Opinion ID: 835784
Heading Depth: 4
Heading Rank: 2

Heading: The Assumed Earnings Rate

Text: Since 1975, the PERS statutory scheme has provided that the earnings to be credited annually to Tier One members' regular accounts will be no less than the existing assumed earnings rate. See generally Or. Laws 1975, ch. 333, § 2, codified as former ORS 237.277 (1975) (now ORS 238.255). [41] Petitioners identify the following statutory provisions as relevant to our consideration: [PERB] shall provide for a regular account for each active and inactive member of the system. The regular account shall show the amount of the member's contributions to the fund and the interest which they have earned. [PERB] shall furnish a written statement thereof upon request by any member or beneficiary of the system. ORS 238.250 (2001). The regular account for an active or inactive member of the system shall be examined each year. If the regular account is credited with earnings for the previous year in an amount less than the earnings that would have been credited pursuant to the assumed interest rate for that year determined by [PERB], the amount of the difference shall be credited to the regular account and charged to a reserve account in the fund established for the purpose. A reserve account so established may not be maintained on a deficit basis for a period of more than five years. Earnings in excess of the assumed interest rate for years following the year for which a charge is made to the reserve account shall first be applied to reduce or eliminate the amount of a deficit. [PERB] shall attempt to ensure that the reserve account is funded with amounts adequate to leave a zero balance in the account when all members who establish membership in the system before January 1, 1996, as described in ORS 238.430, have retired. ORS 238.255 (2001). The administrative expenses of the system shall be paid from interest earned by the retirement fund; provided, that if such interest be insufficient the expense in excess thereof shall be paid from the contributions which this chapter requires participating employers to pay into the [f]und. ORS 238.610(1) (2001). At the close of each calendar year in which the earnings on the    [f]und equal or exceed the assumed interest rate established by [PERB] under ORS 238.255, [PERB] shall set aside, out of interest and other income received through investment of the    [f]und during that calendar year, such part of the income as [PERB] may deem advisable, not exceeding seven and one-half percent of the combined total of such income, which moneys so segregated shall remain in the fund and constitute therein a reserve account. [PERB] shall continue to credit the reserve account in the manner required by this subsection until [PERB] determines that the reserve account is adequately funded for the purposes specified in this subsection. Such reserve account shall be maintained and used by [PERB] to prevent any deficit of moneys available for the payment of retirement allowances, due to interest fluctuations, changes in mortality rate or, except as provided in subsection (3) or (4) of this section, other contingency.    ORS 238.670(1) (2001). As noted earlier, since 1989, the current assumed earnings rate has been set at eight percent. The 2003 Legislative Assembly amended ORS 238.255 (2001), set out above, and broke it into new subsections (1) and (2), as follows (deleted text in brackets and italics; new text in boldface type): (1) The regular account for [ an active or inactive member of the system ] members who established membership in the system before January 1, 1996, as described in ORS 238.430, and for alternate payees of those members, shall be examined each year. If the regular account is credited with earnings for the previous year in an amount less than the earnings that would have been credited pursuant to the assumed interest rate for that year determined by [PERB], the amount of the difference shall be credited to the regular account and charged to a reserve account in the fund established for the purpose. [ A reserve account so established may not be maintained on a deficit basis for a period of more than five years. Earnings in excess of the assumed interest rate for ] In years following the year for which a charge is made to the reserve account, all earnings on the regular accounts of members who established membership in the system before January 1, 1996, as described in ORS 238.430, and of alternate payees of those members, shall first be applied to reduce or eliminate the amount of a deficit. Only earnings on the regular accounts of members who established membership in the system before January 1, 1996, as described in ORS 238.430, and of alternate payees of those members, may be used to reduce or eliminate the amount of a deficit. (2) Notwithstanding subsection (1) of this section and except as provided in subsection (5) [ [42] ] of this section, [PERB] may not credit any earnings to the regular accounts of members who established membership in the system before January 1, 1996, as described in ORS 238.430, or of alternate payees of those members, in any year in which there is a deficit in the reserve account established under subsection (1) of this section, or credit any earnings to the regular accounts of those members, or alternate payees, that would result in a deficit in that reserve account. In any year in which the fund experiences a loss, [PERB] shall charge the amount of the loss attributable to the regular accounts of members who established membership in the system before January 1, 1996, as described in ORS 238.430, against the reserve account. Or. Laws 2003, ch. 67, § 5, as amended by Or. Laws 2003, ch. 625, § 10. The amendments to ORS 238.255 apply to the crediting of earnings for calendar year 2003 and thereafter. Or. Laws 2003, ch 67, § 6, as amended by Or Laws 2003, ch 625, § 11. [43] In a separate enactment, the legislature added a new subsection (3) to ORS 238.255 (2001), as follows: The regular account for an active or inactive member who established membership in the system before January 1, 1996, as described in ORS 238.430, may not be credited with earnings in excess of the assumed interest rate until: (a) The reserve account established under subsection (1) of this section no longer has a deficit; (b) The reserve account established under subsection (1) of this section is fully funded with amounts determined by [PERB], after consultation with the actuary employed by [PERB], to be necessary to ensure a zero balance in the account when all members who established membership in the system before January 1, 1996, as described in ORS 238.430, have retired; and (c) The reserve account established under subsection (1) of this section has been fully funded as described in paragraph (b) of this subsection in each of the three immediate preceding calendar years. Or. Laws 2003, ch. 3, § 1, as amended by Or. Laws 2003, ch. 67, § 5, codified as ORS 238.255(3). Finally, the 2003 Legislative Assembly amended the earnings crediting process for Tier One PERS members in one other respect, by enacting a new statute that provides as follows: (1) Notwithstanding any other provision of this chapter, the regular account balance of a member or alternate payee described in subsection (3) of this section may not be less than the amount provided for under subsection (2) of this section for the purpose of computing retirement allowances, death benefits and amounts to be paid to a withdrawing member under ORS 238.265 and for other computations under the provisions of this chapter that are based on a member's or alternate payee's regular account balance. If the regular account balance of a member or alternate payee described in subsection (3) of this section is less than the amount provided for under subsection (2) of this section at the time of retirement or withdrawal of the account, [PERB] shall credit the account with the difference and charge the amount so credited to the reserve account established under ORS 238.255. (2) The minimum regular account balance for a member or alternate payee described in subsection (3) of this section is the amount that the regular account of a member or alternate payee would have contained if the regular account of the member had been credited with earnings at the assumed interest rate in every year in which the regular account of the member or alternate payee was in existence. (3) The provisions of this section apply only to: (a) A member who establishes membership in the system before January 1, 1996, as described in ORS 238.430, and who retires or withdraws the member account of the member on or after April 1, 2004; and (b) An alternate payee of a member described in paragraph (a) of this subsection. Or. Laws 2003, ch. 67, § 8, as amended by Or. Laws 2003, ch. 625, § 12, codified as ORS 238.258.