefits available to such Participant under any other plan or program
sponsored by the Company or its Affiliates.  The Plan shall supplement and shall
not  supersede,  modify or amend any other  such plan or  program  except as may
otherwise be expressly provided therein.

                                   ARTICLE 12
                                Claims Procedures
                                -----------------

12.1 Presentation of Claim. Any Participant  (such Participant being referred to
     ----------------------
     below as a  "Claimant")  may deliver to the Committee a written claim for a
     determination  with respect to the amounts  distributable  to such Claimant
     from the Plan. If such a claim relates to the contents of a notice received
     by the  Claimant,  the claim must be made  within 60 days after such notice
     was received by the Claimant. All other claims must be made within 180 days
     of the date on which the event that caused the claim to arise occurred. The
     claim  must  state  with  particularity  the  determination  desired by the
     Claimant.

12.2 Notification of Decision.  The Committee shall consider a Claimant's  claim
     -------------------------
     within a reasonable time, and shall notify the Claimant in writing:

<PAGE>


     (a)  that the Claimant's requested determination has been made, and that
          the claim has been allowed in full; or

     (b)  that the Committee has reached a conclusion contrary, in whole or in
          part, to the Claimant's requested determination, and such notice must
          set forth in a manner calculated to be understood by the Claimant:

          (i)  the specific  reason(s) for the denial of the claim,  or any part
               of it;

          (ii) specific  reference(s)  to pertinent  provisions of the Plan upon
               which such denial was based;

          (iii)a description of any additional material or information necessary
               for the Claimant to perfect the claim,  and an explanation of why
               such material or information is necessary; and

          (iv) an explanation of the claim review procedure set forth in Section
               13.3 below.

12.3 Review of a Denied  Claim.  With 60 days after  receiving a notice from the
     --------------------------
     Committee that a claim has been denied, in whole or in part, a Claimant (or
     the Claimant's duly authorized  representative) may file with the Committee
     a written request for a review of the denial of the claim. Thereafter,  but
     not later than 30 days after the review  procedure  began, the Claimant (or
     the Claimant's duly authorized representative):

     (a)  may review pertinent documents;

     (b)  may submit written comments or other documents; and/or

     (c)  may request a hearing,  which the Committee,  in its sole  discretion,
          may grant.

12.4 Decision  on Review.  The  Committee  shall  render its  decision on review
     --------------------
     promptly,  and not later than 60 days after the filing of a written request
     for  review  of the  denial,  unless a  hearing  is held or  other  special
     circumstances  require  additional  time,  in which  case  the  Committee's
     decision  must be rendered  within 120 days after such date.  Such decision
     must be written in a manner  calculated  to be  understood by the Claimant,
     and it must contain:

     (a)  specific reasons for the decision;

     (b)  specific reference(s) to the pertinent Plan provisions upon which the
          decision was based; and

     (c)  such other matters as the Committee deems relevant.

<PAGE>


12.5 Legal Action. A Claimant's compliance with the foregoing provisions of this
     -------------
     Article 12 is a mandatory  prerequisite  to a Claimant's  right to commence
     any legal action with respect to any claim for benefits under the Plan.

                                   ARTICLE 13
                                      Trust
                                      -----

13.1 Establishment  of the Trust.  The Company may establish the Trust upon such
     ----------------------------
     terms as it deems appropriate.

13.2 Interrelationship  of the Plan and the Trust.  The  provisions of the Plan,
     ---------------------------------------------
     including a Participant's  Plan Agreement,  shall govern the rights of such
     Participant to receive  distributions  pursuant to the Plan. The provisions
     of the Trust  shall  govern  the  rights of the  Company,  its  Affiliates,
     Participants  and the  creditors of the Company and its  Affiliates  to the
     assets  transferred to the Trust.  The Company and its Affiliates  shall at
     all times remain liable to carry out its obligations under the Plan.

13.3 Investment of Trust Assets.  The trustee of the Trust shall be  authorized,
     --------------------------
     upon written instructions received from the Committee or investment manager
     appointed by the Committee,  to invest and reinvest the assets of the Trust
     in accordance with the applicable trust agreement.

13.4 Distributions  From the Trust. The Company and its Affiliates'  obligations
     ------------------------------
     under the Plan may be satisfied with Trust assets  distributed  pursuant to
     the terms of the Trust and any such distribution shall reduce the Company's
     and its Affiliates' obligations under the Plan.

                                   ARTICLE 14
                                  Miscellaneous
                                  -------------

14.1 Status of Plan.  The Plan is  intended  to be a plan that is not  qualified
     --------------
     within the meaning of Code Section  401(a).  The Plan shall be administered
     and  interpreted to the extent  possible in a manner  consistent  with that
     intent.

14.2 Unsecured General Creditor.  Participants and their  beneficiaries,  heirs,
     --------------------------
     successors and assigns shall have no legal or equitable  rights,  interests
     or claims in any property or assets of the Company or its  Affiliates.  For
     purposes of the payment of benefits  under the Plan,  any and all assets of
     the Company or its Affiliates  shall be, and remain the general,  unpledged
     and unrestricted  assets of such entity.  The Company's and its Affiliates'
     obligation  under the Plan  shall be merely of an  unfunded  and  unsecured
     promise to pay money in the future.

14.3 Liability.  The Company's or its  Affiliates'  liability for the payment of
     ---------
     benefits shall be defined only by the Plan including a  Participant's  Plan
     Agreement.  The Company or its  Affiliates  shall have no  obligation  to a
     Participant  under  the  Plan  except  as  expressly  provided  in the Plan
     including such Participant's Plan Agreement.

<PAGE>


14.4 Nonassignability. Neither a Participant nor any other person shall have any
     ----------------
     right to commute, sell, assign, transfer, pledge,  anticipate,  mortgage or
     otherwise encumber, transfer, hypothecate, alienate or convey in advance of
     actual  receipt,  the  amounts,  if any,  payable  hereunder,  or any  part
     thereof,  which are, and all rights to which are expressly  declared to be,
     unassignable  and  non-transferable.  No part of the amounts payable shall,
     prior to actual payment, be subject to seizure, attachment,  garnishment or
     sequestration for the payment of any debts, judgments,  alimony or separate
     maintenance  allowed by a Participant or any other person,  be transferable
     by operation of law in the event of a  Participant's  or any other person's
     bankruptcy or insolvency  or be  transferable  to a spouse as a result of a
     property settlement or otherwise.

14.5 Not a  Contract  of  Employment.  The  terms  and  conditions  of the Plan,
     --------------------------------
     including a Participant's Plan Agreement, shall not be deemed to constitute
     a contract  of  employment  between  the  Company or its  Affiliates  and a
     Participant.  Nothing in the Plan shall be deemed to give a Participant the
     right to be retained in the service of the Company or its  Affiliates  as a
     director or to interfere with the right of the Company or its Affiliates to
     discipline, discharge or refuse to renominate such Participant at any time.

14.6 Furnishing Information.  A Participant will cooperate with the Committee by
     -----------------------
     furnishing any and all information requested by the Committee and take such
     other actions as may be requested in order to facilitate the administration
     of the Plan and the  payments  of  benefits  hereunder,  including  but not
     limited to,  taking such  physical  examinations  as the Committee may deem
     necessary.

14.7 Terms.  Whenever any words are used herein in the masculine,  they shall be
     -----
     construed as though they were in the feminine in all cases where they would
     so apply;  and whenever any words are used herein in the singular or in the
     plural,  they shall be  construed as though they were used in the plural or
     the singular, as the case may be, in all cases where they would so apply.

14.8 Captions. The captions of the articles, sections and paragraphs of the Plan
     --------
     are for  convenience  only and shall not  control or affect the  meaning or
     construction of any of its provisions.

14.9 Governing  Law.  Subject  to ERISA,  the  provisions  of the Plan  shall be
     ---------------
     construed  and  interpreted  according to the internal laws of the State of
     New Jersey without regard to its conflicts of laws and principles.

14.10Notice.  Any  notice or filing  required  or  permitted  to be given to the
     ------
     Committee   under  the  Plan  shall  be   sufficient   if  in  writing  and
     hand-delivered,  or sent by  registered  or certified  mail, to the address
     below.

<PAGE>


          Board of Directors
          PennFed Financial Services, Inc.
          622 Eagle Rock Avenue
          West Orange, New Jersey 07052-2989

     Such  notice  shall  be  deemed  given as of the date of  delivery  or,  if
     delivery  is made by mail,  as of the date  shown  on the  postmark  on the
     receipt for registration or certification. Any notice or filing required or
     permitted to be given to a  Participant  under the Plan shall be sufficient
     if in  writing  and  hand-delivered,  or sent by mail,  to the  last  known
     address of such Participant.

14.11 Successors. The provisions of the Plan shall bind and inure to the benefit
      ----------
      of the Company or its Affiliates, and their successors and assigns and the
      Participant and the Participant's designated Beneficiaries.

14.12 Spouse's Interest. The interest in the benefits hereunder of a spouse of a
      ------------------
      Participant who has predeceased the Participant shall automatically passto
      the Participant and shall not be transferable by such spouse in any manner
      including, but not limited to, such spouse's will, nor shall such interest
      pass under the laws of intestate succession.

14.13 Validity. In case any  provision  of the Plan  shall be illegal or invalid
      --------
      for any reason,  said  illegality  or  invalidity  shall  not  affect  the
      remaining parts hereof,  but the Plan shall be constructed and enforced as
      if such illegal or invalid provision had never been inserted herein.

14.14 Incompetent. If the Committee  determines in its discretion that a benefit
      -----------
      under the Plan is to be paid to a minor, a person declared  incompetent or
      to a person  incapable  of  handling  the  disposition  of  that  person's
      property, the Committee may direct paymentof such benefit to the guardian,
      legal representative  or person having the care and custody of such minor,
      incompetent or  incapable  person.  The  Committee  may  require  proof of
      minority, incompetence,   incapacity  or  guardianship,  as  it  may  deem
      appropriate prior to distribution of the benefit. Any payment of a benefit
      shall be a  payment  for the  account  of the  Participant, and shall be a
      complete discharge of any liability under the Plan for such payment amount

14.15 Court Order. The Committee is authorized to make any payments  directed by
      -----------
      court order in any action in which thePlan or the Committee has been named
      as a party. In  addition,  if a court  determines  that a spouse or former
      spouse of a Participant has an interestin the Participant's benefits under
      the Plan in  connection  with a  property  settlement  or  otherwise,  the
      Committee, in its sole discretion shall havethe right, notwithstanding any
      election made by the Participant, to immediately distribute the spouse'sor
      former spouse's  interest in the Participant's  benefits under the Plan to
      that spouse or former spouse.

<PAGE>


14.16 Distribution in the Event of  Taxation.  If,  for any  reason,  all or any
      ---------------------------------------
      portion of a  Participant's benefits under the Plan becomes taxable to the
      Participant prior to receipt, a Participant may petition the Committee for
      a distribution of that portion of his benefit that has become taxable.Upon
      the  grant  of such a  petition,  which  grant  shall not be  unreasonably
      withheld (and, after a Change in Control, shall be granted),the Company or
      an Affiliate  shall  distribute to the  Participant immediately  available
      funds in an amount  equal to the  taxable  portion of his  benefit  (which
      amount shall not exceed such  Participant's Equivalent  Actuarial Value of
      his unpaid Monthly Benefits).If the petition is granted, the tax liability
      distribution  shall  be  made   within  90  days  of  the  date  when  the
      Participant's  petition is granted. Such a  distribution  shall affect and
      reduce the benefits to be paid under the Plan.

14.17 Insurance.  The Company or its  Affiliates, on its own behalf or on behalf
      ---------
     of the trustee of the Trust, and, in its sole discretion, may apply for and
     procure  insurance on the life of any  Participant,  in such amounts and in
     such forms as it may choose.  The Company or its  Affiliates or the trustee
     of the Trust,  as the case may be, shall be the sole owner and  beneficiary
     of any such insurance.  No Participant shall have any interest whatsoeverin
     any such policy or policies,  and a Participant shall at the request of the
     Company  submit to medical  examinations  and supply such  information  and
     execute  such  documents  as may be  required by the  insurance  company or
     companies to whom the Company or its Affiliates has applied for insurance.

14.18 Legal Fees To Enforce Rights After Change in Control. The Company is aware
      -----------------------------------------------------
      that upon the  occurrence  of a Change in Control, the Board  (which might
      then be  comprised  of new members) or stockholders  of the  Company,  its
      Affiliates, or of any successor corporation, might then cause or attemptto
      cause the Company, its  Affiliates,  or such successor to refuse to comply
      with its obligations under the Plan and might cause or attempt to causethe
      Company or its  Affiliates  to  institute,  or may  institute,  litigation
      seeking to deny Participants the benefits intended under the Plan.In these
      circumstances, the purpose of the Plan could be  frustrated.  Accordingly,
      if, following a Change in Control,it should appear to any Participant that
      the Company,  its Affiliates,  or any successor  corporation has failed to
      comply  with any  of its  obligations  under  the  Plan  or any  agreement
      thereunder, or, if the Company, its Affiliates,  or any other person takes
      any action to declare the Plan void or  unenforceable  or  institutes  any
      litigation or otherlegal action  designed to deny,  diminish or to recover
      from any Participant the benefits intended tobe provided, then the Company
      and its Affiliates  irrevocably  authorizes  such  Participant  to  retain
      counsel of his choice at the expense of the Company or its  Affiliates  to
      represent such Participant in connection with the initiation or defense of
      any litigation or other legal  action,  whether by or against the Company,
      its Affiliates,or any director, officer, stockholder or other Affiliate of
      the Company or any successor thereto in any jurisdiction.

<PAGE>


          The Company has signed the Plan as of March 1, 2003.


                        PENNFED FINANCIAL SERVICES, INC.

                         By: __________________________
                         Name: ________________________
                        Title: _________________________


<PAGE>



                        PENNFED FINANCIAL SERVICES, INC.
                      DIRECTOR'S RETIREMENT PLAN AGREEMENT

     PennFed Financial Services, Inc. ("PennFed") sponsors the PennFed Financial
Services,  Inc.  Director's  Retirement  Plan  (the  "Plan").  PennFed  and  the
undersigned  director  (the  "Director")  hereby  agree,  for good and  valuable
consideration,  the value of which is  hereby  acknowledged,  that the  Director
shall  participate  in the Plan as such Plan is  currently  in effect and as the
same may hereafter be modified or amended.  The Director does hereby acknowledge
that he has been  provided with a copy of the Plan as currently in effect and he
does  specifically  agree to the  terms and  conditions  thereof.  The  Director
understands  that his receipt of benefits under the Plan shall be subject to all
provisions of the Plan. All capitalized  terms not defined herein shall have the
meaning assigned to them under the Plan.

    PROVISIONS REGARDING PLAN BENEFITS, VESTING, AND YEARS OF VESTING CREDIT

     1.   No  limitations  other than those  contained in the Plan and this Plan
          Agreement shall apply to the Director's  entitlement to benefits under
          the Plan.

     2.   The  Participant  shall vest in his Retirement  Benefit ratably over a
          period of 120 months.

     3.   For purposes of determining the Participant's Vesting Percentage,  the
          Participant  shall  be  credited  with all  months  during  which  the
          Participant  was a  Director  preceding  the  effective  date  of  his
          participation in this Plan.

     The Director  understands  that he may at any time, upon written request to
the Committee, obtain a copy of the Plan as then in effect.


                                                       ------------------ , 2003

                                                       -------------------------
                                                                      , Director


PENNFED FINANCIAL SERVICES, INC.


By:                                                                       , 2003
       ------------------------------------             ------------------
Name:
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Title:
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