Editor’s note: This is the first of a weekly Q&A focused on the Oregon Public Employee Retirement System.
Q: How much does the average PERS recipient receive per month?
A: The average member benefit is a number that gets thrown around a lot in debate over the pension system. But it’s not a very useful yardstick to measure the generosity or adequacy of the benefits earned by PERS members.
Here’s why: The calculation includes everyone who vests in the retirement plan, whether they worked in the public sector for five years or 45. And the distribution of members receiving benefits is stacked at the low end, meaning there are a whole lot of people receiving pretty measly monthly checks, perhaps because they worked only a few years in the public sector or worked part time. The upper end of the distribution, meanwhile, is very sparsely populated. That distribution pulls both the average and median benefit figures lower. The numbers are still valid. But they need context.
If you look at the pool of people who retired between 1990 and 2017, their initial benefit averages out to $2,390 a month, or about $28,680 a year, according to the pension system’s most recent salary replacement study. For the Class of 2017, the average retiree pulled down $3,036 a month, or about $36,432 annually. By comparison, the average retiree in 1990 received $1,186 or $14,232 a year.
The median starting pension benefit from the same pool of retirees between 1990 to 2017 — meaning half got more, half less — was $1,919 a month, or $23,028 a year. For 2017 alone, the median starting benefit was $2,577 a month, or $30,924 annually. The median years of service among 2017 retirees was 26, and the median age was 62.
As noted, the numbers represent starting benefits, without subsequent cost of living increases. Someone who retired in 1990 — if they’re still alive today — has since seen their benefit increase by 75 percent due to cost of living increases, which are typically 2 percent a year, compounding.
Finally, the number only represents a member’s pension benefits, the defined benefit portion of the retirement system. They don’t include a supplemental defined contribution plan funded by annual employee contributions, which for most employees are actually paid by employers. That system only kicked in after 2003 but will provide more significant benefits the longer a member has been contributing to it. PERS members also get, and along with employers, pay into social security, which public employees in a variety of other states don’t.
So, what’s a better proxy for PERS benefits? PERS’ annual “replacement ratio study” delves deeper into this subject. The last one, delivered in May, looked at a population of 94,770 retirees drawn from the 189,647 retirements recorded from January 1990 through December 2017. In order to keep the pool comparable, the study excluded a variety of beneficiaries, such as survivors, alternate payees, lump-sum recipients, and members outside the normal retirement plan, such as legislators and judges.
More importantly, it also examines benefits for career employees, those with 30 years or more of service. That’s the easiest way to measure those numbers against the legislature’s stated goal of providing career employees with pension benefits that are 50 to 60 percent of their final salary.
The average starting benefit for a 30-year employee retiring within the 1990 to 2017 period was $3,713 per month, or $44,556 a year. That was equal to 78 percent of their final average salary. That number is well above the legislature’s 50 to 60 percent goal, largely because it includes a cohort of employees who enjoyed outsized benefits because the system’s lucrative money match formula paired with generous earnings crediting to their pension accounts by the PERS board in the 1980s and 1990s.
The average salary replacement ratio peaked in 2000 at 100 percent of final average salary, or just north of $50,000 a year. Following legislative reforms in 2003, the replacement ratios have drifted back down. For 2017 alone, the average benefit for a 30-year member was $3,628 per month, or $43,536. That pencils out to 53 percent of final average salary.
One other caveat: “Final average salary” is not based on a member’s last year of pay. Rather, it’s the average of a member’s three highest-earning years in public service. For employees included in this survey, that number is inflated by a number of factors, including overtime, unused sick and vacation time, as well as the 6 percent contribution employees are required to make to a supplemental individual retirement account. The system actuary estimates that the inclusion of unused sick leave boosts employees’ final average salaries by 3 to 7 percent, based on the type of employee. Unused vacation – only a factor for Tier 1 employees, hired before 1996 – can add another 1 to 4 percent. The 6 percent retirement contribution counts as final salary for everyone in the study.
In other words, if the replacement ratio was measured against a member’s actual salary, the result could be 6 to 15 percentage points higher.
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