Pension Flexibility: Oregon

Analysis of Oregon's policies

Oregon only offers a type of hybrid pension plan to its teachers as their mandatory pension plan. Even though it is a hybrid, this plan is not fully portable, does not vest until year five and does not provide access to any employer contribution for teachers who withdraw their accounts. It also limits flexibility by restricting the ability to purchase years of service. However, the state is commended for offering two fully-portable supplemental savings plans.

Oregon's hybrid plan has defined benefit and defined contribution components, known as the Oregon Public Service Retirement Program (OPSRP) Pension Plan (the defined benefit component) and the Individual Account Program (IAP; the defined contribution component). Employers fully fund the defined benefit component and may also make contributions to the defined contribution component. Teachers only contribute to the defined contribution component, which is invested by the Oregon Investment Council. When teachers receive their benefits at retirement age, they receive the amount in their defined contribution account, plus monthly payments according to the defined benefit formula. In addition, employers may create and fund a supplemental IAP account for each employee.

Teachers in Oregon also participate in Social Security, so they must contribute to the state's hybrid-styled defined benefit plan in addition to Social Security. Although retirement savings in addition to Social Security are good and necessary for most individuals, the state's policy results in mandated contributions to multiple plans with defined benefit structures, rather than permitting teachers options for their state-provided savings plans.

Vesting in a defined benefit plan, or the defined benefit component of a hybrid plan, guarantees a teacher's eligibility to receive lifetime monthly benefit payments at retirement age. Nonvested teachers do not have a right to later retirement benefits; they may only withdraw the portion of their funds allowed by the plan. Oregon's vesting at five years of service limits the options of teachers who leave the system prior to this point.

In defined contribution plans, full vesting entitles teachers access to their funds and any available employer contributions. Oregon teachers are immediately vested in their own IAP accounts; however, they are not vested in their optional employer-created IAP accounts until year five.

When nonvested teachers end their service in Oregon, they may withdraw only their self-funded IAP accounts; they may not withdraw any money from their defined benefit program or optional employer-funded IAP account. Vested teachers may withdraw from their employee-funded IAP account, optional employer-funded IAP account and their OPSRP Pension Program if the value of their benefit at the time of withdrawal is $5,000 or less. If it is more than $5,000, they must wait to receive monthly payments at retirement age. This means that those who withdraw their funds and remain in the field of education but enter another pension plan (such as in another state) will find it difficult to purchase the time equivalent to their prior employment in the new system because they are not entitled to any employer contribution. 

Oregon limits teachers' flexibility to purchase years of service. The ability to purchase time is important because defined benefit plans' retirement eligibility and benefit payments are often tied to the number of years a teacher has worked. Oregon's plan does not allow teachers to purchase time for previous teaching experience or approved leaves of absence. This is a severe disadvantage to teachers who move to Oregon with teaching experience and those who need to take leave, such as for maternity or paternity leave or other personal reasons.

Oregon is commended for offering two optional supplementary defined contribution plans. Teachers are eligible to participate in a 403(b) program and the Oregon Savings Growth Plan (OSGP), a 457 deferred compensation plan. Both plans allow participants to make contributions that accumulate tax deferred until withdrawal. Teachers can participate in both plans at the same time. 

Citation

Oregon Public Employees Retirement System www.oregon.gov/PERS

Recommendations for Oregon

Offer teachers a pension plan that is fully portable, flexible and fair.
Oregon should offer teachers for their mandatory pension plan the option of either a defined contribution plan or a fully portable defined benefit plan, such as a cash balance plan. A well-structured defined benefit plan could be a suitable option among multiple plans. However, as the sole option, defined benefit plans severely disadvantage mobile teachers and those who enter the profession later in life. Because teachers in Oregon participate in Social Security, local districts are required to contribute to two defined benefit-structured components. 

Increase the portability of its defined benefit component.
If Oregon maintains its defined benefit component, it should allow teachers that leave the system to withdraw employer contributions as part of their IAP accounts. The state should also allow teachers to purchase their full amount of previous teaching experience upon the first day of employment, allow for the purchase of at least one year for each approved personal leave and decrease the vesting requirement to year three. A lack of portability is a disincentive to an increasingly mobile teaching force. 

Offer an employer contribution to the supplemental retirement savings plan.
While Oregon at least offers teachers the option of a supplemental defined contribution savings option, this option would be more meaningful if the state also required employers to contribute. 

State response to our analysis

Oregon was helpful in providing NCTQ with facts that enhanced this analysis.