PERS staff outlines tier 5 proposal, ORP changes and Legislature’s $100M lottery proposal

PERS legislative staff and outside counsel briefed the board’s legislative committee on a package of bills affecting the state retirement system, including a proposal to create a new Tier 5 hybrid benefit for future hires, changes to the Optional Retirement Plan (ORP), and a House Bill 1 proposal to direct $100 million a year in lottery proceeds to PERS until the plan reaches 80 percent funded.

The committee heard details of the Tier 5 draft that passed the Senate: it would apply to employees hired on or after March 1, 2026; would be a DB‑plus‑DC hybrid with an approximate 1 percent DB multiplier and a DC portion; would keep a 9 percent employee contribution split as 4 percent to the DB and 5 percent to the DC account; and would eliminate several current features such as guaranteed COLAs on the DB portion, the PLSO (post‑retirement lump sum option), service credit for unused leave, buybacks and certain refund options. The bill would also set compensation averaging at the highest consecutive eight years rather than the highest four.

Legislative staff said the Senate draft retains a military credit provision and added a 35‑year “service‑out” unreduced retirement provision. The draft also contemplates a DC vehicle for the individual account that, because the Legislature wants optional employer contributions and hardship withdrawals, drives the design toward a 401(a) profit‑sharing structure rather than a money‑purchase plan.

Audra of Ice Miller, outside counsel on the call, explained that a profit‑sharing plan better permits the optional employer contributions and hardship distributions the Legislature requested. “Based on the structure and key features the Legislature indicated they desired — primarily the ability for the employer to make additional optional contributions to select individual accounts — that is only allowable in a profit‑sharing 401(a) defined contribution plan,” Audra said.

Staff also reviewed a bill to close ORP to new participants and to reallocate portions of current employer contributions: under the draft, current ORP participants would see an employer contribution split with 9 percent still contributed but reduced to 9 percent to the participant account (description in meeting materials). Staff said they had prepared actuarial impact letters at the author’s request and would distribute those analyses to board members.

Committee members discussed administrative and implementation complexities if Tier 5 becomes law. Questions included whether optional employer contributions could be targeted to specific positions (staff and counsel said yes, federal law allows differential treatment among employee classes), how contributions would interact with school district contracts and payroll reporting, and whether employer payroll‑tax treatment would differ from current ORP practice (counsel said the treatment would mirror present ORP handling; deferred contributions would not increase Social Security wages and would be taxed on distribution).

Members also discussed benefit‑option simplification for Tier 5 — whether to reduce the number of annuity forms available at retirement — and expressed reluctance to make those changes during the current session because of complexity and potential public misunderstanding. The committee resolved to continue implementation planning, to circulate actuarial impact statements and to monitor the bills as they move through the Legislature.