Item B.2.b. Oregon Public Employees Retirement System ...

[Pages:3]Oregon

Kate Brown, Governor

October 5, 2018

Item B.2.b.

Public Employees Retirement System

Headquarters: 11410 S.W. 68th Parkway, Tigard, OR

Mailing Address: P.O. Box 23700

Tigard, OR 97281-3700 888-320-7377

TTY (503) 603-7766 pers

TO: FROM: SUBJECT:

Members of the PERS Board

Stephanie Vaughn, Manager, Policy Analysis & Compliance Section

Adoption of Employer Lump Sum Payments Rules: OAR 459-009-0084, Employer Unfunded Actuarial Liability Lump-Sum Payments

With an Actuarial Calculation OAR 459-009-0086, Employer Unfunded Actuarial Liability Lump-Sum

Payments, Generally

OVERVIEW

Action: Adopt modifications to the Employer Lump Sum Payments rules.

Reason: To allow employers who make lump sum payments of $10 million or more into a new side account to elect an alternate amortization schedule for that side account and to allow employer lump sum payments into side accounts to be considered for matching funds from the Employer Incentive Fund established under Senate Bill 1566 (2018).

Policy Issues: None.

BACKGROUND

At the June 1, 2018 Board meeting, temporary rules were adopted and permanent rulemaking began addressing Section 3b of Senate Bill 1566 (2018), which allows participating PERS employers that make a lump sum payment of $10 million or more that is not sourced from pension obligation bonds the option to select an amortization period of 6, 10, 16, or 20 years for that payment.

Currently, employer side accounts are amortized over 20 years. With the option of selecting a different amortization period, employer lump sum payments made under this new provision will require the employer to establish a new side account with the different amortization period. As with all lump sum payments establishing a new side account, they will also require an actuarial calculation. Accordingly, OAR 459-009-0084 and 459-009-0086 have been amended to reflect this new option and clarify its administration.

At the August 3, 2018 Board meeting, additional amendments were introduced regarding the Employer Incentive Fund (EIF) established by Senate Bill 1566 (2018) to encourage employers to make additional one-time lump sum payments to pay down their UAL by matching qualifying lump sum payments. Employers have specifically asked if lump sum payments they make today can receive matching funds from the EIF. While staff continues to develop the program for the EIF, in order to remove a potential obstacle for employers wanting to make lump sum deposits, 459-009-0086 has been amended to allow employers who make lump sum payments under the current rule to apply to the EIF to have those funds matched under the program. Lump sum payments will still be subject to the existing requirements, and only lump sum payments or

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portions of lump sum payments that are deposited into new or existing side accounts would be eligible, as the EIF under Senate Bill 1566 (2018) does not include lump sum payments that are applied to a transition liability. All the standards and rules that will be established in implementing the EIF will apply equally to lump sum payments made before and after implementation of the program. The employer will still be required to apply to the EIF for matching funds and will not have any priority or guarantee of receiving matching funds. The amount that will be matched is the amount of the actual deposit into the new or existing side account.

SUMMARY OF MODIFICATIONS TO RULES SINCE NOTICE No modifications were made to the rules.

PUBLIC COMMENT AND HEARING TESTIMONY

A rulemaking hearing was held August 28, 2018, at 2:00 p.m. at PERS headquarters in Tigard. No members of the public attended. The public comment period ended September 7, 2018, at 5:00 p.m. No public comment was received.

LEGAL REVIEW

The attached draft rules were submitted to the Department of Justice for legal review and any comments or changes are incorporated in the rules as presented for adoption.

IMPACT

Mandatory: No.

Impact: An opportunity for employers to elect an alternate amortization schedule for lump sum deposits of $10 million or more into a new side account and to budget and plan for their lump sum payment to PERS in anticipation of the start of the Employer Incentive Fund program under Senate Bill 1566 (2018).

Cost: There are no discrete costs attributable to the rules.

RULEMAKING TIMELINE

May 29, 2018

Staff began the permanent rulemaking process by filing a Notice of Rulemaking with the Secretary of State.

June 1, 2018

Secretary of State published the Notice in the Oregon Administrative Rules Database. Notice was sent to employers, legislators, and interested parties. Public comment period began.

June 1, 2018

PERS Board adopted the temporary rule modifications.

June 26, 2018

Rulemaking hearing held at 2:00 p.m. at PERS in Tigard.

July 6, 2018

First public comment period ended at 5:00 p.m.

July 31, 2018

Staff extended the rulemaking process by filing a second Notice of Rulemaking with the Secretary of State.

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August 1, 2018

August 3, 2018 August 28, 2018 September 7, 2018 October 5, 2018

Secretary of State published the updated Notice in the Oregon Administrative Rules Database. Notice was sent to employers, legislators, and interested parties. Public comment period continued.

First reading of the rules.

Rulemaking hearing held at 2:00 p.m. at PERS in Tigard.

Public comment period ended at 5:00 p.m.

Board may adopt the permanent rule modifications.

BOARD OPTIONS The Board may: 1. Pass a motion to "adopt modifications to the Employer Lump Sum Payments rules, as

presented." 2. Direct staff to make other changes to the rules or explore other options.

STAFF RECOMMENDATION

Staff recommends the Board choose Option #1. Reason: Implement Employer Incentive Fund established under Senate Bill 1566 (2018).

If the Board does not adopt: Staff would return with rule modifications that more closely fit the Board's policy direction if the Board determines that a change is warranted.

B.2.b. Attachment 1 ? 459-009-0084, Employer Unfunded Actuarial Liability Lump-Sum Payments With an Actuarial Calculation

B.2.b. Attachment 2 ? 459-009-0086, Employer Unfunded Actuarial Liability Lump-Sum Payments, Generally

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