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What is the Difference Between Tier 1 and Tier 2 PERS in Oregon?

Published in Oregon PERS Tiers 4 mins read

The primary difference between Tier 1 and Tier 2 members in the Oregon Public Employees Retirement System (PERS) lies in their membership dates and, consequently, the calculation of their retirement benefits and the way their Employee Regular Accounts earn interest.

Oregon's PERS is a retirement plan for eligible public employees in the state, designed to provide a secure financial future. Over time, legislative changes led to the creation of different "tiers" for members based on their date of hire.

Key Differences Between Tier 1 and Tier 2 PERS

The distinctions between Tier 1 and Tier 2 are crucial for understanding the benefits an employee can expect. Here's a summary of the core differences:

Feature Tier 1 PERS Tier 2 PERS
Membership Date Hired before July 1, 1996 Hired on or after July 1, 1996, but before August 29, 2003
Benefit Calculation Generally offers a more generous benefit formula. Generally offers a less generous benefit formula compared to Tier 1.
Employee Regular Account Earnings May receive the higher of actual earnings or the PERS assumed earnings rate on Employee Regular Accounts in years these accounts are funded. Receive the actual investment returns on their Employee Regular Accounts.
Cost-of-Living Adjustment (COLA) Often more favorable COLA provisions. Typically more limited COLA provisions.
Benefit Multiplier Higher multiplier in the benefit formula. Lower multiplier in the benefit formula.

Understanding the Tiers

Both Tier 1 and Tier 2 PERS members participate in a defined benefit plan, meaning their retirement benefit is calculated using a formula, typically based on years of service, final average salary, and a benefit multiplier. However, the specifics of this formula and how their individual accounts grow differ significantly.

Tier 1 PERS Members

Tier 1 members represent the earliest group of PERS participants. They are individuals who began their public employment in Oregon and became PERS members before July 1, 1996.

  • Benefit Structure: Tier 1 members typically benefit from a more favorable "full formula" calculation. This often results in a higher percentage of their final average salary being paid out in retirement benefits for each year of service.
  • Employee Regular Account Earnings: A significant advantage for Tier 1 members is how their individual Employee Regular Accounts accumulate earnings. For years that these accounts are funded, Tier 1 members may receive the higher of actual investment earnings or the PERS assumed earnings rate. This acts as a protective mechanism, ensuring a minimum growth rate for their accounts even during periods of low market returns. This protection is a key differentiator from Tier 2.
  • Cost-of-Living Adjustments (COLA): Historically, Tier 1 members have also received more robust cost-of-living adjustments on their retirement benefits, helping their purchasing power keep pace with inflation.

Tier 2 PERS Members

Tier 2 members are those who joined PERS on or after July 1, 1996, but before August 29, 2003. This tier was established as a result of legislative changes aimed at managing the state's long-term PERS liabilities.

  • Benefit Structure: While still a defined benefit plan, the "full formula" for Tier 2 members generally uses a lower benefit multiplier compared to Tier 1. This means that for the same years of service and final average salary, a Tier 2 member's benefit will be less than a Tier 1 member's.
  • Employee Regular Account Earnings: Unlike Tier 1, Tier 2 members receive the actual investment returns on their Employee Regular Accounts. This means their account growth is directly tied to market performance, without the benefit of the assumed earnings rate guarantee that Tier 1 members receive. This difference can lead to greater variability in account balances depending on market conditions.
  • Cost-of-Living Adjustments (COLA): Tier 2 members generally have more limited COLA provisions compared to Tier 1, which can affect the long-term purchasing power of their benefits.

Why the Tiers Exist

The creation of different tiers reflects ongoing efforts by the Oregon Legislature to ensure the long-term solvency and sustainability of the PERS system. Changes in economic conditions, life expectancy, and funding requirements have led to adjustments in benefits for new members while generally protecting the benefits of existing members at the time of the changes.

For more detailed information on your specific PERS benefits, it is always recommended to consult the official Oregon PERS website at oregon.gov/pers or refer to guides provided by your employer, such as the Oregon State University guide on retirement options for Tier One & Tier Two employees available at hr.oregonstate.edu.