A pension is a retirement benefit that provides regular payments for the rest of a retiree’s life in exchange
for their years of work. Each pension plan has different rules for earning, sustaining, and receiving its pension
benefit. Some plans allow a pension to be paid in a lump-sum payment instead lifetime payments, and some allow a
portion of the pension benefit to go to a beneficiary after the employee dies.
The size of a retiree’s payment depends on how long the retiree worked, how much they earned, their PERS plan,
and the type of job or jobs they did.
Oregon PERS has three pension plans that have different rules and benefits. The plan an employee is in depends on
when they began working for a PERS-participating employer. Each plan also provides slightly different benefits based
on an employee’s job classification.
PERS pension plans
PERS administers three pension plans: Tier One, Tier Two (both detailed in Oregon Revised Statute (ORS) Chapter
238) and the Oregon Public Service Retirement Plan (OPSRP) (detailed in ORS Chapter 238A). Tier One and Tier
Two are both closed to new members; all new employees are eligible to become members of OPSRP.
The plan a member is in is determined by their hire date.
Whichever plan a member is in, they remain in that plan unless they lose membership or withdraw from PERS. Even if
they retire and then return to work for a PERS-participating employer, they stay in their original plan. If an
employee moves to a different PERS-participating employer, they remain in their plan and continue to build their
Tier One is the oldest and most generous PERS plan. Tier One retirees receive a pension, Individual Account Program (IAP) account, a member account, and a variable account (optional). Tier One retirees generally earn more benefits than Tier Two or OPSRP (see the Benefit Component Comparisons Chart).
Tier Two was created by the Oregon Legislature to be less costly for employers than the Tier One plan. However, over time, it didn’t reduce costs enough. The high cost of Tier One/Tier Two benefits means employers pay a higher rate to PERS for their Tier One and Tier Two employees than their OPSRP employees.
Oregon Public Service Retirement Plan (OPSRP)
In 2003, the Oregon Legislature gave PERS a major overhaul and created a third tier, the Oregon Public Service Retirement Plan. Over time, as more people retire under the OPSRP plan and fewer retire under Tier One/Tier Two, employers’ PERS costs should decrease.
Learn more: PERS plan definitions
Paying for employees’ pensions
Your organization’s pension benefits are mostly funded by the payments you make to PERS throughout an employee’s career. You are charged a percentage of your qualifying employees’ “subject salaries” (see below). The rate you pay is your “contribution rate.” This rate is calculated by the PERS consulting actuaries based on your payroll (e.g., how many employees you have, what PERS plans they’re in, how much they earn) and is set every two years.
Subject salary is salary that qualifies to earn PERS benefits. For example, only employees working in a “qualifying” position for 600 hours a year or more qualify to earn benefits. The salary they earn is subject to your contribution rate.
Non-subject salary is salary that does not qualify to earn benefits (e.g., salary earned in a non-qualifying part-time position or a one-time retirement-incentive payment). You are not charged your contribution rate on non-subject salary.
An employee’s subject salary may not match the salary they see on their W-2 or final paystub.
Learn more: The PERS Payment Categories Chart lists different types of salary (e.g., lump sums, bonuses, back pay, payment from a settlement) and whether each type is considered subject salary or non-subject salary. You only pay your contribution rate on subject salary.
To understand how your rate is calculated and how you can affect it, read Guide to Understanding Your Rate.
To learn about the other part of a PERS retirement package, read About the Individual Account Program (IAP).