EXHIBIT 10.16
                                  -------------


                        PENNFED FINANCIAL SERVICES, INC.
                           DIRECTOR'S RETIREMENT PLAN

                             EFFECTIVE MARCH 1, 2003
                 AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2005

                                     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.

         The Plan has been  amended  and  restated  effective  January  1, 2005,
except where  otherwise  provided herein or required by applicable law. The Plan
is intended to comply with Section 409A of the Internal Revenue Code of 1986, as
amended,  and the  regulations  and  guidance  of general  applicability  issued
thereunder, and shall be administered and operated accordingly.

         The  rights of any  person  who  terminates  service  on or before  any
amendment to this Plan shall be determined solely under the terms of the Plan in
effect as of the date of his termination of employment, unless such person again
becomes a Participant hereunder, or unless otherwise required by Section 409A of
the Code or other applicable law.


                                    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  mean a "change  in the  ownership  of the
         ---------------------
         Company",  a "change in the  effective  control of the  Company",  or a
         "change in the  ownership  of a  substantial  portion of the  Company's
         assets", all within the meaning of Section 409A.

         "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.
                                       50
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         "Committee" shall mean the committee described in Article 10.
         -----------

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

         "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
         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.

                                       51
<page>

         "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. A Participant shall not be treated as not having
         experienced a Retirement unless his cessation of service  constitutes a
         "separation from service" under Section 409A.

         "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.

         "Section 409A" means Section 409A of the Code and the  regulations  and
         --------------
         guidance of general applicability issued thereunder.

         "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.

                                       52
<page>

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 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.

                                       53
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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.  The  Company  may not fund the Plan in a
         manner that would violate Section 409A.

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.

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

                                       54
<page>

         (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.

         (f)      Time of Repayment. Any benefit payment suspended or delayed in
                  -----------------
                  accordance  with  this  Section  8.2  shall be paid as soon as
                  practicable  after  the  earliest  date on which  the  Company
                  reasonably determines that such payment should be made.

                                    ARTICLE 9
            Termination, Change in Control, Amendment or Modification
            ---------------------------------------------------------

9.1      Termination.  Although the Company anticipates that it will continue as
         -----------
         a sponsor  of the Plan


                                       55
<page>

         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. The Equivalent Actuarial Value of the Participant's Monthly
         Benefits  (as  determined  under  this  Section  9.1)  shall be paid to
         affected  Participants 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.  Notwithstanding  the
         foregoing, the timing and manner of distributing benefits in connection
         with the Plan termination  must comply with Section 409A.  Accordingly,
         unless Section 409A permits otherwise,  the Plan may be terminated only
         if: (a) all  arrangements  sponsored by the Company and its  Affiliates
         that are required to be  aggregated  with this Plan under  Section 409A
         are  terminated;  (b) no  payments  other than  payments  that would be
         payable  under  the  terms  of the  Plan or an  aggregated  plan if the
         termination  had  not  occurred  are  made  within  12  months  of  the
         termination  of the  arrangements;  (c) all payments are made within 24
         months of the termination of the Plan and related arrangements; and (d)
         the  Company and its  Affiliates  do not adopt a new  arrangement  that
         would be required to be aggregated with this Plan under Section 409A if
         the same  Participant  participated in both  arrangements,  within five
         years of the  termination  of the  Plan.  The Plan  will  automatically
         terminate upon the completion of all  distributions  to Participants in
         accordance with the terms hereof.

9.2      Change in Control.  Upon a Change in Control, the Retirement Benefit of
         -----------------
         each affected  Participant shall be determined as if he had experienced
         a  Retirement  on the  effective  date of the  Change in  Control.  The
         Equivalent  Actuarial Value of each  Participant's  Monthly Benefit (as
         determined  under this Section 9.2) shall be paid to the Participant in
         a cash lump sum within 10 days of the  effective  time of the Change in
         Control,  unless the terms of the Change in Control  provide  otherwise
         and are  consistent  with  Section  409A  and do not  give  rise to any
         additional parachute payments under Code Section 280G.

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.  No amendment  shall be permitted that causes the Plan to
         violate the requirements of Section 409A.

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
                                 --------------

                                       56
<page>

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.

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

                                       57
<page>

         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:

         (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


                                       58
<page>

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

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.  The Plan also is a deferred  compensation
         plan within the meaning of Section 409A, and as such shall be operated,
         interpreted and administered in accordance therewith.

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.

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<page>

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.

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.

14.10    Notice.  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.

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<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  pass to 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  payment of 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 the Plan 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 interest in the  Participant's
         benefits  under the Plan in  connection  with a property  settlement or
         otherwise,  the Committee, in its sole discretion shall have the right,
         notwithstanding  any election made by the  Participant,  to immediately
         distribute   the   spouse's   or  former   spouse's   interest  in  the
         Participant's benefits under the Plan to that spouse or former spouse.

14.16    Distribution  for FICA  Taxes or on Account of  Inclusion  Pursuant  to
         -----------------------------------------------------------------------
         Section 409A.
         ------------
         (a)  Distributions  may be made to a Participant  prior to when amounts
         are otherwise  distributable  under the Plan to the extent necessary to
         pay FICA taxes under Code Sections  3101,  3121(a) and  3121(v)(2),  as
         well as the corresponding  federal,  state, local or foreign income and
         withholding taxes associated with those FICA taxes. Distributions under
         this Section 14.16 shall be permitted  only to the extent allowed under
         Section 409A.
                                       61
<page>

         (b)  Upon  the  inclusion  of any  portion  of  the  benefit  into  the
         Participant's  income as a result of the failure of this Plan to comply
         with the requirements of Section 409A, a lump sum distribution shall be
         made as soon as is administratively practicable following the discovery
         of the  plan  failure  of an  amount  equal  to the  lesser  of (1) the
         Participant's  then-vested benefit, or (2) the amount includible in the
         Participant's  income as a result of the  failure of the Plan to comply
         with  Section  409A.  In  the  event  the  amount   includible  in  the
         Participant's  income  under  Section  409A  exceeds the  Participant's
         then-vested  benefit,  the excess shall be distributed in a lump sum as
         soon as  administratively  practicable after the  Participant's  vested
         interest in his Plan benefits increases.

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 whatsoever in 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
         attempt to cause the  Company,  its  Affiliates,  or such  successor to
         refuse to comply with its obligations under the Plan and might cause or
         attempt to cause the 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
         other legal  action  designed to deny,  diminish or to recover from any
         Participant the benefits intended to be 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.

         The Company has signed the Plan as of _______________, 2006.


                                            PENNFED FINANCIAL SERVICES, INC.

                                            By:
                                                ------------------------------
                                            Name:
                                                  ----------------------------
                                            Title:
                                                   ---------------------------

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