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Tier One Tier Two overview and benefit calculation



You belong to PERS' Tier One if:

  • You started working in a PERS-qualifying job before January 1, 1996.
  • You are not a judge (PERS has a separate plan for judges).

You belong to PERS' Tier Two if:

  • You started working in a PERS-qualifying job between January 1, 1996, and August 28, 2003.
  • You were not previously a member of any other PERS plan (Tier One).
  • You are not a judge (PERS has a separate plan for judges).
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Since January 2004, these employer-provided retirement plans have included two parts:

Watch a PERS video to understand the two parts to your retirement.

Note: As of July 1, 2020, an IAP-related change occurred for some Tier One/Tier Two members. If your gross pay in a month exceeds the monthly salary threshold, you are one of those members. The change involves the amount you contribute to your IAP.

  • Since July 1, 2020, a portion of your IAP contributions have been redirected to a new Employee Pension Stability Account (EPSA), which will help pay for part of your future pension benefit.
  • Instead of contributing 6% of your salary to only the IAP, 3.5% now goes to your IAP and 2.5% to your EPSA. The redirect to EPSA happens behind the scenes at PERS, and therefore the deduction posted to your paycheck may still appear as a total of 6%.
  • The change occurred because of Senate Bill (SB) 1049, passed by the Oregon Legislature, which sets PERS benefits.
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The Oregon Public Employees Retirement System (PERS) is a 401(a) defined benefit plan with Internal Revenue Code 414(k) accounts (the IAP).

  • Your pension is what is called a defined benefit, which means it does not have an account balance and is defined by other means. At PERS, a formula is used to define how much pension you will be paid monthly as a retiree. Your employer primarily pays for your pension.
  • Your IAP is what is called an "account-based benefit," meaning you or your employer regularly pay into an account, the account can grow over time based on investment returns, and you end up with a pot of money that is yours at retirement.
  • The difference is that a pension can provide you with a lifetime monthly income that never runs out, while an account-based benefit, like your IAP, is a finite amount of money. Your IAP can provide you with income — in installments or a lump sum — until the money runs out.
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Your IAP is built with contributions that amount to a percentage of your salary, whether paid by you or your employer. Due to SB 1049, your percentage now depends on your monthly income:

Your IAP contributions are invested in ​a target-date f​und (TDF) based on your age. The TDF is intended to reduce investment risk and volatility as you age.

  • As of September 2020, you have the option to change the TDF your account is invested in to better match your risk tolerance and savings goals. You can change your TDF only once per year and only during the annual Member Choice window.

Your IAP balance will change over time according to investment returns (earnings or losses) credited to your account on an annual basis. PERS also deducts administrative fees from your account's earnings on an annual basis.

You are vested in your IAP account from its inception, and at retirement, you can take your IAP in a lump sum, rollover, or series of installments. You can use the IAP Balance and Installment Calculator to estimate your IAP distribution at retirement.

Learn more on the What is the IAP webpage.

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PERS uses three methods to calculate a Tier One monthly pension benefit amount and two methods to calculate a Tier Two monthly pension benefit amount. The calculation methods are:

  • Tier One — Full Formula, Formula Plus Annuity (only for eligible Tier One members) and Money Match
  • Tier Two — Full Formula and Money Match

The equations for these calculation methods are shown below, but your monthly pension benefit may not be determined by these equations alone.

At retirement, you can choose among several survivorship or nonsurvivorship benefit options. With these options, you decide whether and how a benefit may be paid to a beneficiary upon your death.

The option you choose at retirement will affect your monthly benefit amount. The equations below show the calculation for the “Refund Annuity” option. If you choose a different option at retirement, your benefit calculation will include additional adjustments based on factors such as your estimated lifespan and the estimated lifespan of your beneficiary.

Read more about survivorship and nonsurvivorship options in our Tier One/Tier Two and Individual Account Program (IAP) Preretirement Guide.

Here are the equations that PERS starts with:

Full Formula

(Tier One and Tier Two)

Your years of service are multiplied by your final average salary and a set percentage. The percentage depends on your service type.

General service:
1.67% × years of service credit × monthly final average salary = monthly pension benefit

Police and firefighters:
2% × years of service credit × monthly final average salary = monthly pension benefit

Money Match

(Tier One and Tier Two)

Your member account balance is matched by your employer, and the result is multiplied by a variable representing the estimated life expectancy for people in your age group (aka your “age factor”).

Age factor × account balance × 2

Formula Plus Annuity

(only Tier One members who made contributions before August 21, 1981)

This method has two parts, the first of which is similar to Full Formula but uses a different set percentage.

Your total from this first part is then added to an annuity payment, which is calculated by multiplying your member account balance by a variable representing the estimated life expectancy for people in your age group (aka your “age factor”). This second part looks similar to the Money Match formula.

General service:
1% × years of service credit × final average salary + Age factor × account balance

Legislators, police, and firefighters:
1.35% × years of service credit × final average salary + Age factor × account balance

Notes:

  • Most Tier One/Tier Two members now retire under the Full Formula method. Tier Two members are unlikely to have Money Match result in their highest calculated benefit because their account balances are generally low (due to having fewer years of contributions into the member account before 2004, when contributions were diverted to the IAP).
  • In general, your final average salary is the greater of these amounts:
    • The average gross monthly salary that results from the three years in which you earned your highest total salaries from one or more PERS-participating employers, even if one of those years was less than a full calendar year.
    • 1/36 of the total salary you received from one or more PERS-participating employers in the last 36 months of active membership.
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Between 1969 and 2004, Tier One and Tier Two members had the option of joining the Variable Annuity Program.

If you are a participant in the program, you can choose to transfer your variable account balance into your regular account or keep it in the variable program when you retire.

Funds in the Variable Annuity Program are invested completely in stocks, unlike the Oregon PERS Fund (OPERF), which is invested in a more diverse set of assets. Your regular account is associated with OPERF.

If you choose to remain in the variable program at retirement, a portion of your retirement benefit can change annually based on the ups and downs of stocks. The higher the percentage you originally chose (25%, 50% or 75%) to put into a variable account, the more money you will have exposed to stock market variation. You cannot retroactively change the percentage of your past contributions. However, other portions of your monthly benefit will come from fixed sources: a pension funded by your employer and an annuity based on your regular account balance. It is only the portion of your pension based on your variable account that would fluctuate; having a variable component in your PERS retirement plan does mean your total monthly payment could vary over the course of your retirement.

If you remain in the variable, once you are retired, PERS will adjust the variable portion of your monthly benefit every February 1. The adjustment is based on earnings or losses for the 12-month period ending October 31 of the prior year.

And if you originally opted into the variable program but continued working for a PERS-qualifying employer after January 1, 2004, contributions made after that date have gone into your IAP account, rather than the variable program. Contributing to or transferring new funds into your variable account are no longer options.

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Disclaimer

This webpage is for general informational purposes only and is not intended to provide legal or financial advice. It may not apply to all member situations. If there is any conflict between this webpage and federal law, Oregon law, or administrative rules, the laws and rules shall prevail.




Member journey map

We are happy to provide this member journey map to help guide you through the times in your career and life when you may want to interact with PERS. The map provides helpful information and links to make your PERS journey as smooth as possible. Click on the thumbnail to get to the full-sized graphic.

PERS member journey map 

Glossary

  • Service credit is the number of months and years you have worked in a PERS-qualifying position.
  • A "qualifying position/job" is one in which you work 600 or more hours in a calendar year for a PERS-participating employer(s). Hours worked with different participating employers can be combined, and in some instances you can earn service credit for partial years with fewer than 600 hours.