Opinion ID: 835784
Heading Depth: 3
Heading Rank: 3

Heading: Service Retirement Allowance Formulas

Text: There are three formulas available for calculating a PERS member's service retirement allowance, commonly known as the Pension Plus Annuity, the Full Formula, and the Money Match. The Pension Plus Annuity, which is available to only members who contributed to PERS before August 21, 1981, consists of the sum of an annuity component and a pension component. The annuity component is composed of the actuarial equivalent of the member's account balances at retirement. The pension component, funded by the employer, is equal to one percent of the member's final average salary (1.35 percent for legislators and police and fire employees) for each service year. The Full Formula also includes an annuity component composed of the actuarial equivalent of the member's account balances at retirement and a pension component; however, the pension component is calculated differently than under the Pension Plus Annuity. The Full Formula first calculates a member's service retirement allowance by multiplying the member's final average salary by a factor set at 1.67 percent (two percent for legislators, police officers, and firefighters) and then multiplying the resulting figure by the member's years of membership. That service retirement allowance then is funded using the actuarial equivalent of the member's account balances at retirement (the annuity component) and employer contributions required to make up the difference (the pension component). Under the Money Match, a member's service retirement allowance is calculated by determining the sum of the actuarial equivalent of the member's account balances at retirement (the annuity component) and then adding a sum in an equal amount that is charged to the employer, i.e., the match (the pension component). The resulting service retirement allowance therefore amounts to twice the actuarial equivalent of the member's account balances at retirement. At retirement, a PERS member receives a service retirement allowance based on the formula that produces the highest pension amount among the foregoing three alternative formulas. [18] By the late 1980s, members who retired with 30 years of creditable service received service retirement allowances equal to approximately 63 percent of their final average salaries. By the early 1990s, that figure had increased to 66 percent and, between 1996 and 2002, had increased to 85 percent. In 2000, the average PERS retired member with 30 years of creditable service retired at the age of 53 with a service retirement allowance equal to 106 percent of the member's final average salary. [19] Regardless of the formula used to determine a retired member's service retirement allowance, PERS historically has increased such allowances through annual cost-of-living adjustments (COLAs). COLAs are based on the Consumer Price Index and are capped at two percent of each member's allowance. If the index increases by more than two percent for the year, then the increase above two percent is banked and may be added to the member's COLA in later years when the index increases by less than two percent. Finally, in addition to the benefits described above, members who retired before 1991 receive an increase in benefits to remedy unlawful taxation on retirement income benefits attributable to service before 1991. See generally Hughes v. State of Oregon, 314 Or. 1, 838 P.2d 1018 (1992) (legislature's repeal of income tax exemption statute as to PERS members' retirement benefits constituted breach of PERS contract, requiring legislatively created remedy). When a PERS member retires, PERB transfers the member's account balances to the Benefits-In-Force reserve account (BIF), together with an amount from the employer's accumulated contributions. The amount transferred from the employer's account is that which PERB has determined is necessary to pay the member's service retirement allowance. PERB also regularly trues up the BIF by recalculating the funds necessary to pay all expected service retirement allowances for retired members. If PERB's actuary determines that the BIF is insufficient to pay those allowances, then PERB deducts from all employer accounts the amounts necessary to eliminate the deficiency. Conversely, if the BIF is overfunded, then PERB adds the overage to all employer accounts. For accounting purposes, PERB does not make adjustments to individual employer accounts; instead, PERB maintains a balancing account that shows the actuary's trueing up calculations.