In 2019, the Oregon Legislature passed Senate Bill 1049 (SB1049). The bill makes some changes to the Oregon PERS calculations in their quest to help keep the PERS system funded for current and future beneficiaries. While the bill was passed in 2019, components of the bill take effect at various times throughout 2020. For the most part, it is active PERS members who will be impacted by these changes. It’s important, if you are an active PERS member, to understand how these changes may impact you.
Who is Impacted?
Inactive Members – Beginning in September 2020, inactive members that have an IAP (Individual Account Program) will have the ability to participate in IAP Member Choice. IAP Member Choice gives the IAP owner the option to invest in a different Target-Date Fund (TDF). Prior to this change, the TDF was based on the participant’s year of birth and expected retirement age of 65. Most other components of SB1049 will not impact inactive members.
Retired Members – SB1049 will not impact any benefits for retired members. Should a retired member return to work for a PERS-participating employer, changes from SB1049 may have an effect. The Senate bill lifted any limitations on the number of hours most retirees can work for a PERS-participating employer (effective in years 2020-2024); however, if you retired early and have not been separated from service for at least 6 months, you may be subject to the pre-SB1049 rules limiting you to 1,040 hours per year for Tier One and Tier Two employees, and 600 hours per year for OPSRP (Oregon Public Service Retirement Plan) employees. To review your personal situation, you can review further on the Oregon PERS website here.
Active Members – SB1049 impacts all active PERS members, including Tier One, Tier Two and OPSRP members. Provisions of SB1049 include the following, more impactful changes for all active members:
- Salary Limit changes
- Redirect of IAP Contributions
- IAP Target-Date Options
Salary Limit Changes
The definition of “salary” for the purpose of PERS calculations has been updated and defined as “subject salary.” This subject salary will be used to calculate contributions to a member’s IAP, employer contributions to a member’s pension program, as well as the Final Average Salary (FAS) used to calculate benefits using the formula methods. Beginning in 2020, the subject salary limit is $195,000/year (previously $280,000/year) or $16,250/mo. (used if the member worked fewer than 12 months in a given year).
Redirect of IAP Contributions
Current provisions stipulate 6% of an active member’s salary is contributed to their IAP account. However, beginning July 1, 2020, members earning more than $2,500/mo. will see a portion of that 6% contribution redirected to a new Employee Pension Stability Account (EPSA). The purpose of the EPSA is to pay for part of the member’s pension benefit after they retire. Your PERS membership type will determine what portion of the 6% deferral will be redirected to your EPSA:
- Tier One and Tier Two – 3.5% will go to IAP, 2.5% will go to EPSA
- OPSRP – 5.25% will go to IAP, 0.75% will go to EPSA
IAP Target-Date Fund Options
Like inactive members, active members will have access to the IAP Member Choice program beginning in September 2020. Under current provisions, a member’s IAP contributions are automatically invested in a plan defined Target-Date Fund (TDF). This TDF is based on the year the member was born with an expected retirement age of 65. IAP Member Choice will give members the opportunity to change this selection and make their own choice from a list of TDF options.
OPSRP Withdrawal Rule Changes
If you are an OPSRP member, be mindful about withdrawing your IAP after leaving service with your PERS-participating employer. As of July 1, 2020, if you choose to withdraw the balance of your IAP account, your PERS membership will be terminated. You will lose any retirement pension benefit that you may have accumulated during your employment. Even if you later choose to go back to work for a PERS-participating employer, you cannot recoup any retirement benefit credits you had previously lost. You will only be eligible to re-accrue credits after serving another six-month waiting period and reestablishing membership. For more information regarding OPSRP withdrawals, please see SB1049 OPSRP changes information provided on the Oregon PERS website.
Understanding your retirement benefits and how changes can impact your financial situation is critical in appropriately planning for your retirement. If you are an Oregon PERS member, please feel free to reach out if you have any questions or would like to better understand how these changes impact your retirement benefits. Also, find some time to review the information that Oregon PERS has provided on their website regarding SB1049.