Internal Revenue Code and Social Security annual compensation limitations
The Internal Revenue Service revises various dollar limits annually based on cost-of-living adjustments. These revisions are used throughout the PERS plan’s statutes and rules, but revisions to the limits must be adopted by the legislature or PERS Board to be effective.
The rule modifications incorporate these federal adjustments for calendar year 2018 and are necessary to ensure compliance with the federal limits on the amount of annual compensation allowed for determining contributions and benefits, annual benefits, and annual additions to PERS.
Also, under ORS 238.082, a Tier One or Tier Two retired member who is receiving Social Security benefits and who returns to PERS-covered employment may continue to receive their PERS retirement benefits so long as they work less than 1,040 hours or do not exceed any related Social Security annual compensation limits. The modifications to OAR 459-017-0060 adopt the 2018 Social Security earnings limitations. For these increases to be effective, the PERS Board must adopt these rule modifications.
public universities and Oregon Health and Science University put forth Senate
Bill 214 (2017), which excludes from PERS membership individuals who provide
services to the universities as part of a post-doctoral research program. The
bill became effective on January 1, 2018, and provides that individuals hired
into positions classified by the universities as post-doctoral scholar
positions are not considered “employees” or “eligible employees” for PERS
purposes, and therefore are ineligible for membership in any programs
administered under ORS Chapters 238 and 238A. Prior to the bill passage, such
individuals were eligible for PERS membership.
scholar positions are positions designed to provide short-term experience,
training, and mentoring to new graduates before they transition to permanent
employment in higher education or in the private sector. These positions are
typically funded by federal research or training grants. By eliminating or
reducing contributions to retirement programs in which post-doctoral scholars
will likely never vest, the universities hope to be able to attract more
post-doctoral scholars to their institutions. In this effort, the bill excludes
post-doctoral scholars hired on or after January 1, 2018, from participation in
PERS based upon the employment as a post-doctoral scholar, and provides them a
separate retirement benefit option under an Optional Retirement Plan.
provides the general requirements for a post-doctoral scholar position
classification, further clarification in rule is necessary to ensure consistent
administration. This rule further clarifies certain statutory provisions,
ensuring that all universities use consistent standards in classifying a
position as a “post-doctoral scholar” position.
IAP Target Date Funds
The new Target
Date Fund (TDF) investment structure adopted by the Oregon Investment Council (OIC)
groups IAP member accounts together in TDFs based on the year of birth of the
member and adjusts the investment allocation as each group approaches
retirement. While the OIC has established the investment structure, PERS is
responsible for administering the individual member accounts. To that end, as
of January 1, 2018, PERS now allocates each member account to the appropriate
Prior to 2018,
the IAP had one investment allocation across the fund and all members received
the same rate of return. With different investment allocations for each TDF,
they will each have a different rate of return. The purpose of the new rule and
amendments to the existing rules is to explain how and when a member’s IAP
account will be allocated to a particular TDF. The modifications were adopted
by the Board as temporary rules at the December 1, 2017 meeting, as the rules
needed to be in effect beginning January 1, 2018, to implement the OIC’s TDF
amount payable to any PERS member for a calendar year is limited by Internal
Revenue Code Section 415(b). The applicable dollar limitation may be increased
by a cost-of-living adjustment, as determined by the IRS. Currently, OAR
459-005-0535 allows for such an adjustment; however, to provide further
clarity, PERS staff amended the rule to include language specifying that the
cost-of-living adjustment is applied to the applicable dollar limitation for
years between a member’s separation from employment and retirement, as well as
to the years after the member begins receiving benefits. This clarity is being
provided in response to an internal audit that reviewed compliance with the
IRS’ Section 415 limitations.
make lump-sum payments to PERS in addition to the regular employer
contributions calculated as a percent of payroll. These lump-sum payments are
put into side accounts that are then applied to offset a portion of the
employer’s PERS contribution rate.
On March 31,
2017, Governor Kate Brown submitted a letter asking the PERS Board to consider
revising the rules around employer side accounts to give employers more
flexibility. On April 21, 2017, PERS staff met with the Employer Advisory Group
to discuss questions and concerns about the current side-account process and
solicit employer input on how the process could be improved. In addition,
Senate Bill 1067 (2017) amended ORS 238.229, allowing additional deposits to
existing side accounts and impacting these employer side account rules. Based
on SB 1067 and employer input, staff added a new rule and modified the existing
rules for processes governing lump-sum payments and side accounts.
policy recommendations at the September Board meeting as to where the current
constraints should be eased to facilitate side account payments. Specific
changes include: lowering the minimum payment required to establish a new side
account, lowering the administrative fees, and limiting additional deposits
into existing side accounts to two per year, per account. These changes were
incorporated into the adopted rules.
On September 20,
2017, the Oregon Investment Council (OIC) adopted a Target Date Fund (TDF)
investment structure. This new investment structure groups member accounts
together in TDFs based on the year of birth of the member and adjusts the
investment allocation as each group approaches retirement. While the OIC has
established the investment structure, PERS is responsible for administering the
individual member accounts. To that end, PERS will allocate each member account
to the appropriate TDF based on the member’s year of birth, or other factors
described in OAR 459-080-0015.
IAP has one investment allocation across the fund and all members receive the
same rate of return. With different investment allocations for each TDF, each
TDF will have a different rate of return. The purpose of the new rule and
amendments to the existing rules is to explain how and when a member’s IAP
account will be allocated to a particular TDF. The rules must be in place by
the end of this calendar year to implement the OIC’s TDF investment structure
beginning January 1, 2018.
of Elected or Appointed Officers
238.015(5), a person holding an elective or appointive office with a fixed
term, or an office as head of a department to which the person is appointed by
the Governor, may become a PERS member by giving written notice within 30 days
after taking office if the person had already established PERS membership, or
within 30 days after completing the six month waiting period required to become
a member under ORS 238.015(1), if the person had not previously established
membership. OAR 459-010-0180, which has not been updated since 1998, was
written as an “opt-out” of PERS, specifying how such a person would cancel
their membership at the end of the term by giving written notice to PERS.
Rather, the statute above is structured as an “opt-in” to PERS. The rule
modifications properly align the rule with the “opt-in” structure of the
Board Adoption: 09/29/2017
Board Adoption Memo
The PERS Board reviews the assumed rate in odd-numbered years as part of the Board's adoption of actuarial methods and assumptions. That rate is then adopted in an administrative rule at the time the Board sets the new rate. On July 28, 2017, the PERS Board adopted a 7.20% assumed rate.
The rule specifies that the adopted assumed rate will be effective for PERS transactions with an effective date of January 1, 2018, consistent with this Board’s policy decision from 2013 that the assumed rate will be effective January 1 following the Board’s adoption of the rate. A January 1 effective date also provides equitable treatment to all members who retire in a year that a change is adopted, no matter which month they retire. The adopted assumed rate will be aligned with the new actuarial equivalency factors (AEFs), which will allow for a clear effective date for all transactions that involve calculations using both the rate and AEF components.
Electronic Funds Transfer (EFT)
ORS 293.525 allows state agencies to require payments via Electronic Funds Transfer (EFT). In 2005, PERS began requiring public employers to make payments via EFT, which provides for safer, more efficient processing of payments. However, the definition of “public employer” in OAR 459-005-0225 included non-PERS participating employers that pay only an annual fee to PERS for their share of the expenses incurred in administering the state Social Security Program, as required by ORS 237.500.
Currently, 889 PERS-participating employers pay this annual fee via EFT, and 189 non-PERS participating employers pay the annual fee via check. The non-PERS participating employers make no other payments to PERS, and to require the Social Security annual fee be paid by EFT would put an undue burden on these small employers that typically only have a few employees.
To continue allowing non-PERS participating employers to pay the Social Security annual fee via check, the amendments to OAR 459-005-0225 were adopted to clarify that the EFT requirements apply only to PERS-participating employers.
ORS 238.670(1)(a) authorizes the PERS Board to use funds in the Contingency Reserve established under ORS 238.670(1) to “prevent any deficit in the fund by reason of the insolvency of a participating public employer.” Note that the funding
for this purpose can only come from earnings from employers deposited in the Contingency Reserve; $25 million has currently been set aside in the reserve for this purpose.
The Board has not previously used the Contingency Reserve to address the liabilities of insolvent employers, principally because there has never been a framework to determine that an employer is insolvent. There are a number of PERS employers that have ceased to exist as ongoing entities; many of them have remaining PERS liabilities, whether outstanding invoices or unfunded actuarial liabilities.
The new administrative rule provides a definition of insolvent employer to assist in assessing when the Contingency Reserve can be used for this purpose. A simple balance sheet analysis is not sufficient to determine solvency; PERS should also determine whether the liabilities of the entity have been assigned to or assumed by another entity. Once PERS determines, after making all reasonable efforts to collect as required by OAR 459-005-0620, that there is no resource from which to collect, then PERS will consider whether the employer is insolvent.
Forfeited Service Credit
OAR 459-011-0050 was adopted to address PERS administration of membership forfeiture and restoration. However, that rule only addresses the voluntary redeposit under ORS 238.105. That rule does not address the restoration of forfeited time by the purchase that is available under ORS 238.115 nor does it clarify that restoration under ORS 238.115 is not available to those who lost their membership rights through LOM. The proposed rule modifications provide these clarifications. Given that these statutes do not use consistent terminology, staff has been inconsistent in applying these provisions to members who are trying to restore their prior service and accounts so the rule modifications draw these distinctions more clearly. Members’ expectations about whether they can restore these rights have also been inconsistently communicated, so the rule modifications will provide that clarity as well. Given the inconsistencies in the statutes, PERS does not intend to review prior purchases but has directed staff to follow these strictures on a going-forward basis. The rule has been modified to allow purchases of Loss of Membership (LOM) time through
December 1, 2017 effective retirement dates.