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Employer side accounts

Overview

When you, an employer, make a lump-sum payment to prepay all or part of your pension unfunded actuarial liability (UAL), the money is placed in a special account called a “side account.” This account is attributed solely to the employer making the payment and is held separate from other employer reserves. The money is invested in the Oregon Public Employees Retirement Fund (OPERF) and is subject to earnings and losses.

Benefits of a side account

 

Side accounts increase an employer's actuarial assets, reducing the gap between actuarial assets and actuarial liabilities. When liabilities exceed assets, this becomes a UAL. (To learn more about UAL, read “Guide to Understanding UAL.”)  

Establishing a side account reduces your pension obligation, which reduces your employer contributions and rates over time.  

Side accounts for pool members

 

Although employer rates are set at a pool level, employers have the option to establish a side account to differentiate their individual rate.  

For State and Local Government Rate Pool (SLGRP) employers: The supplemental payment is first applied toward your transitional liability, if you have any, and the rest is placed in a side account.  

For School District Pool members: Once you create a side account, you start to receive your own valuation, which contains full details on how the side account rate is calculated and the amount in the side account. Additionally, the valuation contains information that is specific to you, the employer, including combined valuation payroll and the UAL allocated to the employer from the pool.  

How the side account offset rate is calculated

 

The side account rate offset is recalculated during each biennial rate-setting actuarial valuation. The new side account amount is determined by deducting the money that was transferred to the employer's reserves to reduce their monthly statement (along with the annual maintenance fee). The gains or losses are added to the total side account amount. This information is available in your actuarial valuation.
 

Example from an actuarial valuation
 

Example from an actuarial valuation.  

Once the new side account amount is established, the PERS consulting actuaries use the formula below to calculate the new side account rate offset:  

Total lump sum ÷ combined valuation payroll ÷ amortization factor =
 

Side account rate offset

Example from an actuarial valuation  

Example from an actuarial valuation.
 

To estimate the effect of a side account, please use the Employer Rate Projection Tool.  

How to establish a side account

 

If you are interested in establishing a side account or have additional questions, please email PERS Actuarial Services.  

Employers have two options for establishing a side account:  

  1. Request an actuarial calculation.
    • Requesting an actuarial calculation allows for an immediate rate offset. Employers can select the first of any month within a rolling 12-month period for their rate to begin.  

    • An actuarial calculation costs $1,000 for one date and one payment amount. Each additional date, payment amount, or amortization schedule (if applicable) is an additional $250.00.  

  2. Receive the rate offset effective July 1, following the publication of the actuarial valuation of that year.
    • This is no cost to the employer.  

    • The employer will not know the exact offset prior to the publication of the valuation.  

      • For example: If an employer makes a payment in June 2022, the rate offset will be calculated in the December 31, 2022, valuation. The 2022 valuation will be published in late 2023 and the rate will be effective July 1, 2024.
         

Administrative fees

 

Side accounts are charged an annual fee for their administration. The fee is $1,500 in the first year and $500 each subsequent year. The fee is automatically taken out of your side account when earnings are applied.  

An actuarial calculation costs $1,000 for one date and one payment amount. Each additional date, payment amount, or amortization schedule (if applicable) is an additional $250.00.  

Amortization options

 

Side accounts are typically amortized over 20 years. However, as established with Senate Bill 1566 (2018) and Senate Bill 1049 (2019), employers making a lump-sum payment of at least $10 million can elect an amortization period of 6 years, 10 years, 16 years, or 20 years. They can also choose to defer their rate offset date beyond the standard rolling 12 months. These amortization options require an actuarial calculation.  

Expiration of side accounts in 2027

 

More than half of employer side accounts (52%) are scheduled to fully amortize on December 31, 2027.  

The PERS Actuarial Team has formulated two options employers can use to handle the expiration of their side accounts. The two options are designed to ensure that employers receive the full actuarial value of their side account(s) while protecting employers from:  

  • Cash-flow concerns for those using pension obligation bonds.
  • Challenges implementing mid-biennium rate changes.
  • The risk of “over withdrawing” side account balances.

This information is covered in more detail in the October 2024 Employer Advisory Group meeting handout, slides 22 through 25.  

OPTION 1 — Converting the balance into a new side account  

In April 2027, the PERS Actuarial Team will calculate the employer’s side account balance as of December 31, 2026 (including earnings).  

The employer will have the option to convert the residual balance into a new side account, provided that:  

  • The December 31, 2026, side account balance is at least $500,000.
  • The employer notifies PERS of this intention on or before May 31, 2027.

The new side account deposit amount and rate offset will be communicated to the employer on November 1, 2027.  

The new offset rate will be effective January 1, 2028.  

OPTION 2 — Converting the balance into account credit  

In this option, the side account’s balance is applied to the employer’s contribution account as a credit rather than as a rate offset. This occurs twice:  

  • On June 30, 2027 — one credit of 30% of the side account’s calculated balance as of December 31, 2026.
  • On November 1, 2027 — a second credit for the remaining side account balance (less the 30% deducted in June 2027).

Credit is applied to the employer’s PERS liabilities until it is spent. The side account closes on December 31, 2027.  

Number of employers with side accounts (as of December 31, 2023, valuation)

 

As shown in the table below, 232 employers have established side accounts.  

Employer type Number of employers with
side accounts
State agencies (all, including Oregon University System) 5*
Pooled cities 29
Pooled community colleges 17
Pooled counties 16
Pooled special districts 24
School Districts Pool 125
Independent locals (not a member of a pool) 16

State agencies share a single side account. In addition to this side account, four state agencies have established individual side accounts.  

Number of employers with more than one side account (as of December 31, 2023)

 

There are no restrictions on the number of side accounts an employer may have.
 

As of December 31, 2023, 88 employers have more than one side account; 24 employers have three or more side accounts  

Employer typeNumber of employers with multiple side accounts
State agencies (all, including Oregon University System)4
Pooled cities4
Pooled community colleges7
Pooled counties5
Pooled special districts6
School Districts Pool56
Independent locals (not a member of a pool)6

Side account assets (as of December 31, 2023)

 

Side account assets totals, by type of employer.  

Employer type
Total side account assets
State agencies* $1,004,033,869
Pooled cities$63,806,697
Pooled community colleges
$662,646,168
Pooled counties
$237,661,838
Pooled special districts$199,361,257
School Districts Pool
$2,870,121,406
State and Local Government Rate Pool$2,167,509,829
Independent locals (not a member of a pool)$376,605,870

*Includes individual side accounts for OSU, SAIF, U of O, and the State Bar Professional Liability Fund  

Average earnings by year (from 2007 to 2023)

 

Side accounts are invested in the PERS Fund and receive the fund's actual earnings or losses. These earnings or losses are posted to side accounts at the end of each year.  

Calendar yearAverage earnings/losses
200710.22%
2008–27.83%
200919.52%
201013.13%
20112.96%
201215.39%
201316.67%
20147.79%
20152.25%
20167.65%
201716.71%
20180.56%
201913.92%
20207.18%
202118.93%
2022-1.85%
20236.34%

Note: These rates are calculated based on the total side accounts balance less administrative fees.  

Pension obligation bond (POB) requirements

 

Before issuing a bond
 

Senate Bill 1049 (2019) expanded the guidelines for employers funding side accounts with pension obligation bonds. Before issuing a POB, an employer must obtain and submit an assessment as follows:
 

  1. You must obtain a statistically based assessment from an independent economic or financial consulting firm to assess the likelihood that the investment returns on bond proceeds will exceed the interest cost of the bonds under various conditions.  

  2. You must give the assessment to the state treasurer at least 30 days before issuing the bonds.  

  3. You must make a report available to the public that describes the results of that assessment and discloses whether you retained the services of an independent SEC-registered advisor.
     

After issuing a bond  

Employers are required to report the following to the state treasurer by December 1 every year.  

  • The actual rate of return on the bond proceeds over the fiscal year.  

  • The cumulative rate of return on the bond proceeds.  

Other considerations  

  • POBs are not eligible for reduced amortization periods.  

  • POBs are not eligible for the Employer Incentive Fund.  

Pension obligation bond rates of return  

To assist employers with this required reporting, PERS is providing the average rate of return for side accounts in the previous year and the cumulative rate of return as of the current year.
 

Year pension obligation bond was establishedActual rate of return on proceeds in previous yearCumulative rate of return
20196.34%
51.57%
2020
6.34%33.05%
2021
6.34%
24.14%
20226.34%
4.38%
20236.34%6.34%
2024N/AN/A


 

YearYear-to-date average final crediting rate for side accounts
201913.92%
20207.18%
202118.93%
2022-1.85%
20236.34%

For more information

 

If you're interested in establishing a side account or have additional questions, please email PERS Actuarial Services.