Oregon PERS Legislative Changes
During the 2019 legislative session, the Oregon Legislature and Governor passed Senate Bill 1049. The impacts of this bill don’t take effect until January 2020 at the earliest with some changes beginning July 2020. Active Oregon PERS members are impacted more than inactive members by the legislation, but it’s important for all members to understand the changes and find out whether they are impacted.
So, what’s changed?
There are many components that have changed with this legislation. We want to focus on four changes that have the biggest impact. See the list below with further explanations to follow.
- Beginning January 2020, a new salary cap will limit subject salary to $195,000.
- Beginning January 2020, work after retirement limits will be removed if requirements are met.
- Beginning July 2020, a portion of the Individual Account Plan (IAP) contributions will be redirected to an Employee Pension Stability Account.
- In 2021, current participants in IAP will be able to select the investment option that matches their risk tolerance, rather than defaulting to an age-based fund.
Annual subject salary will be limited to $195,000 for all tiers starting in calendar year 2020. This means that contributions will only be paid on up to $195,000 of salary and formula calculations for pensions will be limited to $195,000 for final average salary purposes going forward. The current salary limit for Tier 2 and Oregon Public Service Retirement Plan (OPSRP) members is $280,000. Tier 1 members currently have no limit. Therefore, Tier 1 members’ contributions and pension calculations were not limited by salary. If a member had subject salary above $195,000 in 2019 or earlier, their salary from those years can be used in their final average salary calculation up to $280,000 for Tier 2 and OPSRP members. So, if for example, a Tier 2 member had three years of subject salary of $280,000 prior to 2019, their final average salary calculation would use those higher amounts rather than the new $195,000 cap.
Work After Retirement Limits
Currently Tier 1/Tier 2 retirees are limited to working 1,040 hours per year and OPSRP retirees are limited to working 600 hours per year post retirement. SB 1049 will remove the hour limitations for any retiree that retires on or after normal retirement age beginning in 2020. This means a retiree would be able to continue working while receiving their pension benefits with no hour limitations. The bill removes the work hour limit for years 2020, 2021, 2022, 2023 and 2024. If a member retires prior to normal retirement age there must be a 6-month break in employment before returning to work. See the worksheet for general service members explaining this caveat.
All active members currently contributing to IAP accounts will have a portion of their 6% contribution redirected to an Employee Pension Stability Account. This account will help fund the member’s future pension benefit. The portion that is redirected differs by tier. Tier 1/Tier 2 will have a redirect of 2.5% while OPSRP will only have .75% redirected. Members will have the option to contribute additionally to their IAP to maintain a 6% contribution to their own account. The IAP redirect will begin in July 2020.
By Fall 2020, members will be allowed to choose a target-date fund based on risk tolerance rather than being placed in a fund based solely on age. Currently members don’t have an option for investment selection, so this should improve customer satisfaction for their IAP accounts.
If you’re an Oregon PERS member and would like to discuss how these changes impact you with your planner, don’t hesitate to reach out. To read more about the Senate Bill 1049, please find further information on the PERS website: Information and Implementation of Senate Bill 1049.
Written By Patricia Spies, CFP®