As the Legislature considers cuts, we take a look at the advocacy that has impacted this conversation and provide an up-to-date FAQ on how the proposals will impact you.
This week the Oregon Legislature took a key vote to advance changes to PERS, including cuts to members’ benefits. There are still a couple of steps remaining before the bill becomes law.
The proposed cuts — which could result in a 1% to 2.5% reduction in your total retirement plan’s value — are disappointing, although significantly better than where this conversation started thanks to the tireless advocacy of SEIU members and our union partners. Over the last few months, we’ve sent more than 68,000 emails to legislators, as well as thousands of calls, and that has moved the needle in our favor.
In February, corporate lobbying groups proposed 6% cuts to the IAP, eliminating the pension, and even floated a proposal to eliminate PERS debt that would require massive cuts to services. In April, Governor Brown introduced a plan that incorporated some of our members’ concerns, by reducing the cut to 3.5% and introducing plans to share the burden. This latest proposal further reduces the impact on employees, but still is too dependent on cuts. The cut has been reduced to .75% for people hired since 2003 and 2.5% for Tier 1 and 2 members. Changes to the money match have been eliminated. And the new plan includes revenue from sports betting and a longer amortization schedule (which is a complicated way of saying that the state is giving itself more time to pay off its debt).
What does the bill do to my retirement?
As reported in the Oregonian, this bill will result in a 1 to 2.5% reduction in the value of your retirement package. It does this by diverting some portion of your future Individual Account Program (IAP) contributions into a PERS stabilization fund. It will not impact your pension.
PERS is complicated. For more information on your retirement plan, visit PERSexplained.com.
Starting June 1, 2020, the bill will change how much you automatically save into your IAP going forward. Right now, you put 6% of your salary into your IAP as required by law. Some employers pay the 6% for you, other employers require you to pay the 6% our of your salary. Either way, after the bill goes into effect on June 1, 2020, the amount that will go to your IAP will go down.
- Tier 1 and Tier 2 employees (hired before August 2003) will see 2.5% of the 6% IAP contribution diverted to pay for the costs of the pension.
- OPSRP employees (hired after August 2003) will see .75% of the 6% IAP contribution diverted to pay for the costs of the pension.
These changes will end once the pension is 90% funded, which experts expect is 14 years away. But that can change based on investment returns and other changes to the system.
Many of you may want to keep your retirement plans on track, so the legislation will allow you to choose to contribute more of your own money to keep your IAP contribution at 6%. In addition, you can also save through the Oregon Growth Savings Plan, a 401k plan established for public employees and the third piece of your retirement benefits. For more details on the Oregon Growth Savings Plan, click here.
If you make less than $2500/month this change will not impact you. Employees who make under $2500/month or $30,000/year are exempted.
What part of my retirement is my IAP?
Every public employee has three pieces to their retirement: 1) A pension, 2) IAP and 3) The Oregon Growth Savings Plan. Visit PERSexplained.com for details.
The IAP is an individual account, similar to a 401k. The pension you earn as an OPSRP member is meant to replace 45% of your salary if you work for 30 years. Together, your IAP and your pension are meant to replace 55-65% of your salary if you work for the government for 30 years. The IAP is about one-third of your expected retirement.
How will this impact my total retirement package?
The changes will impact your retirement differently based on your PERS tier and how many more years you plan to work. The estimates based on averages of how many more years each tier will work and assumed investment earnings of your IAP is that it will be a reduction of 1-2.5% (depending on your tier, according to reporting in the Oregonian) of your total expected retirement, your pension and your IAP. You can check this calculator out to get an estimate on your current retirement before the bill goes into effect and we are developing a new one so you can see the impact of the bill.
How do I find out how much I have in my IAP right now?
It should be on your annual PERS statement, which comes in May of each year. You can get balance information online here, but note that you must contact PERS to get a log-in if you don’t already have one.
I work for the state and pay the 6% directly from my paycheck, how can they take that from me?
We are not sure if they can or not. Our union is currently working with other public sector unions to sue the state. If successful, our lawsuit will stop this diversion from going into effect.
What are the other changes in the bill?
- It caps the amount you can earn on your final average salary at $195,000 for the determination of your pension. If you make under $195,000, there is no impact.
- Right now when public employers hire someone back after they have retired, they don’t pay any costs into the pension system. Employer rates for PERS are currently between 22-26% which is a big incentive for employers to hire back retired workers and is a loss to the pension system. A change in the bill would make it so that employers would have to pay the costs to the pension system and it would all go to pay off debt. This will generate nearly $100 million to pay off the pension debt and encourages employers to fill positions with new hires. The bill also removes the current hour cap that limits retirees to 1040 hours a year; since there is no longer a financial incentive for employers to hire them back.
- The bill extends the amortization period for the unfunded actuarial liability (UAL) for Tiers 1 and 2. It extends the period that the state has to pay back the debt from 20 years to 22 years.
- The bill will make it so that employees have more choice in how their IAP is invested as they age. The Treasurer’s office created a system to put employees into a safer investing strategy as they age, this change will allow employees to change that investment strategy based on their individual retirement scenario.
- The bill adds money into paying down the UAL. All future money from sports betting will be dedicated to helping employers afford pension rates and they added $100 million into paying down the debt.
Why is the Legislature moving this bill?
Legislative leadership has stated that the bill is meant to decrease the costs of the pension system for employers in the 2021-23 biennium by 6%. Currently, costs for the pension debt are expected to increase by 6% and the stated goal of the Legislature is to prevent the increase from taking place and keep costs steady.