OREGON STATE UNIVERSITY

You are here

Public Employees’ Retirement System (PERS) Updates

 

***PERS Update - For Informational Purposes Only***

This information is being provided to assist employees in researching, reviewing, and evaluating how the PERS reform and changes to the assumed rate and AEFs may impact their retirement benefits. 

Employees are responsible for researching, verifying, and evaluating how these changes and reform measures may impact them and their retirement benefits. 

OSU is NOT providing legal interpretation of the PERS reform and/or changes and cannot evaluate how these changes may impact an individual employee’s retirement benefits.

 

 


 

ASSUMED RATE & ACTUARIAL EQUIVALENCY FACTORS (AEFs) CHANGES

1. Assumed Rate:

  • The Assumed Rate is the rate of investment return that the PERS “regular” accounts are expected to earn over the long term.
  • The Assumed Rate is the rate used when crediting PERS Tier 1 “regular” accounts with annual earnings.  If the rate is reduced, annual earnings are decreased.
  • In July, the PERS Board directed its actuary to use an assumed earnings rate of 7.75% (from 8%) in its valuation of the Actuarial Equivalency Factors (AEFs) which will be adopted in November 2013. 
  • The 7.75% assumed rate will be embedded in a new Oregon Administrative Rule (OAR), 459-007-0007, that is scheduled for adoption at the Board’s September meeting.
  • The 7.75% Assumed Rate will take effect January 1, 2014.
  • The Assumed Rate is used to annuitize a Tier 1 or Tier 2 member’s account at retirement.  Therefore, changing the rate means using new actuarial factors and would change the amount of the pension benefit.
  • Change to the assumed rate will have the largest impact on Tier 1 members retiring under the Money Match or Formula+Annuity pension calculations.
  • A Tier 1 member whose highest pension benefit calculation is Money Match would need to retire on or before December 1, 2013 to have the current 8% assumed rate and the current actuarial equivalency factors used to annuitize their pension benefits.
  • Example of the impact the change in assumed rate (from 8% to 7.75%) would have on the Money Match pension calculation for a future retiree. 

Assumptions:  Tier 1 member; age 59 ½; Tier 1 “Regular” member account balance of $135,000 as of June 30, 2013.

Result If employee retires December 1, 2013 pension benefit would be $2,172 per month.  If the employee retires January 1 or February 1, 2014, their pension benefit would be less than if they retired December 1, 2013.  If the employee retirees, March 1, 2014 the monthly benefit would be approximately the same as if retiring December 1, 2013. 

Summary, if an employee does not retire on December 1, 2013 they will need to work an additional three months (December, January, February) in order to receive approximately the same level of benefit.

2.     Actuarial Equivalency Factors (AEFs):

  • The Money Match and Formula+Annuity retirement calculations use the AEFs to annuitize the pension benefit over the retiree’s estimated life expectancy.
  • PERS uses “generational” AEFs tables.  With generational mortality tables, longevity is based on the year a member was born, as opposed to everyone who reaches a certain age having the same life expectancy.
  • By law, the PERS Board must adopt AEFs every two years and “must use the best actuarial information on mortality available at that time.”
  • PERS is scheduled to update the AEFs tables effective January 1, 2014.  The Board will adopt the updates/changes at its November 2013 Board Meeting.
  • A change to the AEFs tables will result in a smaller monthly benefit under the Money Match calculation method because the present value of the Tier 1/Tier 2 member’s account is projected to be paid longer based on the change in the mortality tables.
  • For an affected member to receive a higher benefit amount (if the Money Match calculation provides the highest benefit), the member would need to delay retirement by several months. 
  • PERS, has in the past, provided estimates of the impact of AEFs changes once the changes are adopted.  Therefore, estimates may not be available until November 2013.
  • PERS estimate of the AEFs changes that were effective January 1, 2012.

3. Connection between the assumed rate and actuarial equivalency factors (AEFs):

  • AEFs are used to determine the benefit amount when retirement benefits are calculated using an account based method such as Money Match and Formula+Annuity, or adjusted for benefit payment options.
  • AEFs are based on two primary variables:
    • expected member longevity (how long members are expected to live); and
    • the assumed earnings rate (how much the member’s account balance will earn during retirement).
  • AEFs must be updated when the mortality and/or earnings rate assumptions are changed by the Board.
  • The recalculated AEFs are then used to calculate the benefits of future retirees.
  • The actuary will report recommended changes to the AEFs to the Board in November 2013.
  • Updated AEFs would become effective January 1, 2014, as required in statute.
  • A Tier 1 member whose highest pension benefit calculation is Money Match would need to retire on or before December 1, 2013 to have the current 8% assumed rate and the current actuarial equivalency factors used to annuitize their pension benefits.

4.   What would be the combined impact of a change in the assumed rate to 7.75% and the subsequent change in actuarial equivalency factors (AEFs)?

  • Reducing the assumed earnings rate would also result in a reduction in the AEFs used to derive Tier One/Tier Two Money Match and Tier One Formula+Annuity benefits.
  • Money Match benefits would be reduced by approximately
    • 2.3% for a member retiring at age 55
    • 1.9% for a member retiring at age 65
  • Formula+Annuity benefits would be affected by approximately half as much as Money Match benefits.
  • Changes to the assumed rate and AEFs may cause a shift in the pension calculation method of the member’s pension benefit to the Full Formula method (from Money Match or Formula+Annuity), thus limiting the impact of these reductions.
  • OPSRP member benefits are only calculated on a formula basis.

 

2013 PERS LEGISLATION PASSED – SENATE BILL 822

There were approximately forty bills introduced during the 2013 legislative session dealing with PERS reform.  Senate Bill 822 (SB822) passed and was signed into law on May 6, 2013 and was effective the same date.

  • Amends Cost of Living Increases for all PERS retirees. 
    • COLA payable on August 1, 2013, will be capped at 1.5% for all benefit recipients. This cap is lower than the current 2% maximum cap for COLAs.
    • The COLA gradually decreases on the amount of an annual pension benefit above $20,000 beginning with the August 1, 2014 benefit payment:
      • 1.5% on a benefit that is between $20,001 and $40,000,
      • 1% on a benefit that is from $40,001 to $60,000; and
      • 0.25% on all benefits above $60,000.
  • Eliminates the tax remedy benefit for those retirees who retired prior to January 1, 2012 and do not pay Oregon state income taxes because they do not reside in Oregon.
    • What is the “tax remedy?” -  In 1991, the Oregon Legislature changed the law so recipients had to pay state income tax on the PERS benefits they received during a calendar year. Senate Bill 656 (1991) and House Bill 3349 (1995) provided formulas by which PERS was directed to increase benefits for certain recipients as a remedy for now imposing state income tax on the benefits received. The increases that result from applying these formulas are known as the “tax remedy.” The tax remedy formulas are based on the time period and/or amount of service time the member worked in PERS-covered employment and is different for each benefit recipient. If eligible, the minimum increase is 1% and the maximum is 9.89% of the initial benefit.
    • PERS will work with the Oregon Department of Revenue to determine if a PERS pension recipient is subject to Oregon taxes (for current retirees and those that may change residency in the future).
    • Individuals that retire must now declare whether they reside in Oregon and pay Oregon taxes at the time of retirement.
    • The tax remedy was eliminated for employees retiring on or after January 1, 2012 during the 2011 Legislative session.
    • 2013 PERS FAQs on tax remedy elimination.

 

2013 PERS Legislation FAILED – Senate Bill 857, Proposed PERS Reform

**Some current Unclassified employees may have been impacted by this legislation**

Late in the legislative session Senate Bill 857 was proposed as part of the “Grand Bargain” to raise taxes and reform PERS.  The bill failed in the final days of the legislative session.  There were several amendments to the original bill that was proposed.

  • Would further reduce the cost-of-living adjustment as adopted in SB822.
  • Would reduce retirement benefits for inactive PERS members who retire under the Money Match benefit calculation.
  • An inactive PERS member, is an individual that is no longer employed in a PERS qualifying position by a PERS covered employer; but is still vested and entitled to PERS retirement benefit once age or service time eligible. 
  • ORP members that retained a PERS Tier 1 or Tier 2 member account are considered inactive PERS members and may have been impacted by this legislation.
    • Unclassified employees that elected the Optional Retirement Plan (ORP) pension program in 1995 and/or upon hire, who retained a PERS Tier 1 or Tier 2 member account are considered inactive PERS members.  
    • OUS (Oregon University System) did contact the Governor’s Office when the bill was introduced to determine the status of OUS ORP members that retained a PERS Tier 1 or Tier 2 membership. 
    • During the legislative hearings, legislatures heard public testimony from ORP members. 
    • PERS acknowledges that ORP members that maintained their Tier 1 or Tier 2 membership are considered inactive members, even if still employed.
    • Inactive members working in a non-PERS qualifying position for a PERS-covered employer would also have to terminate that employment prior to retirement.  This would apply to ORP current employees.
    • One amendment would have required employees to retire no later than July 31st to not be impacted and other amendments required members to file for retirement by August 31st not to be impacted.
    • Money Match retirement benefit for inactive members would be annuitized using a rate other than the assumed rate for active members.
      • Proposed to use rates as published by the federal Pension Benefit Guaranty Corporation, which is currently 2-3%.
      • A change to a 4% annuitization rate would reduce the Money Match benefit by:
        • 34% for a 55-year old member
        • 29% for a 65-year old member
      • A change to a 3% annuitization rate would reduce the Money Match benefit by:
        • 42% for a 55-year old member
        • 36% for a 65-year old member

Senate Bill 857 Reference Material:

Excerpt from Statement:

“PERS is to base its assumed earnings rate for calculation of money match benefits on rates published by the federal Pension Benefit Guaranty Corporation for certain classes of members meeting the criteria of the measure. The applies to PERS members whose date of retirement is after September 1, 2013. The fiscal impact is of this change is indeterminate due to the fact that the annuity rate(s) are variable and subject to change.

PERS already conducts annual actuarial studies of pension purchasing power therefore this provision has no fiscal impact.” 

 

Special Session PERS Reform, September 30, 2013

 

2013 PERS Legislation PASSED – Senate Bill 861

  • Changes the Cost of Living adjustments passed during Regular Session in SB822
  • Further reduces Cost of Living  – impacts ALL retirees, all Tiers
    • 1.25% on a benefit that is between to $60,000;
    • 0.15% on all benefits above $60,000; and
    • Provides for Supplemental Payments (begins July 1, 2014 and ends July 1, 2019)
    • Full text of bill
  • Table comparison of changes to the Cost of Living Adjustment SB 822 vs. SB 861

 

 

SB 861 (replaces SB 822 COLA)

Yearly Benefit

SB 822

COLA

Supplemental Payment #1*

Supplemental Payment #2 for yearly benefits $20,000 or less*

<$20,000

2.00%

1.25%

0.25%

0.25%

$20,000 - $40,000

1.50%

1.25%

0.25%

---

$40,000 - $60,000

1.00%

1.25%

0.25%

---

> $60,000

0.25%

0.15%

$150

 ---

*Ends in 2019

 

2013 PERS Legislation PASSED – Senate Bill 862

  • Prevents “spiking” of Average Ending Salary for health insurance coverage for OSPRP members – does NOT impact OSU retirees
  • Allows for garnishment of PERS pension for restitution or compensatory damages if convicted of a felony
  • Prohibits most new legislators from becoming members of PERS
  • Full text of bill

2013 Special Session Resources:

HOW TO CALCULATE YOUR PERS PENSION BENEFIT

  • Request written estimate:
    • Form
    • Use the written benefit estimate request if your pension estimate needs to be processed by the PERS divorce unit
    • Maximum vacation payout for an Unclassified employee is 180 hours
    • OUS/OSU does participate in the PERS sick leave program
    • Retirement date is always the first of the month, regardless of last day worked
    • ORP members –
      • use salary data from date last in a PERS position
      • use sick leave balance at the time membership changed from PERS to ORP (i.e., 1995)
      • do NOT use a vacation balance because unused vacation (if applicable) was not paid out when you changed to the ORP pension program
  • Fax (503-598-0561) or mail form directly to PERS
  • PERS processes request in the order of retirement date (not in the order requests are received).  Recommend using the earliest retirement date possible.
  • Online Pension Estimate
    • >click on Online Member Services
    • > Select “Log In”
    • >"Open a New Account" and then login. 
    • > You're now on the Account Home Page. 
    • > Scroll down and click on "Member" in the "Account Plan" section, you are now on the Account Summary Page.
    • > Click on "Benefit Estimate" (on the left hand side of the screen)
    • > Click on "Create a New Benefit Estimate", the system will ask a series of questions (i.e., retirement date, beneficiary, etc.)

Employee Benefits Staff List

Employee Benefits - 204 Kerr | 541-737-2805 | general email
Donna Chastain Donna Chastain Employee Benefits Manager 541-737-2806
Heidi Melton Human Resources Officer
Workers’ Compensation, Standard Insurance Claims (STD&LTD)
541-737-2916
Christina Schaaf Benefits Consultant
Benefit Issues for Business Centers: HSBC, BEBC & AABC
541-737-2835
Jessica Dalziel Benefits Consultant
Benefit Issues for Business Centers: UABC, FOBC & Chancellor’s Office
541-737-3521
Roshni Sabedra Benefits Consultant
FMLA/OFLA/Military Leave
541-737-5946
Whitney Barstad Benefits Consultant
Benefit Issues for Business Centers: ASBC & AMBC
541-737-2269
Patricia Young Benefits Consultant
Retirement, Savings & Pension Programs
541-737-8254