TAB O
March 16-17, 2017 Board of Trustees Meetings
Finance & Administration Committee Page 1
Oregon Public Employee Retirement and Health Benefits
BACKGROUND
Retirement and health benefit costs have been discussed a number of times with the Board of
Trustees, most recently in the context of the public universities’ funding request for 2017-19.
State statutes currently require Oregon State University to participate in both the Public
Employees Retirement System (PERS) and the Public Employees’ Benefit Board (PEBB).
Senate Bill 270, passed in 2013, requires universities with governing boards to continue to
participate with other public universities in all shared administrative services relating to
employee benefits. It required the same terms, conditions, funding model and policy framework
to be in effect through July 1, 2015. More recently, House Bill 2611, approved in 2015, extended
the required participation in PEBB, PERS, and the Optional Retirement Plan (ORP) until July 1,
2019.
Following discussions of the public universities funding request, the Finance & Administration
Committee requested an in-depth discussion of specific cost drivers affecting university
operations and tuition rates, in particular PERS and PEBB costs. Biennial increases for PERS
and PEBB costs for the public universities are estimated at 23.9% and 9.7%, respectively. The
public universities’ funding request included an increase of $100 million for the Public University
Support Fund largely to prevent students from carrying the burden of these increasing benefit
costs.
Attachment 1 provides additional background and trends in costs on the specific benefit plans.
Attachment 2 includes a subset of slides presented by the PERS director to a legislative
committee last month and gives the basic PERS funding equation, liability by member category,
and projected benefits by program.
PANEL DISCUSSION
The Finance & Administration Committee will host a panel of staff at the March 16, 2017
meeting for a discussion around questions such as:
• What alternatives or flexibility does the university have in its participation in PERS and
PEBB?
O What current legal and other constraints exist?
O If available, what risks, cost savings, or benefits might be associated with pursuing
alternatives?
• What approaches are being considered by the legislature to address the state’s
retirement and health benefit costs?
• Are other public universities pursuing alternative approaches to employee retirement or
health benefits? If so, what approaches are being considered?
TAB O
March 16-17, 2017 Board of Trustees Meetings
Finance & Administration Committee Page 2
Attachment 1
RETIREMENT PLANS
University employees who are benefits eligible participate in one of two pension programs:
1. Oregon Public Employees Retirement System (PERS)
1
and Oregon Public Service
Retirement Plan (OPSRP)
2
– available to both classified and unclassified employees,
depending on hire date.
PERS manages the PERS pension, the OPSRP pension, and the Individual Account
Program (IAP).
The PERS and OPSRP components are multi-employer defined benefit plans funded by
OSU (and the other participating employers) that provide a lifetime pension benefit.
o A defined benefit plan provides a pension benefit based on a predetermined formula.
The plan administrator then sets the employer contribution rates to pay for those
benefits.
o Contribution rates are actuarially determined using projections about current and future
events that might affect the final retirement benefits.
o The PERS Board first determines the actuarial cost of the projected benefits for each
retired and active member and then attempts to set current contributions so that, when
invested, those contributions, along with previous contributions and accumulated
investment earnings (or losses), will grow and fund the benefits that the members will
receive in retirement.
The IAP component is a defined contribution plan, with a 6% member contribution funded by
either the employer or the employee (often referred to as the “pick-up”). OSU currently
makes the IAP contribution on behalf of employees pursuant to the public universities’
collective bargaining agreement with the Service Employees International Union (SEIU).
o A defined contribution pension benefit is based on contributions made to the plan plus
any investment earnings. It does not provide a lifetime benefit or promise that a member
will receive any particular amount at retirement.
The PERS Board sets employer contribution rates for the defined benefit portion. State
statute sets the rate of the defined contribution plan. Rates are set biennially, although in
rare circumstances may be adjusted annually.
Oregon state government may use what are termed Pension Obligation Bonds (POB) to
fund the unfunded liability portion of its employees’ pension program. POBs were issued in
2003. All benefitting agencies pay the same rates to service the debt, but the Department of
Administrative Services periodically recalculates the rates. POB rates began in 2004 at
7.39% of PERS subject payroll, reached a low of 5.95% during 2008 into 2011, and
currently are set at 6%.
1
Oregon Revised Statute (ORS) Chapter 238
2
ORS Chapter 238A
TAB O
March 16-17, 2017 Board of Trustees Meetings
Finance & Administration Committee Page 3
2. Optional Retirement Program (ORP)
3
– available to unclassified employees.
The Oregon Public University Retirement Program (OPURP) administers the ORP. The
University of Oregon is the shared service provider of the OPURP. The ORP is a defined
contribution plan with participant-directed investing. It does not provide a guaranteed lifetime
benefit. For new employees the current available plan (Tier 4) provides for a university
employer contribution of 8% with up to a 4% employer match if the employee participates in
the voluntary retirement savings 403(b) program.
ORP employer contribution rates for ORP Tier 1, 2, and 3 are derived from PERS rates. The
Tier 4 ORP rates are constant and are set in state statute ORS 243.800(10).
The Oregon legislature has attempted to control retirement costs over the years, resulting in
several different tiers. An employee’s hire date and prior PERS membership determines the
specific tier in each program in which the employee participates.
Table 1 shows public university rates for the various retirement plan tiers. The “Employer
Contribution Change” column reflects the annual increase attributable to the “Employer
Contribution” portion of the rate. The “Total Annual Increase” column reflects the increase in
total retirement costs – all components combined (EC+IAP+POB):
TABLE 1: Public university retirement rates effective FY2018.
Plan Tier
Applicable
Hire Dates
Rates as a Percent of Payroll
Increases in Rates
from Prior Year
Employer
Contribution
(EC)
Employee
Contribution
(IAP)
"pick-up"
Debt
Service
(POB)
Total
Annual
(EC + IAP +
POB)
Employer
Contribution
Only
Total
Annual
Increase
PERS T1
On or prior to
12/31/1995
17.84% 6.00% 6.00% 29.84% 34.34% 18.04%
PERS T2
Between
1/1/1996 and
8/28/2003
17.84% 6.00% 6.00% 29.84% 34.34% 18.04%
PERS T3/
OPSRP*
On or after
8/29/2003
10.78% 6.00% 6.00% 22.78% 47.47% 17.97%
ORP T1
On or prior to
12/31/1995
23.68% 6.00% 0.00% 29.68% 15.79% 12.21%
ORP T2
Between
1/1/1996 and
8/28/2003
23.68%
0.00% 23.68% 15.79%
–10.47%
ORP T3
Between
8/29/2003 and
6/30/2014
9.29% 6.00% 0.00% 15.29% 17.00% 9.68%
ORP T4 *
On or after
7/1/2014
8.00% 1% - 4% 0.00% 8% - 12% 0.00% 0.00%
*Open to new employees without prior PERS or ORP membership
3
ORS 243.800
TAB O
March 16-17, 2017 Board of Trustees Meetings
Finance & Administration Committee Page 4
Chart 1 shows increases in retirement costs over time:
Chart 2 shows the change in plan participation by number of employees since 2012:
968
906
791
749
669
584
144
138
126
122
115
107
778
720
673
660
615
580
295
296
275
267
253
236
586
713
843
847
786
745
1,641
1,799
2,171
2,396
2,437
2,610
282
428
-
1,000
2,000
3,000
4,000
5,000
6,000
2012 2013 2014 2015 2016 2017
CHART 2: Retirement Plan Participation by Number of OSU Employees
PERS T1 ORP T1 PERS T2 ORP T2 ORP T3 PERS T3/OPSRP ORP T4
$-
$10
$20
$30
$40
$50
$60
$70
$80
2012
2013 2014 2015
2016
2017
Projected
CHART 1: OSU Retirement Costs - Before 2017-19 Rate Increases
(in millions)
All other Funds E&G
TAB O
March 16-17, 2017 Board of Trustees Meetings
Finance & Administration Committee Page 5
HEALTH PLANS
Oregon’s Public Employees’ Benefits Board (PEBB) contracts for and administers benefits for
state employees. Primary benefits include medical, dental, and vision plans. Currently OSU
employees choose among five different medical plans, two vision plans, and four dental plans.
PEBB sets rates annually.
Employers pay most of the premium. At OSU, most employees pay 5% of the premium.
Classified employees who enroll in the least costly plan pay only 3%. Plan premiums are
organized into four tiers according to the individual(s) being covered:
1. Employee only
2. Employee and Spouse/Partner
3. Employee and Children
4. Employee and Family
Table 2 summarizes enrollment by plan tier for OSU employees:
TABLE 2: PEBB Enrollments – January 2017 Coverage*
Medical Plan Tier
Number of
Employees Covered
Employee Only**
1,867
Employee and Spouse/ Partner
1,180
Employee and Children
382
Employee and Family
1,944
Total
5,373
*May not include new employee enrollments.
**Includes 396 employees who have selected medical opt out.
Due to an impending federal excise tax in the Affordable Care Act, PEBB has begun a multiyear
change to the medical premium rate structure to avoid incurring the excise tax in 2018. The
impact of this structure change is most pronounced for the Employee and Family premium. As
shown in Table 3, in 2016, the Employee and Family premium was 1.37 times the Employee
Only premium. By 2018, the excise tax threshold has the Employee and Family premium
2.7 times the Employee Only premium. OSU healthcare costs will be impacted by overall cost
increases in health premiums but also by the mix of employee plan participation across the tiers.
Table 3 shows the ratios of PEBB premiums through 2018:
TABLE 3: Multiyear Changes in Medical Premium Rate Structure
Premium Tier
PEBB
2016 Tier
Ratio
PEBB
2017 Tier
Ratio
PEBB
2018 Tier
Ratio
Excise
Tax
Threshold
Employee Only
1.00
1.00
1.00
1.00
Employee and Spouse/Partner
1.34
1.65
2.00
2.70
Employee and Children
1.15
1.40
1.70
2.70
Employee and Family
1.37
2.00
2.70
2.70
TAB O
March 16-17, 2017 Board of Trustees Meetings
Finance & Administration Committee Page 6
Tables 4 and 5 estimate the average change in monthly medical premiums from 2016 to 2017
under PEBB’s planned change:
TABLE 4: Change in Monthly Medical Premium from 2016 to 2017
Premium Tier
Average Change
Across Six Plans
Percent
Change
Employee Only
$(183.08)
–18.3%
Employee and Spouse/Partner
$ 7.79
0.5%
Employee and Children
$ (6.44)
–0.6%
Employee and Family
$ 263.53
19.2%
TABLE 5: Change in Highest Monthly Premiums Across Plan Tiers
from 2016 to 2017
Premium Tier
Highest in
2016
Highest in
2017
Change
Employee Only
$ 1,092.25
$ 906.15
$ (186.10)
–17.0%
Employee and Spouse/Partner
$ 1,463.60
$ 1,495.15
$ 31.55
2.2%
Employee and Children
$ 1,256.10
$ 1,268.61
$ 12.51
1.0%
Employee and Family
$ 1,496.37
$ 1,812.30
$ 315.93
21.1%
Chart 3 shows increases in healthcare costs over time for Education & General (E&G) funds
and other funds:
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
2012 2013 2014 2015 2016 2017
Projected
CHART 3: OSU Healthcare Costs
(in millions)
All others E&G
As a result of the premium increases and shifts in costs across plan tiers, the net change in
OSU health benefit costs (all funds) is projected to increase by 4.6% in 2018. Effective October
1, 2016, by statute, public universities may elect to provide an alternative group health and
TAB O
March 16-17, 2017 Board of Trustees Meetings
Finance & Administration Committee Page 7
welfare insurance benefit plan to employees of the university if the benefit plan is offered
through the state’s health insurance exchange. Initial estimates suggest that the healthcare
exchange would not offer better coverage for employees and would most likely not result in any
cost savings.
PERS Overview
Senate Committee on Workforce
Steven Patrick Rodeman
PERS Executive Director
February 2017
oregon.gov/pers
TAB O - Attachment 2
SL1
7
The PERS Funding Equation
At the end of each calendar year, the PERS actuaries calculate the
system’s funded status using the following basic equation:
EARNINGS
future returns on
invested funds
B = C + E
BENEFITS
present value of
earned benefits
CONTRIBUTIONS
employer funds to pay
pension benefits
=
+
Set by:
Oregon Legislature
Set by:
PERS Board
Managed by:
Oregon Investment Council
Every two years, the PERS Board adjusts contributions so that, over time,
those contributions will be sufficient to fund the benefits earned,
if earnings follow assumptions.
20
Actuarial Liability by Benefit Program
(Tier One/Two and OPSRP as of 12-31-15)
TIER ONE
ACTIVES 16%
RETIREES
64%
OPSRP ACTIVES
5%
INACTIVES
6%
TIER TWO
ACTIVES 9%
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
35 40 45 50 55 60 65 70
Age
Actuarial Liability by
Member Category
Age Distribution of Tier One
Actives’ Liability ($ millions)
Milliman presentation; July 29, 2016 Board meeting
30
Milliman presentation; July 29, 2016 Board meeting
Projected Benefit Payments by Program
(as of 12-31-15)
OPSRP
TIER ONE
TIER TWO