MEMBERS

Senate Bill 1049 Changes to PERS: Salary Limit

Effective January 1, 2020​. 
Information updated February 2020.

This web page is intended to provide general information on Senate Bill 1049 and may not address your specific situation. If you are considering retirement, you may want to contact PERS for a benefit estimate, or speak with a financial advisor or other retirement planning professional. 

Do you currently make close to $195,000* a year or more in salary or think you might in the future? 

Do you make near $16,250 a month** (including any eligible lump-sum payouts if you are a Tier One/Tier Two member) and might retire during the calendar year?

Beginning January 1, 2020, Senate Bill 1049 changed the definition of “salary” for PERS purposes, and created a new $195,000* limitation on subject salary (approximately $16,250/month** if employed less than 12 months in a calendar year) used for PERS benefit calculations and contributions. 

The limit impacts what PERS considers “subject salary” paid after January 1, 2020, but does not impact salary paid before that date

Prior to 2020, PERS subject salary was not limited for Tier One members in final average salary calculations. For Tier Two and OPSRP members, PERS subject salary was limited to $280,000 in 2019. 

PERS subject salary is used to determine member Individual Account Program (IAP) contributions, employer contributions to fund the pension program, and the Final Average Salary (FAS) used in calculating retirement benefits under formula methods. 

The changes under SB 1049 may only affect how PERS calculates your pension and contributions to PERS. The limit does not impact the actual salary, wages, or payouts you receive from your employer.​

*The limit is indexed annually to the Consumer Price Index (CPI) [All Urban Consumers, West Region]. 

**Starting in 2020, if you are employed less than 12 months in a calendar year, note that the salary limit will be prorated based on the number of months that you are employed. This means that if your monthly salary averages $16,250 or more during that partial year period (including eligible lump-sum payments for Tier One/Tier Two members), your subject salary may be limited. Learn more about partial year salary limits.


Benefit Calculation and Final Average Salary Changes

If you are within two years of retirement eligibility (Tier One/Tier TwoOPSRP) you can request a written benefit estimate to understand how your pension may be calculated (find the request form for Tier One/Tier Two or OPSRP members).

Please note: Retirements during a calendar year may be impacted by the "partial year" salary limit. Learn more about partial year salary limits.

Estimates created through your Online Member Services (OMS) account do not yet reflect the SB 1049 changes.​


How Pension Benefits are Calculated

Tier One/Tier Two Members
For Tier One members, PERS uses three methods to calculate pension benefits: Full Formula; Formula + Annuity (for members who made contributions before August 21, 1981); and Money Match. 

Tier Two pension benefits are calculated using the Full Formula or Money Match methods. 

PERS uses the calculation method that gives the member the highest retirement benefit. Most Tier One/Tier Two members now retire under the Full Formula method. This method uses your Final Average Salary (FAS) multiplied by a statutory factor and your years of service credit to calculate your pension benefit. 

The basic pension formula calculations (approximating a Refund Annuity benefit under the Full Formula method) are as follows:

For Tier One and Tier Two General Service members:

Monthly FAS × 1.67% × years of service credit = monthly pension

For Tier One and Tier Two Police and Firefighter (P&F) members:

Monthly FAS × 2.0% × years of service credit = monthly pension


OPSRP Members
All OPSRP members retire under one formula method, which also factors in your Final Average Salary (FAS)​, but has slightly different rules than Tier One/Tier Two, including that the "high three years" must be consecutive. 

The OPSRP pension calculations are as follows, approximating a Single Life Option benefit:

For OPSRP General Service members:

Monthly FAS × 1.5% × years of retirement credit = monthly pension 

For OPSRP P&F members:

Monthly FAS × 1.8% × years of retirement credit = monthly pension 

​ 

Salary Limit Will Impact FAS for Some Members

Since FAS is a key part of the Full Formula calculations for all three plans (Tier One, Tier Two, and OPSRP), your benefit may be impacted by the salary limit if you make over $195,000* annually (including overtime), or have an average monthly salary higher than $16,250, after January 1, 2020. 

Note that your benefit may be impacted if you retire during a calendar year (i.e., you have less than 12 months of "active membership" in your final year when you retire) and you either make close to $16,250 a month or you have a large lump-sum payout (eligible Tier One/Tier Two members) that pushes you over a partial year limit. Learn more about partial year salary limits.

SB 1049 requires a limit on all subject salary reported to PERS on and after January 1, 2020. Note that your employer is responsible for accurately reporting your salary as subject or non-subject.

The limit applies to all regular and overtime pay for all members. 

However, if you had salary of more than $195,000 before 2020, those year(s) may be used in your benefit calculation. 

  • For example, if you already have any three years where you made over $195,000 before 2020, those years may be used in the “highest three years” FAS. 
    • Some circumstances, such as your "last 36 months" FAS being higher than your "highest three years," or retiring during a calendar year and being impacted by a partial year limit, could mean that your more recent salary could be used for your FAS, even if limited. In addition, as the $195,000 salary limit may increase in future years due to changes in the CPI, there could be salary limits in the future that are higher than your previous years' salary. No matter what, you will always receive the FAS that results in your highest benefit calculation.


Special Note: Important Information about Sick Leave (some Tier One/Tier Two members only), and lump-sum payouts (lump-sum vacation for Tier One members only; other lump-sum payments may impact some Tier Two members - check with your employer)

If you are a Tier One/Tier Two member whose employer participates in the Unused Sick Leave Program (Oregon Revised Statutes (ORS) 238.350), the new limit will not significantly impact the value of your accrued sick leave. In the Unused Sick Leave Program, if your employer participates, half the value of unused sick leave is used in the FAS calculation, but is not considered “subject salary.” Therefore, as you will see in the illustrative examples, a value of unused sick leave will continue to be added for retirements on and after January 1, 2020.

At retirement, Tier One members may take a lump-sum payment for some of their remaining vacation hours and have that payment included their “subject salary.” Because this value is included in subject salary for Tier One members, a lump-sum vacation payment could cause you to exceed the salary limit amounts, which could limit your FAS calculation. 


Illustrative Examples

Linked below are illustrative examples to help members understand how they may or may not be impacted by the changes in SB 1049. These general examples may not reflect your unique situation. 

The examples focus on members who will have their pension benefit calculated using the “Full Formula” method and are based on the “highest three years” final average salary, unless otherwise noted. The examples do not reflect any future Consumer Price Index (CPI) changes. 

Illustrative examples of salary limit, before and after 2020


Future Contributions to PERS

Starting January 1, 2020, salary exceeding the salary limit amounts ($195,000* in 2020, prorated for partial years**will not be included when calculating member or employer contributions

If you make more than $195,000*, this means that the amount of money being sent to PERS — 1) employer contributions based on the employer rate that helps pay for future pension benefits; and 2) member or employer-paid IAP contributions — will be limited. The total salary, wages, or payouts you receive from your employer are not impacted.

For illustration, assume you make $200,000 per year in 2019 and 2020:

  • In 2019, your 6% contributions to the Individual Account Program (IAP), whether paid by you or your employer, would total $12,000. Your IAP contributions were not limited.
  • In 2020, the $200,000 would be limited to $195,000 for PERS purposes. Your total salary would still be $200,000. However, for PERS purposes, you would only contribute 6%** of $195,000 toward your IAP. That means your IAP contribution in 2020 would be $11,700**.
    • **For simplicity in explaining the Salary Limit changes, this example does not include further “IAP Redirect” changes under SB 1049​, which will occur beginning July 1, 2020. 
      • ​Starting July 1, 2020, a portion of your 6% IAP contributions will be redirected to a new Employee Pension Stability Account (EPSA), which will be used to pay for part of your future pension benefit. For Tier One/Tier Two members, from July 1, 2020, onward, only 3.5% of subject salary will go to your existing IAP account (2.5% will be redirected to your new EPSA). For OPSRP members, 5.25% of subject salary will go to your existing IAP account (0.75% will be redirected to your new EPSA).

Impacted members, whose IAP contributions will be limited by the SB 1049 salary limit, may consider making supplemental retirement contributions through a deferred compensation plan such as the Oregon Savings Growth Plan (if your employer participates), or through other personal investments.


*The limit is indexed annually to the Consumer Price Index (CPI) [All Urban Consumers, West Region].

**Starting in 2020, if you are employed less than 12 months in a calendar year, note that the salary limit will be prorated based on the number of months that you are employed. This means that if your monthly salary averages $16,250 or more during that partial year period (including eligible lump-sum payments for Tier One/Tier Two members), your subject salary may be limited. Learn more about partial year salary limits​.


Questions?

Please contact PERS Member Services via phone or email if you have any additional questions or concerns about how SB 1049 may impact you. We cannot give you advice on when, or if, you should retire. 


In compliance with the Americans with Disabilities Act, PERS will provide documents on this page in an alternate format upon request. To request this, contact PERS at 888-320-7377 or TTY 503-603-7766.​​​​​​​​​​​​​​​​​​​​​​

​​​​