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How PERS Works in Oregon: A Comprehensive Guide for New Members

Congratulations on your new role with an Oregon PERS employer! As a financial advisor with over a decade of experience serving Oregon PERS members, I’ve had the privilege of helping countless individuals navigate the complexities of this retirement system. If you’re confused, you’re not alone!

Understanding how PERS works in Oregon is key to maximizing your benefits and planning for a secure future. This guide focuses on the Oregon Public Service Retirement Plan (OPSRP), which applies to most new employees, and outlines the key components of your retirement benefits:

  1. Your Pension
  2. Your Individual Account Program (IAP)
  3. Optional Retirement Savings Plans

If you learn best through video, here’s a short recording walking you through the highlights:


1. How PERS Works in Oregon: Your Pension: Defined Benefit Plan

To understand how PERS works in Oregon, let’s start with the pension. The pension is a defined benefit plan, meaning it provides a guaranteed monthly payment for life upon retirement. The benefit amount is determined by a formula that considers your salary and years of service:

  • General Service Members: 1.5% × Final Average Salary × Years of Service
  • Police and Firefighters: 1.8% × Final Average Salary × Years of Service

Your Final Average Salary is calculated by averaging your highest three consecutive years of earnings.

Vesting occurs after five years of qualifying service or upon reaching age 65 while still employed in a qualifying position. For General Service members, normal retirement age is 65, with early retirement options starting at age 55, though benefits will be reduced accordingly.

As an OPSRP member, you’ll have five choices on how to claim your pension benefit at retirement. To get a glimpse at those, visit our blog: Deciding Which Oregon PERS Pension Benefit is Right for You.

Understanding the Employee Pension Stability Account (EPSA)

The Employee Pension Stability Account (EPSA) is integral to managing contributions under the pension system. When an employee’s salary exceeds a certain threshold (for 2025, over $3,777/month), a portion (0.75% for OPSRP members) of the mandatory 6% contribution to the Individual Account Program (IAP) is redirected to the EPSA. This redirection reduces the amount going into the IAP and instead allocates it to the EPSA, which is specifically designed to help cover future pension costs for the individual employee.

The EPSA is funded entirely by employee contributions and earns interest over time. While this may slightly slow the growth of your IAP balance, the redirected funds are ultimately used to stabilize your pension benefit.

The Solvency of Oregon PERS

If you’re like many Oregon PERS members, you might ask, “Wait – does the EPSA mean that there’s a concern about the solvency of the pension system in Oregon?” According to the program, no. The Oregon Public Employees Retirement Fund (OPERF), which holds nearly $100 billion in assets, is one of the largest public pension funds in the country and is managed to ensure longevity. While PERS’ funded status is 72%, consistent with national averages, it is structured to continue meeting obligations without requiring 100% funding. Legal protections, such as the Oregon Supreme Court’s ruling in Moro v. State of Oregon (2015), ensure that earned benefits cannot be retroactively reduced. Additionally, annual actuarial evaluations keep the system accountable and transparent.

As Heather Case, PERS Senior Policy Advisor, explains:

“The security of your retirement benefits through PERS is sound. With a substantial asset base of nearly $100 billion and a commitment to ongoing investment, OPERF is unlikely to run out of money. Moreover, your benefits are protected by law and cannot be retroactively reduced or withdrawn. These safeguards ensure that what you’ve earned remains yours, providing a reliable foundation for your future.”

She further emphasizes,

“Retirement plans like PERS are designed to be ‘prefunded,’ meaning benefits are earned today but paid in the future. With consistent contributions, strategic investments, and annual assessments, PERS remains committed to fulfilling its promises to current and future retirees.”

You can catch the December 2024 update from Oregon PERS, where I tracked the information above, by clicking here.


2. How PERS Works in Oregon: Your Individual Account Program (IAP)

The IAP is another cornerstone of how PERS works in Oregon, offering a defined contribution plan that complements your pension. Each month, 6% of your salary is contributed to your IAP. In some cases, your employer may “pick up” this contribution, covering it on your behalf.

IAP funds are invested through the Oregon State Treasury, primarily in target-date funds based on your birth year. These funds balance growth and risk, gradually becoming more conservative as you approach retirement.

You will receive a statement every May with a snapshot of your IAP information. That statement, while jam-packed with information, isn’t incredibly intuitive. If you want help going through it, visit our blog: How to Read Your Oregon PERS Annual Statement.

Impact of EPSA on Your IAP

As mentioned above, OPSRP members that Oregon PERS considers high earners will have 0.75% of their IAP contribution redirected to the EPSA. If that’s you, you can make additional after-tax contributions to their IAP to “catch up” for these redirected amounts.

The voluntary contributions are invested in the same target-date funds as regular IAP contributions. This option can help boost retirement savings and provide more financial flexibility in the future. You can find more information about electing and updating IAP voluntary contributions by visiting the PERS website.

Wondering what happens to those after-tax contributions at retirement? I was too, so I called PERS. A representative explained that the contributions will be returned to you at retirement, while the earnings on those after-tax contributions will be a part of the pre-tax portion.

Options for the IAP in Retirement

At retirement, you can access your IAP balance in various ways:

  • A lump-sum withdrawal
  • A rollover into another qualified plan
  • Periodic distributions tailored to your financial needs

Most often, I see folks roll this over into an IRA at retirement to give them flexibility and options for distribution.

Your IAP offers an important layer of retirement savings, reinforcing how PERS works in Oregon to provide comprehensive financial security. To learn more about this element of your Oregon PERS retirement benefit, visit our blog: What is the Oregon PERS IAP (Individual Account Program)?


3. How PERS Works in Oregon: Optional Additional Retirement Savings Plans

Another key element of how PERS works in Oregon is the ability to supplement your pension and IAP with additional tax-deferred savings plans, such as 457(b) or 403(b) plans. These plans allow you to save more for retirement on a pre-tax or Roth (after-tax) basis, offering both flexibility and tax advantages.

Types of Plans

  • 457(b) Deferred Compensation Plan: Available to state and local government employees, this plan allows withdrawals without early penalties if you separate from service. Often, Oregon Savings Growth Plan (Voya) is the plan provider for this plan.
  • 403(b) Tax-Sheltered Annuity Plan: Frequently used by public school employees, this plan offers a variety of investment options and tax-deferred growth. Providers will vary between employers, but Fidelity, TIAA CREF, Equitable, Corebridge, and Security Benefit are a few I’ve encountered when partnering with clients on their options.

Features and Benefits

Contributing to these plans enhances your retirement savings while reflecting the flexibility of how PERS works in Oregon. Key features include:

  • Contribution Limits: For 2025, you can contribute up to $23,500 annually, with an additional $7,500 catch-up contribution allowed for individuals aged 50-59 and an additional $11,250 for those aged 60-63 (this is a new benefit, courtesy of the SECURE Act 2.0). These limits apply separately to 457(b) and 403(b) plans, allowing you to maximize savings across both plans.
  • Traditional vs. Roth: Some employer plans allow you to invest in a traditional savings vehicle (pretax, earnings grow tax-deferred, qualified distributions taxable), a Roth savings vehicle (post-tax, earnings grow tax-deferred and qualified distributions are tax-free), or both. What’s right for you will depend on the other elements of your financial, tax, and retirement savings plan.
  • Loan and Hardship Withdrawals: Some plans allow loans or withdrawals for emergencies, adding flexibility to your financial plan.

Final Thoughts

Understanding how PERS works in Oregon is crucial for maximizing your retirement benefits. The interplay between your pension, IAP, and optional savings plans offers a multi-layered approach to securing your financial future. By taking full advantage of your IAP and supplementing your savings through optional retirement plans, you can ensure that your retirement is secure.

The best thing you can do for your future is stay informed about what’s happening with Oregon PERS throughout the year. If you haven’t already, subscribe to the OPSRP-specific newsletter. This will provide you with regular updates to your specific tier, along with reminders on important dates and events.

For more detailed information on how PERS works in Oregon, I encourage you to check the Oregon PERS website. For a deeper understanding of the role these benefits will play in your long-term plan, I encourage you to partner with a fee-only fiduciary advisor who knows a thing or two about it. I welcome a conversation when you’re ready.

Disclaimer: This guide is for informational purposes and reflects the understanding of PERS as of January 2025. Please consult the Oregon PERS website or a financial professional for the most current information.