Effective January 1, 2020
Information updated January 2024
Note: This webpage is intended to provide general information on Senate Bill (SB) 1049
(2019) and
may not address your specific situation. If you are considering retirement, you may want to contact
PERS for a benefit estimate or speak with a financial advisor or other retirement planning professional.
Overview
Do you currently make close to $232,976* a year or more in salary or think you might in the future?
Do you make about $19,414 a month** (including any eligible lump-sum payouts if you are a Tier
One/Tier Two member) and might retire during the calendar year?
Beginning January 1, 2020,
Senate Bill 1049 changed the definition of “salary”*** for
PERS purposes and set a limitation on subject salary used for PERS benefit calculations and contributions.
The limit impacts what PERS considers “subject salary” paid
after January 1, 2020, but does not impact salary paid before that date.
Prior to 2020, PERS subject salary was not limited for Tier One members in final average salary calculations. For
Tier Two and Oregon Public Service Retirement Plan (OPSRP) members, PERS subject salary was limited to $280,000 in
2019.
Your subject salary is used to determine member Individual Account Program (IAP) contributions, employer
contributions to fund the pension program, and the final average salary (FAS) used in calculating retirement
benefits under formula methods.
Changes under SB 1049 may only affect how PERS calculates your pension and contributions to PERS. The limit does not impact the actual salary, wages, or payouts you receive from your
employer.
*The limit is indexed annually to the Consumer Price Index [(CPI); All Urban Consumers, West
Region].
**Starting in 2020, if you are employed
less than 12 months in a calendar year, note that the salary limit will be
prorated based on the number of months that you are employed.
Learn more about partial year salary limits.
***Effective January 1, 2022, Senate Bill (SB) 111A (2021) made a number of updates to SB 1049. SB 111A:
-
Changed the definition of “salary” for OPSRP members to include salary that is or would be subject
to Oregon state income tax if the member were an Oregon resident. This allows members who are
working for a PERS-covered employer but physically out of state (e.g., if they live in Washington
and are working from home) to have contributions made on that salary.
-
Made the revised definition of salary retroactive to 2003 for Oregon Health and Science University
and charter schools. For all other employers, the revision was made retroactive to January 1,
2020.
If you are within two years of retirement eligibility (Tier One/Tier Two,
OPSRP), you can
request a
written benefit estimate to understand how your pension may be calculated (find the request
form for Tier One/Tier
Two or OPSRP
members).
Note: Retirements during a calendar year may be impacted by the "partial year" salary
limit.
Learn more about partial year salary limits.
Estimates created through your
Online Member Services (OMS) account do not yet reflect the SB 1049
changes.
How pension benefits are calculated
Tier One/Tier Two members
For Tier One members, PERS uses
three
methods to calculate pension benefits: Full Formula, Formula + Annuity (for members who made contributions
before August 21, 1981), and Money Match.
Tier Two pension benefits are calculated using the Full Formula or Money Match methods.
PERS uses the calculation method that gives the member the highest retirement benefit. Most Tier One/Tier Two members
now retire under the Full Formula method. This method uses your
final average
salary (FAS) multiplied by a statutory factor and your years of service credit to calculate your pension
benefit.
The basic pension formula calculations (approximating a refund annuity benefit under the Full Formula method) are as
follows:
For Tier One and Tier Two general service members:
Monthly FAS × 1.67% × years of service credit = monthly pension
For Tier One and Tier Two
police and firefighter (P&F) members:
Monthly FAS × 2.0% × years of service credit = monthly pension
OPSRP members
All
OPSRP members retire under one formula method,
which also factors in your
final average
salary (FAS), but has slightly different rules than Tier One/Tier Two, including that the "high three
years" must be consecutive.
The OPSRP pension calculations are as follows, approximating a Single Life Option benefit:
For OPSRP
general service members:
Monthly FAS × 1.5% × years of retirement credit = monthly pension
For OPSRP
P&F members:
Monthly FAS × 1.8% × years of retirement credit = monthly pension
Because FAS is a key part of the Full Formula calculations for all three plans (Tier One, Tier Two, and OPSRP),
your benefit may be impacted if you make more than the annual salary limit (including overtime).
Note that your benefit
may be impacted if you retire
during a calendar year (i.e., you have less than 12 months of "active membership" in your
final year when you retire) and your monthly salary is about $19,414 a month or you have a large lump-sum
payout (eligible Tier One/Tier Two members) that pushes you over a partial-year limit.
Learn more about partial year salary
limits.
SB 1049 requires a limit on
all subject salary reported to PERS on and after January 1, 2020. Note that
your employer is responsible for accurately reporting your salary as subject or
nonsubject.
The limit applies to all regular and overtime pay for all members.
However, if you had salary of
more than $195,000 before 2020, those year(s)
may be used in your benefit calculation.
- For example, if you already have any three years in which you made over $195,000 before 2020, those years may be
used in the “highest three years” FAS.
- Some circumstances, such as your "last 36 months" FAS being higher than your "highest three
years," or retiring during a calendar year and being impacted by a partial-year limit, could mean that
your more recent salary
could be used for your FAS, even if limited. In addition, as the salary limit may increase
in future years because of changes in the CPI, there could be salary limits in the future that are higher
than your previous years' salary. No matter what, you always will receive the FAS that results in your
highest benefit calculation.
Special note with important Information about sick leave (for some Tier One/Tier Two members
only) and lump-sum payouts (lump-sum vacation for Tier One members only; other lump-sum payments may impact some
Tier Two members —
check with your
employer):
If you are a Tier One/Tier Two member whose employer participates in the Unused Sick Leave Program (Oregon Revised
Statutes (ORS) 238.350), the new limit
will not significantly impact the value of your accrued sick leave. In the Unused Sick Leave
Program, if your employer participates, a portion of your unused sick leave is used in the FAS calculation but
is
not considered subject salary. Therefore, as you will see in the illustrative
examples, a value of unused sick leave
will continue to be added for retirements on and after January 1, 2020.
At retirement, Tier One members may take a lump-sum payment for some of their remaining vacation hours and have that
payment included their subject salary. Because this value
is included in subject salary for Tier One members, a lump-sum vacation payment could cause you to
exceed the salary limit amounts, which could limit your FAS calculation.
Linked below are illustrative examples to help members understand how they may or may not be impacted by the changes
in SB 1049.
These general examples may not reflect your unique situation.
The examples focus on members who will have their pension benefit calculated using the “Full Formula” method and are
based on the “highest three years” final average salary, unless otherwise noted. The examples do not reflect any
future Consumer Price Index (CPI) changes.
Illustrative examples of salary limit, before and after 2020
Starting January 1, 2020, salary exceeding the salary limit amounts
will not be included when calculating member or employer contributions.
If you make more than the salary limit, this means that the amount of money being sent to PERS — 1) employer
contributions based on the
employer rate that helps pay for future
pension benefits; and 2) member- or employer-paid IAP contributions — will be limited. The total salary, wages, or
payouts you receive from your employer
are not impacted.
For illustration, assume you made $200,000 per year in 2019 and 2020:
- In 2019, your 6% contributions to the Individual Account Program (IAP), whether paid by you or your employer,
would total $12,000. Your IAP contributions were
not limited.
- In 2020, the $200,000
would be limited to $195,000 for PERS purposes. Your total salary would still
be $200,000. However, for PERS purposes, you would only contribute 6% of $195,000 toward your IAP. That
means your IAP contribution in 2020 would be $11,700.
- For simplicity in explaining the salary limit changes, this example
does not include further “IAP redirect” changes under
SB 1049, which began July 1, 2020.
- Starting July 1, 2020, a
portion of your 6% IAP contributions started being redirected to a new Employee Pension
Stability Account (EPSA), which will be used to pay for part of your future pension benefit. For Tier
One/Tier Two members, from July 1, 2020, onward, only 3.5% of subject salary will go to your existing
IAP account (2.5% is redirected to your new EPSA). For OPSRP members, 5.25% of subject salary goes to
your existing IAP account (0.75% is redirected to your new EPSA).
Impacted members, whose IAP contributions will be limited by the SB 1049 salary limit, may consider making
supplemental retirement contributions through a deferred compensation plan such as the
Oregon Savings Growth Plan (if your
employer participates), or through other personal investments.
In compliance with the Americans with Disabilities Act, PERS will provide documents on this page in an alternate
format upon request. To request this, contact PERS at 888-320-7377 or TTY 503-603-7766.