HOUSE BUSINESS, LABOR AND CONSUMER AFFAIRS COMMITTEE

HB 2104-1

Lisa Zavala, Government Relations

Denise Yunker, Human Resources

Oregon University System

February 9, 2005

Since 1996, the Oregon University System (OUS) has offered academic and administrative employees a choice of retirement plans, permitting these employees to participate in the tax-qualified, defined contribution Optional Retirement Plan (ORP), as an alternative to Public Employees Retirement System (PERS) membership.

Designed to provide retirement plan portability for mobile, professional faculty and staff, the Optional Retirement Plan serves 2500 active OUS participants. Eligible employees choose between the ORP and PERS when they first become eligible to participate in a retirement plan, and vest according to a 5-year cliff vesting schedule.  Plan assets under management by four fund sponsors, in participant-directed accounts, totaled $107 million at the end of 2003. 

HB2104 amends the Optional Retirement Plan authorizing statute, ORS 243.800, to incorporate PERS-related changes that occurred in 2003. 

Under the Optional Retirement Plan authorizing statute, ORS 243.800, employees eligible for membership in the Public Employees Retirement System are permitted to irrevocably elect to participate in the Optional Retirement Plan. With the addition of Oregon Public Service Retirement Plans in 2003, additional provisions are required to establish participation rights and requirements for employees hired on or after August 29, 2003, and for all members now enrolled in the individual account plan.

After changes were made to PERS in 2003, a group of stakeholders including the Associated Oregon Faculty, American Federation of Teachers, American Association of University Professors-PSU, the Inter-Institutional Faculty Senate, ORP Fund Sponsors and the Oregon University System explored a variety of options to address the relationship of the ORP to PERS. HB 2104 is a product of that effort. After initial drafting, the Oregon University System found some potential problems with the language and sought amendments which are reflected in HB 2104-1.

Section 1 (6)(c) and (d) outline membership status and the treatment of existing PERS accounts when non-vested and vested members of the OPSRP pension plan become new OUS employees and elect to participate in the ORP.  These provisions parallel the provisions that have been in effect for PERS members who elect the ORP, as described in subsections 6(a) and 6(b).

Subsection 6(e) addresses the new defined contribution, Individual Account Program accounts that were opened for all PERS members in January 2004.  Transfer rules for these accounts are required for PERS members with pension benefits under both Chapter 238 and Chapter 238A. 

Subsection 6(f) is included to ensure that ORP participants do not access PERS benefits while currently employed by the Oregon University System and actively participating in the Optional Retirement Plan. 

The provisions of subsections 6 (a) through 6 (f) describe the PERS member’s future status if that member elects the ORP and clarify procedural steps for transferring account balances. The amendments maintain existing rights, privileges and benefits for PERS Chapter 238 members and extend similar ones to OPSRP Chapter 238A members.

The additional phrase, in Section 1, (9) “before any offset under ORS 238.325 (9)” clarifies the intent of the original legislation that employer contributions for ORP participants equal those that would have been made had the employee, instead, elected to become a PERS member. When ORS 243.800 was proposed in 1995, lump sum payments to reduce unfunded actuarial liabilities, such as the one made by the state of Oregon in 2003, were not anticipated. The “offset” refers to the PERS rate reduction, induced by the lump sum prepayment of PERS pension obligations that are unrelated to the retirement benefits of ORP participants. Adding this provision clarifies the original intent of the legislature when the ORP was approved.