Each state has its own retirement system. This is an organization that helps state and local employees save for retirement. The individual pension plans that these organizations administer (also called retirement systems) vary in size and complexity by state. Some states have five plans that cater to different types of public employees. Other states, like Oregon, have one main plan that applies to all state and local employees.
Types of Retirement Systems in Oregon
Oregon has one retirement system, the Public Employees Retirement System (PERS). This system covers all public employees. As PERS is a defined contribution plan, employees contribute a certain percentage of each paycheck into the system. These contributions are tax-deferred so you will not pay income taxes on them until you withdraw funds. The PERS administrators will invest your contributions. And once you retire, you will receive a monthly benefit.
While there is only one plan, there are multiple levels of membership in that plan. (You are a member in the plan as soon as you join a qualifying position that allows you to contribute money into the plane.) Your exact retirement benefits depend on when you first contributed to PERS and how long you served as a member in the system.
|Oregon Retirement Systems|
|Plan Title||Eligible Employees|
|Public Employees Retirement System (PERS)||– Public employees who work at least 600 hours per year in a qualifying position.|
Overview of the Oregon Retirement System
Public Employees Retirement System (PERS) – This is the only retirement plan in Oregon and covers employees who work for a public employer. However, there are multiple levels of membership. Your level depends on when you became a member.
Tier One includes members who were hired before January 1, 1996. Tier Two includes members hired between January 1, 1996 and August 28, 2003. Anyone who started working for a qualified employer after August 28, 2003 and who also worked at least six full months for a public employer is an Oregon Public Service Retirement Plan (OPSRP) Pension Program member.
Regardless of your membership level, you contribute 6% of your salary (7% if you’re a judge) to the retirement system as long as your work at least 600 hours per calendar year with a public employer. You still qualify if you complete the 600 hours across jobs for multiple public employers.
Specifically, contributions go into the Individual Account Program (IAP). All OPSRP members have an IAP account. Members in Tier One of Tier Two have an IAP account if they did any qualifying work in 2004 or later. Before 2004, Tier One and Two members had individual accounts through another system.
Once you retire, the amount of your benefit depends on your membership level.
Retirement Taxes in Oregon
All contributions that you make to a retirement system grow tax-deferred. That means you do not pay income taxes on them until you withdraw them or receive them as distributions in retirement. You will need to pay federal income taxes, though. But there are a couple of ways to do so.
The simplest option is to allow the IRS to withhold taxes from your pension distributions. This works in the same way that your employer withholds Social Security and Medicare taxes from you paychecks during your career (for private employers). Because the IRS allows withholding of only a few set amounts, you may receive a tax refund when you file your taxes.
You can take more control over how much you pay in income taxes by making estimated tax payments. These are tax payments that you make quarterly throughout the year, based on your expected income for the year. This method gives you the most control over what you pay, but it also requires more work on your part.
If you move from a public job into a private job, you may also be able to rollover your pension funds into another retirement account, such as a 401(k) or individual retirement account (IRA). These accounts are also tax-deferred and allow you to maintain your retirement savings. Just keep in mind that some retirement accounts, such as Roth IRAs, are not tax-deferred. A Roth IRA takes after-tax money. So you will need to pay income tax immediately if you rollover into a Roth IRA.
Oregon does collect income tax on all sources of retirement income. Any money you have from retirement accounts, like 401(k) plans or IRAs, are subject to the states regular income tax rates, which range from 5% up to 9.5%.
You must also pay income tax on pensions, including benefits from the PERS. However, some seniors may qualify for a credit on their pension income. The credit is available to seniors with household income of $22,500 ($45,000 for joint filers) and Social Security of less than $7,500 ($15,000 for joint filers). There is a formula the state uses to calculate the exact amount of the credit you can receive. But your credit is ultimately no more than 9% of your pension income.
You can learn more about taxes on retirement income and more in this guide on Oregon’s retirement taxes.
Current Financial Health of the Oregon Retirement System
Oregon’s retirement system has undergone multiple updates over the past few decades. PERS administrators have made changes to maintain the relative simplicity of the system (note that unlike some other states, Oregon has only one system for all public employees) while still maintaining equal coverage across employees of different ages and occupations. Ultimately, the result has been more people with coverage and more paid in benefits. The amount of pension benefits paid in 2017 increased nearly 4% from 2016.
Tip for Taking Control of Your Finances
- When planning your finances, you sometimes have to make tough decisions and ask yourself difficult questions. How much home can I afford realistically? How much do I need to save for retirement? Should I save for retirement or for my child’s college? To help you answer to these questions, and to help you stay on track to meet your goals, it’s a good idea to talk with a financial advisor. An advisor is an expert who can look at your whole financial picture in order to help you make the best decisions for you. Even if you just need help getting started, an advisor can help. SmartAsset’s financial advisor matching tool makes it easy to find an advisor. Simply answer some questions and we’ll quickly pair you with up to three advisors in your area.
Photo credit: ©iStock.com/AleksandarNakic, ©iStock.com/HaizhanZheng, ©iStock.com/idofranz