By now you may likely be familiar with Senate Bill 1049 the Oregon Legislature passed and was signed into law in 2019. The law contained several changes to both the PERS and IAP programs with different effective dates spread throughout 2020. Among the changes were a redirection of IAP contributions, limitations on subject salaries and work after retirement modifications.
You may be less familiar with the lawsuit (James v The State of Oregon) that was filed by nine Oregon Public Employees to challenge two provisions within the law, subject salary limitations and the IAP redirect. The first provision caps the amount of salary that is counted for calculating member IAP contributions, employer contributions to fund the pension program and final average salary for monthly retirement benefits. Under the law, salary earnings are to be capped at $195,000/annually or $16,250/monthly for calculation purposes only. In no way does the law limit a member’s actual salary. Previously Tier 1 members had no cap and Tier 2/OPSRP members were limited to $280,000 annually. This means that any excess salary above $195,000 is not included in the calculations mentioned above.
The second provision, the IAP Redirect, establishes an Employee Pension Stability Account (EPSA) to be funded by employee contributions when the PERS pension funding levels fall below 90%. The Supreme Court opinion notes that PERS is projected to remain less than 90% funded for the next 15 years (James v. State of Oregon, 2020). Effective July 1st, the law now requires IAP contributions, for those members with a salary of more than $2,500/month, be divided between the member IAP account and the EPSA. Of the 6% IAP contribution, Tier 1 and 2 members will have 3.5% directed to their IAP account and 2.5% redirected to EPSA. OPSRP members will have 5.25% directed to their IAP account and .75% redirected into the EPSA. Members will be allowed to make-up the difference by contributing an additional amount. If you are thinking of making up the difference, please contact our office to discuss all your options.
In a ruling handed down late last week, the Oregon Supreme Court upheld the law, including both contested provisions, as it was written. Most simply, regarding the IAP redirect, the court found the changes made under the law were not established retrospectively but prospectively. In their opinion, the law did not take away contractual benefits previously earned for current members. Dollars redirected into the EPSA are to be used solely for the benefit of the contributing member on a go-forward basis (James v. State of Oregon, 2020). While it is a disappointing outcome, it is important to understand how the new law may impact you moving forward.
Other PERS/IAP Changes and dates to be aware[1]:
Beginning in September, PERS will be giving members the ability to change their IAP investment. Currently, member IAP accounts were invested in a target date fund closest to their 65th birthday. The change will now allow members to invest their IAP dollars into a target date fund that more closely aligns with their risk tolerance and investment objective.
Work After Retirement:
Senate Bill 1049 eased some of the restrictions around members working after retiring from PERS in the years between 2020 and 2024. Contact us for more information or if you are thinking of retiring.
Should you have questions on Senate Bill 1049, its impact on your situation, Member Choice or any of the information discussed here, please don’t hesitate to contact our office or visit our website, www.fosterassoc.com. We will be more than happy to schedule a time to review your particular situation with you.
[1] “Senate Bill 1049 (2019) – Member Information”, Oregon PERS.
https://www.oregon.gov/pers/MEM/Pages/SB1049.aspx (accessed August 13th, 2020).