Chapter 945 Oregon Laws 2001

AN ACT

SB 134

Relating to public employee retirement; creating new provisions; amending ORS 237.410, 237.620, 238.005, 238.015, 238.035, 238.055, 238.068, 238.072, 238.078, 238.092, 238.095, 238.105, 238.115, 238.125, 238.135, 238.145, 238.156, 238.200, 238.205, 238.220, 238.225, 238.250, 238.255, 238.260, 238.265, 238.270, 238.280, 238.300, 238.305, 238.310, 238.315, 238.320, 238.325, 238.340, 238.360, 238.365, 238.375, 238.380, 238.385, 238.390, 238.395, 238.415, 238.420, 238.425, 238.465, 238.515, 238.545, 238.565, 238.575, 238.580, 238.585, 238.630, 238.640, 238.660, 238.665, 238.670, 238.675, 238.685, 243.800 and 526.052 and section 10, chapter 569, Oregon Laws 1995, section 2, chapter 575, Oregon Laws 1995, and section 3, chapter 180, Oregon Laws 1997; repealing ORS 238.150, 238.230 and 238.370 and section 3, chapter 874, Oregon Laws 2001 (Enrolled House Bill 2459); and declaring an emergency.

Be It Enacted by the People of the State of Oregon:

MANAGEMENT OF PUBLIC EMPLOYEES

RETIREMENT FUND

SECTION 1. Section 2 of this 2001 Act is added to and made a part of ORS chapter 238.

SECTION 2. The Legislative Assembly finds that the maintenance of a solid, affordable public employees retirement plan is essential to providing effective, efficient services to the citizens of Oregon by allowing the state and political subdivisions of the state to hire and retain employees who are committed to providing those services. It is the intent of the Legislative Assembly that the Public Employees Retirement Board, in performing its duties as trustee of the Public Employees Retirement Fund, recognize that the continued stability and viability of the Public Employees Retirement System depends on the ability of public employers and taxpayers to pay the costs of the system. Consistent with this intent, the board shall administer the system to create and maintain long-term stability and viability in the system, and shall act to achieve full funding for the benefits provided by the system, giving equal consideration to the interests of the public employer and the employee to the extent that treatment does not violate the fiduciary duties of the board. Nothing in this section shall be construed to impose a fiduciary duty on the board to consider the interests of public employers, and the board shall consider the interests of public employers only with respect to matters unrelated to the board's fiduciary duties as trustee of the fund.

SECTION 3. ORS 238.660 is amended to read:

238.660. (1) The Public Employees Retirement Fund is declared to be a trust fund, separate and distinct from the General Fund, for the uses and purposes set forth in this chapter and ORS 237.950 to 237.980, and for no other use or purpose, except that this provision shall not be deemed to amend or impair the force or effect of any law of this state specifically authorizing the investment of moneys from the fund. Interest earned by the fund shall be credited to the fund. Except as otherwise specifically provided by law, the Public Employees Retirement Board established by ORS 238.630 is declared to be the trustee of the fund. Consistent with the legislative intent expressed in section 2 of this 2001 Act, and to the extent it is consistent with the board's fiduciary duties, the board shall give equal consideration to the interests of participating public employers and the interests of members. Nothing in this subsection shall be construed to impose a fiduciary duty on the board to consider the interests of public employers, and the board shall consider the interests of public employers only with respect to matters unrelated to the board's fiduciary duties as trustee of the fund.

(2) Until all liabilities to members and their beneficiaries are satisfied, assets of the fund may not be diverted or otherwise put to any use that is not for the exclusive benefit of members and their beneficiaries. This subsection does not limit return of employer contributions for health benefits in the manner provided by ORS 238.410, 238.415 and 238.420 upon satisfaction of all liabilities for health benefits under those sections.

(3) The State of Oregon and other public employers that make contributions to the fund have no proprietary interest in the fund or in the contributions made to the fund by them. The state and other public employers disclaim any right to reclaim those contributions and waive any right of reclamation they may have in the fund. This subsection does not prohibit alteration or refund of employer contributions if the alteration or refund is authorized under this chapter and is due to erroneous payment or decreased liability for employer contributions under the system.

(4) The board may accept gifts of money or other property from any source, given for the uses and purposes of the system. Money so received shall be paid into the fund. Money or other property so received shall be used for the purposes for which received. Unless otherwise prescribed by the source from which the money or other property is received, the money shall be considered as income of the fund and the other property shall be retained, managed and disposed of as are investments of the fund.

(5) All moneys paid into the fund shall be deposited with the State Treasurer, who shall be custodian of the fund and pay all warrants drawn on it in compliance with law. No such warrant shall be paid until the claim for which it is drawn is first approved by the director or designee and otherwise audited and verified as required by law. Monthly, each beneficiary's gross benefit shall be calculated; applicable deductions made for taxes, insurance and other withholdings; and the net amount paid to the beneficiary, by check or by electronic funds transfer (EFT) to the beneficiary's bank. A deduction summary shall be made, by type, and a check issued for the aggregate of each type for transmittal to the appropriate taxing jurisdiction, vendor or institution. A voucher shall be prepared and transmitted to the Oregon Department of Administrative Services for reimbursement of the checking account, and the department shall draw a warrant on the State Treasurer, payable to the Public Employees Retirement System, for the amount thereof.

(6) Any warrant, check or order for the payment of benefits or refunds under the system out of the fund issued by the board which is canceled, declared void or otherwise made unpayable pursuant to law because it is outstanding and unpaid for a period of more than two years, may be reissued by the board without bond if the payee is located after such warrant, check or order is canceled, declared void or otherwise made unpayable pursuant to law.

(7) All references in this chapter to checks or warrants are subject to the provisions of ORS 291.001 (1).

(8) The board shall provide for an annual audit of the retirement fund and for an annual report to the Legislative Assembly and to all members of, retirees of, and all employers participating in, the system. The annual report must contain financial statements prepared in accordance with generally accepted accounting principles. The financial statements must include the report of any independent auditor.

FUNDING OF RESERVES

SECTION 4. ORS 238.255 is amended to read:

238.255. [(1) As used in this section, “individual account” means the individual account for each active and inactive member of the system in the Public Employees Retirement Fund provided for under ORS 238.250, but not the individual account of the employee in the Variable Annuity Account established by ORS 238.260.]

[(2)] The [individual] regular account for an active or inactive member of the system shall be examined each year. If the [individual] regular account is credited with earnings for the previous year in an amount less than the earnings that would have been credited pursuant to the assumed interest rate for that year determined by the board, the amount of the difference shall be credited to the [individual] regular account and charged to a reserve account in the fund established for the purpose. A reserve account so established may not be maintained on a [deficiency] deficit basis for a period of more than five years. Earnings in excess of the assumed interest rate for years following the year for which a charge is made to the reserve account shall first be applied to reduce or eliminate the amount of a [deficiency] deficit. The Public Employees Retirement Board shall attempt to ensure that the reserve account is funded with amounts adequate to leave a zero balance in the account when all members who established membership in the system before January 1, 1996, as described in ORS 238.430, have retired.

SECTION 5. ORS 238.670 is amended to read:

238.670. (1) At the close of each calendar year in which the earnings on the Public Employees Retirement Fund equal or exceed the assumed interest rate established by the Public Employees Retirement Board under ORS 238.255, the board shall set aside, out of interest and other income received through investment of the Public Employees Retirement Fund during [the] that calendar year, such part of the income as the board may deem advisable, not exceeding seven and one-half percent of the combined total of such income, which moneys so segregated shall remain in the fund and constitute therein a reserve account. The board shall continue to credit the reserve account in the manner required by this subsection until the board determines that the reserve account is adequately funded for the purposes specified in this subsection. Such reserve account shall be maintained and used by the board to prevent any deficit of moneys available for the payment of retirement allowances, due to interest fluctuations, changes in mortality rate or, except as provided in subsection (3) or (4) of this section, other [unforeseen] contingency. In addition, the reserve account may be used by the board for the following purposes:

(a) To prevent any deficit in the fund by reason of the insolvency of a participating public employer. Reserves under this paragraph may be funded only from the earnings on employer contributions made under ORS 238.225.

(b) To pay any legal expenses or judgments that do not arise in the ordinary course of adjudicating an individual member's benefits or an individual employer's liabilities.

(c) To provide for any other contingency that the board may determine to be appropriate.

(2) At the close of each calendar year, the board shall set aside, out of interest and other income received during the calendar year, after deducting the amounts provided by law and to the extent that such income is available, a sufficient amount to credit to the reserves for pension accounts and annuities varying percentage amounts adopted by the board as a result of periodic actuarial investigations. If total income available for distribution exceeds those percentages of the total accumulated contributions of employees and employers, the reserves for pensions and annuities shall participate in such excess.

(3) The board may set aside, out of interest and other income received through investment of the fund, such part of the income as the board considers necessary, which moneys so segregated shall remain in the fund and constitute one or more reserve accounts. Such reserve accounts shall be maintained and used by the board to offset gains and losses of invested capital. The board, from time to time, may cause to be transferred from the reserve account provided for in subsection (1) of this section to a reserve account provided for in this subsection such amount as the board determines to be unnecessary for the purposes set forth in subsection (1) of this section and to be necessary for the purposes set forth in this subsection.

(4) The board may provide for amortizing gains and losses of invested capital in such instances as the board determines that amortization is preferable to a reserve account provided for in subsection (3) of this section.

(5) At least 30 days before crediting any interest and other income received through investment of the Public Employees Retirement Fund to any reserve account in the fund, the board shall submit a preliminary proposal for crediting to the appropriate legislative review agency, as defined in ORS 291.371 (1), for its review and comment.

MEMBERSHIP OF PUBLIC EMPLOYEES

RETIREMENT BOARD

SECTION 6. ORS 238.630 is amended to read:

238.630. (1) The governing authority of the system shall be a board known as the Public Employees Retirement Board and consisting of [11] 12 members appointed by the Governor subject to confirmation by the Senate in the manner provided in ORS 171.562 and 171.565. Except as otherwise provided in ORS 238.640, the term of each member shall be three years.

(2) The board shall have:

(a) The powers and privileges of a corporation, including the right to sue and be sued in its own name as such board; and

(b) The power and duty, subject to the limitations of this chapter, of managing the system.

(3) The board:

(a) Shall, at its first meeting each year, designate one of its members to serve as chair of the board for the remainder of the year and until a successor is designated and takes that office;

(b) Shall arrange for actuarial service for the system;

(d) Shall create such other positions as it deems necessary to sound and economical administration of the system, which positions the director shall fill by appointment;

(e) Shall, with the approval of the Director of the Oregon Department of Administrative Services, and as otherwise provided by law, fix the salaries of all persons employed for purposes of administering the system;

(f) Shall publish and distribute to all employer and employee members of the system an annual report including a summary of investments of moneys in the fund, investment earnings, significant legislative or administrative changes in the system and other pertinent information on the operation of the system for the preceding year;

(g) Shall determine the actuarial equivalency of optional forms of retirement allowances and establish from time to time for that purpose the necessary actuarial factors, which shall constitute a part of the system; and

(h) Shall adopt rules and take all actions necessary to maintain qualification of the Public Employees Retirement System and the Public Employees Retirement Fund as a qualified governmental retirement plan and trust under the Internal Revenue Code and under regulations adopted pursuant to the Internal Revenue Code. Rules under this paragraph may impose limits on contributions to the system, limits on benefits payable from the system and other limitations or procedures required or imposed under federal law or regulation for the purpose of qualification of the Public Employees Retirement System and Public Employees Retirement Fund under the Internal Revenue Code as a governmental retirement plan and trust.

(4) The board established by this section shall succeed to all the duties and prerogatives of the Public Employees Retirement Board created by chapter 401, Oregon Laws 1945, in relation to the Public Employees Retirement Fund, and in addition shall perform all duties required of it by ORS 237.950 to 237.980, in regard to moneys payable to or from such fund.

(5) The board shall identify by rule those records that must be maintained by participating public employers for the purposes of subsection (3)(h) of this section. A participating public employer shall maintain records for all employees who are members of the system as required by board rules, and shall provide that information to the board upon request.

SECTION 6a. ORS 238.640 is amended to read:

238.640. (1) Members of the Public Employees Retirement Board shall have the following qualifications:

(a) Each member shall be a citizen of the United States and a resident of this state for at least two years immediately preceding appointment to the board.

(b) [Three] Six members shall be public members [shall not have been employed by a public employer during the two years immediately preceding appointment to the board or be so employed throughout the term of appointment and may not be retired members of the system] who are not members of the Public Employees Retirement System. At least three of the public members must have experience in investing or pension management.

(c) [Two members shall be employees of a participating public employer] One member shall be an employee of the state in a management position at the time of appointment and throughout the term of appointment. [At the time of appointment and throughout the term of appointment, one of the two members appointed under this paragraph shall be employed by a school district and one shall be employed by the state.]

(d) At the time of appointment and throughout the term of the appointment, [two members] one member shall hold an elective office, by election or appointment, in the governing body of [two different] a participating public [employers] employer, other than [school districts or] the state.

(e) Four members shall be public employees, as defined in ORS 243.650, of a participating public employer and be in an appropriate bargaining unit, as defined in ORS 243.650, having an exclusive representative at the time of appointment and throughout the term of appointment; but membership on the board shall not itself affect the status of such a member as a public employee as defined in ORS 243.650. At the time of appointment and throughout the term of appointment, one of those four members shall be engaged in teaching or other school activity, one shall be a police officer or firefighter, one shall be an employee of the state in a category other than teaching or other school activity or police officer or firefighter, and one shall be an employee of a political subdivision of the state in a category other than teaching or other school activity or police officer or firefighter.

(f) In lieu of one member appointed with the qualifications specified in paragraph (c), (d) or (e) of this subsection, one member shall be a retired member of the system at the time of appointment and throughout the term of the appointment.

(g) The successor of a board member in any category shall have the qualifications prescribed for that category.

(2) Any vacancy on the board shall be filled by appointment for the unexpired term of the member replaced.

(3) Except as provided in subsection (4) of this section, a member of the board is entitled to compensation and expenses as provided in ORS 292.495 from the Public Employees Retirement Fund.

(4) Any member of the board who is an active member of the system shall be released by the participating public employer who employs the member for the purpose of conducting the official business of the board. The wages or salary of the member shall not be reduced during periods that the member is released from duty for the purpose of conducting the official business of the board. The board shall reimburse a public employer for the cost of continuing the wages or salary of the member while the member is released from duty under this subsection. A member who continues to receive wages or salary under the provisions of this subsection shall not receive compensation under ORS 292.495, but shall receive travel and other expenses provided for under ORS 292.495. The provisions of this subsection do not apply to any person who is a member of the board and who holds another office that is subject to the provisions of section 10, Article II of the Oregon Constitution, prohibiting the holding of more than one lucrative office.

SECTION 7. (1) As soon as possible after the effective date of this 2001 Act, the Governor shall appoint a 12th member of the Public Employees Retirement Board as required by the amendments to ORS 238.640 by section 6a of this 2001 Act. The public member so appointed by the Governor must have experience in investing or pension management as required by ORS 238.640 (1)(b), as amended by section 6a of this 2001 Act.

(2) The amendments to ORS 238.640 by section 6a of this 2001 Act do not affect the term of any member serving on the Public Employees Retirement Board on the effective date of this 2001 Act. When a vacancy occurs after the effective date of this 2001 Act in the position of the member who is serving on the board under ORS 238.640 (1)(c) (1999 Edition) and who is an employee of a school district, whether the position becomes vacant by reason of completion of the term or for any other reason, the Governor shall appoint a public member with experience in investing or pension management to serve on the board under ORS 238.640 (1)(b), as amended by section 6a of this 2001 Act. When the first vacancy occurs after the effective date of this 2001 Act in a position of a member serving on the board under ORS 238.640 (1)(d) (1999 Edition), whether the position becomes vacant by reason of completion of the term or for any other reason, the Governor shall appoint a public member with experience in investing or pension management to serve on the board under ORS 238.640 (1)(b), as amended by section 6a of this 2001 Act.

LUMP SUM WITHDRAWAL

OF EMPLOYEE ACCOUNT

AND MATCHING EMPLOYER AMOUNT

SECTION 8. ORS 238.305, as amended by section 68 of this 2001 Act, is amended to read:

238.305. (1) Not later than 60 days after [the date] the first benefit payment is [issued] made to a retired member of the system, the member may elect to convert the allowance described by ORS 238.300 as payable after retirement into a service retirement annuity of equivalent actuarial value of one of the optional forms named below. The election of Option 2, 2A, 3 or 3A shall be effective immediately upon the member's retirement.

Option 1. (a) A life annuity (nonrefund) payable during the member's life only, which shall be the actuarial equivalent of accumulated contributions by the member and interest thereon credited at the time of retirement (if death occurs before the first payment is due, the member account shall be treated as though death had occurred before retirement); (b) a life pension (nonrefund) provided by the contributions of employers as provided in ORS 238.300 (2); (c) an additional nonrefund pension for prior service credit, including military service, credited to the member at the time of first becoming a member of the system, as elsewhere provided in this chapter, which pension shall be provided by the contributions of the employer; or

Option 2. A reduced service retirement allowance payable during the member's life, with the provision that it continue after death for the life of the beneficiary the member nominates by written designation duly acknowledged and filed with the Public Employees Retirement Board at the time of election, should the beneficiary survive the member; or

Option 2A. A reduced service retirement allowance payable during the member's life which, unless modified under subsection [(5)] (6) of this section, continues after death for the life of the beneficiary the member nominates by written designation duly acknowledged and filed with the board at the time of election, should the beneficiary survive the member; or

Option 3. A reduced service retirement allowance payable during the member's life, with the provision that it continue after death at one-half the rate paid to the member and be paid for the life of the beneficiary the member nominates by written designation duly acknowledged and filed with the board at the time of election, should the beneficiary survive the member; or

Option 3A. A reduced service retirement allowance payable during the member's life which, unless modified under subsection [(5)] (6) of this section, continues after death at one-half the rate paid to the member and is paid for the life of the beneficiary the member nominates by written designation duly acknowledged and filed with the board at the time of election, should the beneficiary survive the member; or

Option 4. A reduced service retirement allowance payable during the member's life, with the provisions that if the member dies before a total of 180 monthly payments is made, the remainder of the 180 monthly payments shall be paid monthly to the beneficiary the member nominates by written designation duly acknowledged and filed with the board at any time before the member's death; and that if the member designates no beneficiary to receive the monthly payments or no such beneficiary is able to receive the monthly payments, an amount equal to the actuarial value, on the date of the member's death, of the total of the monthly payments not made to the member shall be paid according to ORS 238.390 for disposal of an amount credited to the member account of a member at the time of death; and that if the beneficiary receiving monthly payments dies before the total number of monthly payments to which the beneficiary is entitled is made, an amount equal to the actuarial value, on the date of the beneficiary's death, of the total of the monthly payments not made to the member and beneficiary shall be paid according to ORS 238.390 for disposal of an amount credited to the member account of a member at the time of death and as if the beneficiary had been a member.

(2) Not later than 60 days after the [date the] first benefit payment is [issued] made to a retired member of the system, the member may elect, in lieu of the allowance described by ORS 238.300 as payable after retirement, a service retirement benefit consisting of:

(a) A refund of accumulated contributions by the member and interest thereon credited at the time of refund; and

(b) A life pension (nonrefund) provided by the contributions of employers as provided in ORS 237.147 (2) (1979 Replacement Part), and an additional life pension (nonrefund) for prior service credit as provided in ORS 238.300 (3). At the same time as making the election under this subsection, the member may elect to convert the pensions described by this paragraph into a service retirement annuity of equivalent actuarial value of one of the optional forms named as Option 2, 2A, 3 or 3A under subsection (1) of this section.

(3) Not later than 60 days after the first benefit payment is made to a retired member of the system, the member may elect in lieu of the allowance described by ORS 238.300 a refund service retirement benefit consisting of:

(a) A refund of accumulated contributions by the member and interest thereon credited at the time of retirement;

(b) An amount that matches the amount of accumulated contributions by the member and interest thereon, provided by the contributions of employers; and

(c) Interest on the amounts described in paragraphs (a) and (b) of this subsection from the effective date of retirement until the amounts are paid.

[(3)] (4)(a) If the member elects to receive the service retirement benefit described in subsection (2) or (3) of this section, the member shall elect at the same time to receive the refund described in subsection (2)(a) or (3) of this section in one lump sum payment or in more than one but not more than five installment payments. If the member elects installment payments:

(A) The amount to be paid by employer contributions under subsection (3)(b) of this section shall be transferred to the individual account of the member in the Public Employees Retirement Fund as of the effective date of retirement.

[(a)] (B) The installment payments shall be paid once each year for the number of consecutive years equal to the number of installment payments elected.

[(b)] (C) The amount of each installment payment shall be designated by the member at the time of making the election, but the last installment payment shall be the unrefunded balance remaining in the member account of the member in the [Public Employees Retirement] fund.

[(c)] (D) The member account of the member in the fund shall be maintained until the last installment payment is paid. The board shall establish procedures for computing and crediting interest annually on the unrefunded balance of the member account.

[(d)] (E) A yearly installment payment shall be paid on the anniversary of the date of the first installment payment.

[(e)] (F) The member is considered to have elected to transfer any balance in the variable account of the member to the regular account of the member.

[(f)] (G) If the member dies before payment of all installment payments, the unrefunded balance in the member account of the member plus interest to date of disbursement is payable as provided in ORS 238.390 (5).

(b) If a member elects to receive the refund service retirement benefit described in subsection (3) of this section, and does not elect to receive those amounts in installments under the provisions of this subsection, all rights of the member in the system shall terminate upon the payment of the amounts provided for in subsection (3) of this section, except as provided in paragraph (c) of this subsection. If a member elects to receive the refund service retirement benefit described in subsection (3) of this section, and also elects to receive those amounts in installments under the provisions of this subsection, all rights of the member in the system shall terminate upon the making of the first payment, except as provided in paragraph (c) of this subsection.

(c) A member who elects to receive the refund service retirement benefit described in subsection (3) of this section, and any eligible spouse or dependent of the member, shall continue to be eligible for insurance under ORS 238.410, and for any premium payments the member may be entitled to under ORS 238.415 and 238.420.

[(4)] (5) The designation of a beneficiary, the election of an option or any other election or designation under subsection (1), (2), [or] (3) or (4) of this section may be changed by the member within 60 days after the date of the first benefit payment, except that the designation of a beneficiary under Option 4 may be changed by the member at any time before the member's death.

[(5)] (6) If a retired member has elected to receive a service retirement allowance under Option 2A or Option 3A as provided in subsection (1) of this section, and if the beneficiary under that option dies after the expiration of the time within which the member could change the election of an option or if the beneficiary is the spouse of the member and the marriage relationship is terminated as provided by law after the expiration of the time within which the member could change the election of an option, the member may elect to receive, in lieu of the optional form of allowance previously elected, the allowance that the member would have received on the effective date of retirement under Option 1 as provided in subsection (1) of this section and adjusted by the actual amount of any cost of living or other post-retirement adjustments made to the original allowance since the effective date of retirement. Notice of election under this subsection shall be in a form approved by the board. Payment under Option 1 shall be effective for months beginning on or after the date the board receives the election.

[(6)] (7) Notwithstanding any other provision of this section, any member of the system who retired before October 3, 1989, and elected to receive a service retirement allowance under either Option 2 or 3 as provided in subsection (1) of this section shall be entitled to receive a service retirement allowance equal to that which the member would have received on the effective date of retirement under Option 1 as provided in subsection (1) of this section and adjusted by the actual amount of any cost of living or other post-retirement adjustments made to the original allowance since the effective date of retirement if:

(a) The member has attained 80 years of age;

(b) The person designated by the member as the member's beneficiary has predeceased the member; and

[(7)] (8) Notwithstanding any other provision of this section, any member of the system who retired before October 3, 1989, who elected to receive a refund of accumulated employee contributions and a life pension or pensions under subsection (2) of this section, and who elected to convert the life pension or pensions provided for in subsection (2) of this section into a service retirement annuity under Option 2 or 3 under subsection (1) of this section, shall be entitled to receive a life pension or pensions equal to that which the member would have received on the effective date of retirement under subsection (2) of this section and adjusted by the actual amount of any cost of living or other post-retirement adjustments made to the original life pension or pensions since the effective date of retirement if:

(a) The member has attained 80 years of age;

(b) The person designated by the member as the member's beneficiary has predeceased the member; and

[(8)] (9) The service retirement allowance provided in subsection [(6) or (7)] (7) or (8) of this section shall be applicable to the first full month after the death of the member's beneficiary, or the first full month after the member attains 80 years of age, whichever is later.

[(9)] (10) The board may deny an election to convert a service retirement allowance under this section, a change of beneficiary under this section or a change in benefit options under this section if that denial is required to maintain the status of the system and the Public Employees Retirement Fund as a qualified governmental retirement plan and trust under the Internal Revenue Code and under regulations adopted pursuant to the Internal Revenue Code.

SECTION 9. Section 3, chapter 180, Oregon Laws 1997, is amended to read:

Sec. 3. (1) If on [the effective date of this 1997 Act] October 4, 1997, a retired member is eligible for the service retirement allowance provided by ORS 238.305 [(6) or] (7) or (8)[, as amended by section 1 of this 1997 Act,] but was not eligible under ORS 238.305 (1995 Edition):

(a) The member may give written notice of the member's eligibility to the Public Employees Retirement Board at any time after [the effective date of this 1997 Act] October 4, 1997; and

(b) The service retirement allowance of the retired member under ORS 238.305 [(6) or] (7) or (8) [, as amended by section 1 of this 1997 Act,] is first applicable to the first full month after the death of the member's beneficiary, or the first full month after the member attained 80 years of age, whichever is later.

(2) As soon as possible after [the effective date of this 1997 Act] October 4, 1997, the board shall calculate and mail a check for the amount of any retroactive payment required under subsection (1) of this section. The retroactive payment shall represent the difference between the total of all monthly amounts paid to the member before the first recalculated monthly payment is made under subsection (1) of this section, and the total of all monthly amounts that would have been paid to the member if ORS 238.305, as amended by section 1 [of this 1997 Act], chapter 180, Oregon Laws 1997, had been in effect on and after October 3, 1989. In no event shall the increased service allowance under ORS 238.305 [(6)] (7), [as amended by section 1 of this 1997 Act,] or the increased life pension or pensions under ORS 238.305 [(7)] (8), be applicable to any monthly payment that was made before the first full month following October 3, 1989, and no retroactive payment shall be made under this section for any monthly payment that was made before the first full month following October 3, 1989.

SECTION 10. ORS 238.078 is amended to read:

238.078. (1)(a) Any member of the system who is retired at any time after having reached earliest service retirement age, and who has been retired for more than six consecutive calendar months, may be reemployed by any public employer even though such retired member has been receiving retirement benefits.

(b) Any person reemployed as provided in this subsection shall resume making contributions to the retirement fund, and the employer shall make contributions on behalf of the person as provided in ORS 238.225. Payments of retirement allowance received by such person during separation from the service shall not be repaid into the retirement fund after the person reenters public employment except as provided in paragraph (c) of this subsection; but the amount of such payment shall be deducted from such employee's reserve in the retirement fund and the remainder shall be credited pro rata to the funds from which it was derived.

(c) Upon reentering public employment as provided in this subsection, the former retirement of such person and any election of option for payment of retirement benefits theretofore made by the person shall be canceled; and thereafter upon retiring such person may elect any option for payment of retirement benefits authorized by this chapter, except that a person who elected to receive lump sum payment of benefits pursuant to ORS 238.305 (2) or (3) at the time of former retirement may not elect any other option at the time of subsequent retirement unless an amount equal to the lump sum and the interest that would have accumulated on the sum has been repaid by the employee to the fund. Upon such subsequent retirement any prior service pension due the employee shall be derived from the unused portion of the prior service credit reserve and shall be calculated on the basis of then attained age.

(2) Any member of the system who is retired at any time after having reached earliest service retirement age, and who has been retired for less than six consecutive calendar months, may be reemployed by any public employer even though such retired member has been receiving retirement benefits, only upon immediate repayment in a lump sum by the member of the amount of retirement benefits drawn.[, after which repayment] The member account of the member shall be reestablished just as it was at the time of earlier retirement after the lump sum repayment is made.

(3) If a member of the system who retired before August 21, 1981, is reemployed, as provided in this section, beginning on or after August 21, 1981, the service retirement allowance received upon subsequent retirement by the member shall be:

(a) For service before August 21, 1981, an allowance including a current service pension computed on the basis of ORS 237.147 (2) (1979 Replacement Part).

(b) For service on or after August 21, 1981, an allowance including a current service pension computed on the basis of ORS 238.300 (2).

SECTION 11. ORS 238.115, as amended by section 38 of this 2001 Act, is amended to read:

238.115. (1)(a) A member of the system who, after separation from all service entitling the employee to membership in the system and withdrawal of the amount credited to the member account of the member, reenters the service of an employer participating in the system and serves as an active member of the system for 10 years after that reentry, and who has not otherwise obtained restoration of creditable service forfeited by the withdrawal, shall obtain restoration of one full month of creditable service forfeited by the withdrawal for each three full months of service as an active member after that reentry if the member, within 90 days before the effective date of retirement of the member:

(A) Applies in writing to the board for restoration of creditable service; and

(B) Pays to the board in a lump sum for credit to the member account of the member the amount withdrawn and interest on the amount withdrawn compounded annually for each year or portion of a year after the date of the withdrawal and before the effective date of retirement of the member. The interest shall be computed at the annual rate of 7.5 percent.

(b) If a member who obtains restoration of creditable service as provided in this subsection does not obtain restoration of all creditable service forfeited by the withdrawal pursuant to service after reentry, the payment under paragraph (a) of this subsection shall be reduced proportionately to reflect the percentage of creditable service restored.

(c) A member who obtains restoration of creditable service as provided in this subsection is not entitled to elect to receive the service retirement benefit described in ORS 238.305 (2) or (3).

(2) A member who forfeited creditable service rendered to a public employer before March 27, 1953, because under ORS 237.976 (2) the employee withdrew contributions of the employee to the Public Employees Retirement System established by chapter 401, Oregon Laws 1945, and who did not obtain restoration of creditable service so forfeited as provided in chapter 857, Oregon Laws 1977, shall, upon retirement, receive restoration of creditable service so forfeited, if the member, before the effective date of retirement of the member:

(a) Applies in writing to the board for the restoration of the creditable service; and

(b) Pays to the board in a lump sum for credit to the member account of the member an amount determined by the board to be equal to the full amount of contributions so withdrawn and the interest that would have accumulated to the regular account of the member had those contributions not been withdrawn.

(3)(a) A member of the Public Employees Retirement System who was a member of an association established pursuant to ORS chapter 239 (1997 Edition), but separated from all service entitling the employee to membership in the system of the association and withdrew the amount credited to the member account of the employee in the retirement fund of the association, and who, after that separation, entered the service of an employer in the field of education participating in the Public Employees Retirement System and served as an active member of that system for 10 years after that entry, and who has not otherwise obtained restoration of all creditable service forfeited by the withdrawal, shall obtain creditable service as a member of the Public Employees Retirement System equal to all creditable service forfeited by the withdrawal if the member within 90 days before the effective date of retirement of the member:

(A) Applies in writing to the Public Employees Retirement Board for that creditable service; and

(B) Pays to the board in a lump sum for credit to the member account of the member the amount withdrawn and interest on the amount withdrawn compounded annually for each year or portion of a year after the date of the withdrawal and before the effective date of retirement or effective date of application of the member. The interest shall be computed at the rate actually credited to regular accounts for that period.

(b) This subsection provides a method of obtaining creditable service for forfeited creditable service described in this subsection that is in lieu of any application of subsection (1) of this section for that purpose.

SECTION 12. (1) The amendments to ORS 238.305, 238.078 and 238.115 and section 3, chapter 180, Oregon Laws 1997, by sections 8, 9, 10 and 11 of this 2001 Act become operative on January 1, 2003.

(2) The amendments to ORS 238.305 by section 8 of this 2001 Act apply only to members of the Public Employees Retirement System whose effective date of retirement is on or after the effective date of this 2001 Act.

POOLING OF

LOCAL GOVERNMENT EMPLOYERS

SECTION 13. ORS 238.225 is amended to read:

238.225. (1) A participating public employer [that is participating in the system] shall, at intervals designated by the Public Employees Retirement Board, transmit to [it such amounts as are actuarially computed to be necessary, as determined by the board,] the board those amounts the board determines to be actuarially necessary to adequately [provide] fund the benefits to be provided by the contributions of the employer under this chapter. From time to time, the board shall determine the liabilities of the system and shall set the amount of contributions to be made by participating public employers, and by other public employers who are required to make contributions on behalf of members, to ensure that those liabilities will be funded no more than 40 years after the date on which the determination is made. [, including such amounts as are actuarially determined to be necessary to amortize within not less than 30 years after December 31, 1968, all liabilities estimated by the actuary to accrue to the system on account of the pensions to be provided by the contributions of the employer, except as otherwise provided in this section. For the purpose of such actuarial computation only, the school districts of the state shall be regarded as constituting one employer.]

[(2) In addition each such employer shall transmit to the board, at intervals which it designates, such amounts as are actuarially determined, on the basis of an amount per month equal to $6 for each year of prior service or major fraction thereof for a period not exceeding 20 years for employees who last retired prior to April 8, 1953, and prior to becoming eligible for participation in the Old Age, Survivors and Disability Insurance program and on the basis of an amount per month equal to $4 for each year of prior service or major fraction thereof for a period not exceeding 20 years for all other employees, except as provided in subsection (4) of this section, to be necessary to amortize within not less than 30 years after the employer commences participating in the system or after December 31, 1968, whichever occurs last, all liabilities estimated by the actuary to accrue to the system on account of service by the employer's employees prior to the time it commences participating in the system, and all prior service pension included in retirement allowances shall be computed on the basis hereby established; provided, however, that a political subdivision other than a school district may elect not to alter the basis of $2.50 or $4 per month established by its agreement made when it began to participate in the system established by chapter 401, Oregon Laws 1945, as amended. The 1961 amendment to this subsection does not apply with respect to employees receiving prior service pension on the basis of $6 per month for each year of prior service credit allowed under the amendment to this subsection by section 3, chapter 623, Oregon Laws 1959.]

[(3) A political subdivision which had withdrawn prior to January 1, 1956, from the Public Employees Retirement System may elect to increase the benefits payable for prior service to it from $2.50 to $4 per month for each year of prior service allowed; provided, that the administrative head of the withdrawn employer enters into an agreement with the Public Employees Retirement Board, binding such political subdivision to (a) transmit to the board, as hereinabove provided, payments including the cost of increased benefits, (b) pay for such increase of benefits for all its current employees with prior service credit who have maintained membership in the Public Employees Retirement System and for all its past employees who have maintained such membership and who have prior service credit for service to such withdrawn public employer, and (c) pay for such increase of benefits for all annuitants who on the effective date of the agreement are receiving payment for prior service to such employer, the increase to be effective from and after the date of executing the agreement. An agreement so executed shall be irrevocable by the political subdivision, which shall be liable thereon and subject to legal action therefor by the board until all obligations of such agreement are fully discharged.]

[(4) Subject to the rules of the board and except as this chapter otherwise provides, credit shall be granted:]

[(a) An employee of the state who is a member of the system for continuous service, for a period not exceeding 20 years, to the state prior to July 1, 1946.]

[(b) A school district employee who is a member of the system for continuous service to all school districts of the state as provided in subsection (6) of this section.]

[(c) An employee of a public employer other than the state or a school district who is a member of the system for continuous service, on the basis of the formula agreed upon as provided in this subsection, to that public employer prior to the time it commences to participate in the system.]

[Within 60 days after an employer becomes a participant in the system the board shall issue the member entitled to such credit a certificate of the aggregate of such credit to which the member is entitled. The certificate shall be final unless the board, for cause upon the motion of the member or board, modifies the certificate. The board may arrange with a political subdivision other than a school district, or with an agency created by two or more such political subdivisions to provide themselves governmental services, for determining, on the basis of a formula agreed upon by the board and the governing body of the subdivision or agency, the years of credit which an employee of the subdivision or agency is to receive for service to it prior to the time that it commences to participate in the system, without limitation as to the number of years of such prior service, and any such employee may be given credit for accumulated seasonal employment for such subdivision or agency if the employee has become a regular employee thereof. The amendments to this subsection and to subsection (5) of this section by section 5, chapter 640, Oregon Laws 1969, shall be deemed to have been in effect since the inception of the system.]

[(5) When the formula referred to in subsection (4) of this section has been agreed upon and the years of prior service credit have been determined, a political subdivision or agency created by two or more political subdivisions to provide themselves governmental services which desires to increase such credit to its employees may apply to the retirement board for a revision of the formula within the limitations of this chapter. If the board agrees to such revision, the cost incurred in reviewing the records of such employer's employees and making any actuarial computation required to effect an increase of prior service credit shall be borne by the political subdivision or agency.]

[(6) Each school district employee who is a member of the system shall be granted full credit, for a period not exceeding 20 years, for continuous service to all school districts of the state prior to July 1, 1946. Each school district shall transmit to the board, at intervals which it designates, such amounts as are actuarially determined, on the basis stated in subsection (2) of this section, to be necessary to amortize, within not less than 30 years after December 31, 1968, all liabilities estimated by the actuary to accrue to the system on account of service by school district employees prior to July 1, 1946.]

(2) For the purpose of the actuarial computation required under subsection (1) of this section:

(a) The school districts of the state shall be regarded as a single employer; and

(b) All community college districts and the state shall be regarded as a single employer.

(3) For the purpose of the actuarial computation required under subsection (1) of this section, any participating public employer may elect to be grouped with the state and all community college districts and treated as a single employer for actuarial purposes only. An election under this subsection may be made only by participating public employers other than school districts and community college districts. Any public employer that makes an election under this subsection may not revoke the election.

(4) The computation of the contributions of a participating public employer that makes an election under the provisions of subsection (3) of this section shall be based only on the liabilities of the employer that are incurred after the effective date of the employer's election. The board shall separately compute the contribution of the employer for the liabilities incurred by the employer before the effective date of the employer's election.

(5) A participating public employer may make an election under subsection (3) of this section only by the adoption of a resolution or ordinance by the governing body of the public employer.

(6) Except as provided in subsection (2) of this section, the board may not require that any participating public employer be grouped with any other participating public employer for the purpose of the actuarial computation required under subsection (1) of this section. If two participating public employers merge or otherwise consolidate, and one of the public employers has made an election under subsection (3) of this section:

(a) The board may not require that the public employer that is the product of the consolidation be grouped with the state and all community college districts unless the public employer makes an election under subsection (3) of this section; and

(b) The board may require that the public employer that is the product of the consolidation make contributions based on the group rate only for those members for whom contributions based on the group rate were made before the consolidation.

(7) Except as provided in this section, the board may not group participating public employers for the purposes of the actuarial computation required by subsection (1) of this section.

SECTION 14. The amendments to ORS 238.225 by section 13 of this 2001 Act do not affect any right to receive prior service credit, or any obligation to provide prior service credit, incurred under ORS 238.225 before the effective date of this 2001 Act.

SECTION 15. ORS 238.230 is repealed.

EMPLOYER PARTICIPATION IN

VARIABLE ANNUITY ACCOUNT

INVESTMENTS

SECTION 16. Section 17 of this 2001 Act is added to and made a part of ORS chapter 238.

SECTION 17. (1) The Public Employees Retirement Board, on a regular basis, shall determine for each participating public employer the total amount of all member accounts in the Variable Annuity Account held by active or inactive members who are or were employed by the employer. The board shall provide the total amount for each employer so determined to the Oregon Investment Council. The Oregon Investment Council shall invest moneys equal to the amounts specified by the board in the same fund or funds in which Variable Annuity Account moneys are invested.

(2) The moneys invested by the Oregon Investment Council under this section shall be moneys of the Public Employees Retirement Fund that are assets attributable to employer contributions and earnings on those contributions, but that are not assets of the reserve account established under ORS 238.255 or assets of member accounts maintained under ORS 238.250 or 238.260. The board shall credit or charge earnings and losses produced by investments made under this section to each public employer, based on the amount determined for the employer under subsection (1) of this section, for the purpose of matching earnings credited to the Variable Annuity Account on behalf of the active and inactive members who are or were employed by the employer.

(3) Investments authorized under this section are not subject to the limitations on investment imposed by ORS 293.726 (6).

(4) Nothing in this section shall be construed to convey to any participating public employer any proprietary interest in the Public Employees Retirement Fund or in the contributions made to the fund by those employers.

SECTION 18. Nothing in this 2001 Act affects any civil action that was commenced before the effective date of this 2001 Act in which the Public Employees Retirement Board is a defendant, or in any way operates to modify the meaning of the provisions of ORS chapter 238 or to express legislative intent as to the meaning of the provisions of ORS chapter 238, for the purposes of actions taken by the Public Employees Retirement Board before the effective date of this 2001 Act that are the subject of the civil action.

NOTE: Section 19 was deleted by amendment. Subsequent sections were not renumbered.

CREDITING OF EARNINGS TO EMPLOYERS

UPON DEATH OR RETIREMENT OF MEMBER

SECTION 20. Section 21 of this 2001 Act is added to and made a part of ORS chapter 238.

SECTION 21. Upon the death or retirement of a member of the Public Employees Retirement System, the Public Employees Retirement Board shall credit earnings to the participating public employer or employers that employed the member. The board shall credit earnings to the amounts charged to each employer by reason of the death or retirement. The earnings rate used by the board shall be the same rate that the board uses for crediting member accounts at the time the charge is made.

BONDING OF LOCAL GOVERNMENT

UNFUNDED PERS LIABILITIES

SECTION 22. Sections 23, 24, 25, 26 and 27 of this 2001 Act are added to and made a part of ORS chapter 238.

SECTION 23. As used in sections 23 to 27 of this 2001 Act:

(1) “Governmental unit” has the meaning given that term in ORS 288.150, and includes an agency created by two or more political subdivisions pursuant to ORS 190.003 to 190.130 or 190.265.

(2) “Pension liability” means:

(a) Monetary obligations of a participating public employer for which the employer is or will be required to transmit amounts to the Public Employees Retirement Board under the provisions of ORS 238.225, including any obligations arising out of an integration contract under ORS 238.680, or any other liability of a governmental unit that is attributable to an obligation to pay pensions or other retirement benefits to officers or employees of the governmental unit, whether active or retired; and

(b) Monetary obligations of a public employer arising out of an integration contract under ORS 238.680 for which the employer is required to transmit amounts to the Public Employees Retirement Board.

(3) “State agency” means any officer, board, commission, department, division or institution in the administrative branch of state government.

SECTION 24. (1) The Legislative Assembly finds that authorizing issuance of limited tax bonds or revenue bonds to finance pension liabilities may reduce the cost of public pensions to taxpayers and that the reduction of those costs to taxpayers is a matter of statewide concern.

(2) Notwithstanding any limitation on indebtedness or borrowing under state or local law, for the purpose of obtaining funds to pay the pension liability of a governmental unit, the governing body of a governmental unit may authorize and cause the issuance of limited tax bonds as defined in ORS 288.150, revenue bonds authorized by charter or pursuant to ORS 288.805 to 288.945, or any combination of those bonds. The governing body of a governmental unit may pledge the full faith and credit and taxing power of the governmental unit to the payment of the principal and interest on bonds issued under sections 23 to 27 of this 2001 Act, and any premium on those bonds.

(3) Limited tax bonds authorized under this section must be issued in the manner prescribed by ORS chapters 287 and 288 for the issuance of limited tax bonds. A county may not issue limited tax bonds under this section for an amount that exceeds five percent of the real market value of the taxable property within the boundaries of the county.

(4) Revenue bonds authorized under this section need not comply with the procedure specified in ORS 288.815.

(5) A governmental unit that issues limited tax bonds or revenue bonds under this section may also issue limited tax bonds or revenue bonds for the purpose of refunding the bonds.

(6) A governmental unit may enter into indentures or other agreements with trustees or escrow agents for the issuance, administration or payment of bonds authorized under this section.

(7) The state may not issue bonds under the provisions of this section.

SECTION 25. (1) Governmental units may enter into intergovernmental agreements for the collective issuance, administration or payment of bonds authorized under section 24 of this 2001 Act. An agreement for collective issuance, administration or payment of bonds under this subsection may provide for the contribution and pooling of the assets of the governmental units as security for the bonds, and may make provisions for such other matters as the governmental units determine convenient. Notwithstanding ORS 190.080, any intergovernmental entity created by governmental units under this section shall have the power to issue bonds as described in section 24 of this 2001 Act. The bonds may be issued and sold as parity bonds, issued and sold individually or issued and sold in such combinations or forms as determined to be appropriate by the governmental units.

(2) Proceeds of bonds sold under an intergovernmental agreement entered into under this section, and any other funds or assets of a governmental unit, together with interest or earnings on the proceeds, funds and assets, may be consolidated into one or more funds or accounts and may be pledged to the holders of the bonds.

(3) Governmental units may enter into indentures or other agreements with trustees or escrow agents for the issuance, administration or payment of bonds pursuant to an intergovernmental agreement entered into under this section.

(4) The State Treasurer may cooperate with, assist and provide recommendations to governmental units, and any intergovernmental entity created by governmental units under this section, relating to all matters involved in the issuance, administration and payment of bonds. Any expenses incurred by the State Treasurer in providing assistance to governmental units under this section may be paid as an administrative expense of the governmental unit from the proceeds of the bonds issued with the assistance of the State Treasurer.

SECTION 26. (1) A governmental unit, or a group of governmental units that enter into an intergovernmental agreement under section 25 of this 2001 Act, may establish a debt service trust fund for the purpose of paying the principal and interest on bonds issued under sections 23 to 27 of this 2001 Act. The trustee of the debt service trust fund shall hold the moneys paid into the trust fund solely for the purpose of paying the principal and interest on bonds issued under sections 23 to 27 of this 2001 Act and for paying the administrative costs of the trust fund.

(2) Moneys held in a debt service trust fund are subject to the limitations on investment imposed by ORS 294.033 and 294.035.

(3) A governmental unit, or a group of governmental units that enter into an intergovernmental agreement under section 25 of this 2001 Act, that has established a debt service trust fund under this section may not divert or pledge any moneys paid into the trust fund for any purpose other than the purpose specified in subsection (1) of this section until the total amount of principal and interest on bonds issued by the governmental unit or under the intergovernmental agreement, and any premium on those bonds, is paid.

SECTION 27. (1) A governmental unit, or a group of governmental units that enter into an intergovernmental agreement under section 25 of this 2001 Act, that receives funds from any state agency may enter into a funds diversion agreement with the state agency for the purpose of paying the principal and interest on bonds issued under sections 23 to 27 of this 2001 Act, and any premium on those bonds. A diversion agreement entered into under this section must provide that:

(a) Moneys payable to the governmental unit or governmental units by the state agency from appropriations from the General Fund or any other source of moneys will be paid directly to a debt service trust fund established under section 26 of this 2001 Act in amounts equal to the debt service owed by the governmental unit or governmental units;

(b) The state agency must pay the amounts required under the funds diversion agreement to the debt service trust fund established under section 26 of this 2001 Act pursuant to the schedule specified in the agreement before paying any other amounts to the governmental unit or governmental units;

(c) The agreement is irrevocable; and

(d) The agreement will remain in effect until all the bonds issued by the governmental unit or under the intergovernmental agreement are mature or redeemed.

(2) If for any reason a state agency that has entered into a funds diversion agreement is not able to pay moneys to a debt service trust fund as contemplated by the agreement, the state agency shall give notice to the governmental unit or governmental units within 30 days after the state agency is aware that the moneys will not be paid.

(3) Nothing in this section, or in any funds diversion agreement entered into by a state agency under this section, may in any manner obligate the state or any state agency:

(a) To pay any amount to a governmental unit that the governmental unit is not otherwise entitled to receive under law; or

(b) To pay any principal or interest on bonds issued under sections 23 to 27 of this 2001 Act.

MEMBER ACCOUNTS

SECTION 28. ORS 237.410 is amended to read:

237.410. As used in ORS 237.420 to 237.520, unless the context requires otherwise:

(1) “Public agency” or “political subdivision” means the State of Oregon, any city, county, municipal or public corporation or any political subdivision of the State of Oregon or any instrumentality thereof, or any school district, or any agency created by two or more political subdivisions [referred to in ORS 238.005 (9)] to provide themselves governmental services, the employees of which constitute a coverage group. For purposes of ORS 237.420 to 237.520, such agency created by two or more political subdivisions is a governmental instrumentality and a legal entity with power to enter into contracts, hold property and sue and be sued.

(2) “Coverage group” has the meaning given that term by the provisions of section 218 of title 2 of the federal Social Security Act, and amendments thereto, and applicable federal regulations adopted pursuant thereto.

SECTION 29. ORS 238.005 is amended to read:

238.005. For purposes of this chapter:

(1) [The term] “Annuity” means payments for life derived from contributions made by a member as provided in this chapter.

(2) “Board” means the Public Employees Retirement Board.

[(2)] (3) [The term] “Calendar year” means 12 calendar months commencing on January 1 and ending on December 31 following.

[(3)] (4) [The term] “Continuous service” means service not interrupted for more than five years, except that such continuous service shall be computed without regard to interruptions in the case of:

(a) An employee who had returned to the service of the employer as of January 1, 1945, and who remained in that employment until having established membership in the Public Employees Retirement System.

(b) An employee who was in the armed services on January 1, 1945, and returned to the service of the employer within one year of the date of being otherwise than dishonorably discharged and remained in that employment until having established membership in the Public Employees Retirement System.

[(4)] (5) [The term] “Creditable service” means any period of time during which an active member is being paid a salary by a participating public employer and contributions are being made to the system either by or on behalf of the member. For purposes of computing years of “creditable service,” full months and major fractions of a month shall be considered to be one-twelfth of a year and shall be added to all full years. “Creditable service” includes all retirement credit received by a member.

(6) “Earliest service retirement age” means the age attained by a member when the member could first make application for retirement under the provisions of ORS 238.280.

[(5)] (7) [The term] “Employee” includes, in addition to employees, public officers, but does not include:

(a) Persons engaged as independent contractors.

(b) Seasonal, emergency or casual workers whose periods of employment with any public employer or public employers do not total 600 hours in any calendar year.

(c) Persons, other than workers in the Oregon Industries for the Blind under ORS 346.190, provided sheltered employment or made-work by a public employer in an employment or industries program maintained for the benefit of such persons.

(d) Persons employed and paid from federal funds received under the Emergency Job and Unemployment Assistance Act of 1974 (Public Law 93-567) or any other federal program intended primarily to alleviate unemployment. However, any such person shall be considered an “employee” if not otherwise excluded by paragraphs (a) to (c) of this subsection and the public employer elects to have the person so considered by an irrevocable written notice to the board.

(e) Persons who are employees of a railroad, as defined in ORS 824.020, and who, as such employees, are included in a retirement plan under federal railroad retirement statutes. This paragraph shall be deemed to have been in effect since the inception of the system.

(8) “Final average salary” means whichever of the following is greater:

(a) The average salary per calendar year paid by one or more participating public employers to an employee who is an active member of the system in three of the calendar years of membership before the effective date of retirement of the employee, in which three years the employee was paid the highest salary. The three calendar years in which the employee was paid the largest total salary may include calendar years in which the employee was employed for less than a full calendar year. If the number of calendar years of active membership before the effective date of retirement of the employee is three or fewer, the final average salary for the employee is the average salary per calendar year paid by one or more participating public employers to the employee in all of those years, without regard to whether the employee was employed for the full calendar year.

(b) One-third of the total salary paid by a participating public employer to an employee who is an active member of the system in the last 36 calendar months of active membership before the effective date of retirement of the employee.

(9) “Firefighter” does not include a volunteer firefighter as defined in subsection (23) of this section, but does include:

(a) The State Fire Marshal, the chief deputy fire marshal and deputy state fire marshals; and

(b) An employee of the State Forestry Department who is certified by the State Forester as a professional wildland firefighter and whose primary duties include the abatement of uncontrolled fires as described in ORS 477.064.

[(6)] (10) [The term] “Fiscal year” means 12 calendar months commencing on July 1 and ending on June 30 following.

(11) “Fund” means the Public Employees Retirement Fund.

[(7)(a)] (12)(a) [The term] “Member” means a person who has established membership in the system and whose membership has not been terminated as described in ORS 238.095. “Member” includes active, inactive and retired members.

(b) “Active member” means a member who is presently employed by a participating public employer in a position that meets the requirements of ORS 238.015 (4), and who has completed the six-month period of service required by ORS 238.015.

(c) “Inactive member” means a member who is absent from the service of all employers participating in the system, whose membership has not been terminated in the manner described by ORS 238.095, and who is not retired for service or disability. “Inactive member” includes a member who would be an active member except that the person's only employment with a participating public employer is in a position that does not meet the requirements of ORS 238.015 (4).

(d) “Retired member” means a member who is retired for service or disability.

(13)(a) “Member account” means the regular account and the variable account.

(b) “Regular account” means the account established for each active and inactive member under ORS 238.250.

(c) “Variable account” means the account established for a member who participates in the Variable Annuity Account under ORS 238.260.

(14) “Normal retirement age” means:

(a) For a person who establishes membership in the system before January 1, 1996, as described in ORS 238.430, 55 years of age if the employee retires at that age as a police officer or firefighter or 58 years of age if the employee retires at that age as other than a police officer or firefighter.

(b) For a person who establishes membership in the system on or after January 1, 1996, as described in ORS 238.430, 55 years of age if the employee retires at that age as a police officer or firefighter or 60 years of age if the employee retires at that age as other than a police officer or firefighter.

[(8)] (15) [The term] “Pension” means annual payments for life derived from contributions by one or more public employers.

(16) “Police officer” includes:

(a) Employees of institutions defined in ORS 421.005 as Department of Corrections institutions whose duties, as assigned by the Director of the Department of Corrections, include the custody of persons committed to the custody of or transferred to the Department of Corrections and employees of the Department of Corrections who were classified as police officers on or before July 27, 1989, whether or not such classification was authorized by law.

(b) Employees of the Department of State Police who are classified as police officers by the Superintendent of State Police.

(c) Employees of the Oregon Liquor Control Commission who are classified as enforcement officers by the administrator of the commission.

(d) Sheriffs and those deputy sheriffs or other employees of a sheriff whose duties, as classified by the sheriff, are the regular duties of police officers or corrections officers.

(e) Police chiefs and police personnel of a city who are classified as police officers by the council or other governing body of the city.

(f) Parole and probation officers employed by the Department of Corrections and parole and probation officers who are transferred to county employment under ORS 423.549.

(g) Police officers appointed under ORS 276.021 or 276.023.

(h) Employees of the Port of Portland who are classified as airport police by the Board of Commissioners of the Port of Portland.

(i) Employees of the State Department of Agriculture who are classified as livestock police officers by the Director of Agriculture.

(j) Employees of the Department of Public Safety Standards and Training who are classified by the department as other than secretarial or clerical personnel.

(k) Investigators of the Criminal Justice Division of the Department of Justice.

(L) Corrections officers as defined in ORS 181.610.

(m) Employees of the Oregon State Lottery Commission who are classified by the Director of the Oregon State Lottery as enforcement agents pursuant to ORS 461.110.

(n) The Director of the Department of Corrections.

(o) An employee who for seven consecutive years has been classified as a police officer as defined by this section, and who is employed or transferred by the Department of Corrections to fill a position designated by the Director of the Department of Corrections as being eligible for police officer status.

(p) An employee of the Department of Corrections classified as a police officer on or prior to July 27, 1989, whether or not that classification was authorized by law, as long as the employee remains in the position held on July 27, 1989. The initial classification of an employee under a system implemented pursuant to ORS 240.190 does not affect police officer status.

(q) Employees of a school district who are appointed and duly sworn members of a law enforcement agency of the district as provided in ORS 332.531 or otherwise employed full-time as police officers commissioned by the district.

(r) Employees at the MacLaren School, Hillcrest School of Oregon and other youth correction facilities and juvenile detention facilities under ORS 419A.050, 419A.052 and 420.005 to 420.915, who are required to hold valid Oregon teaching licenses and who have supervisory, control or teaching responsibilities over juveniles committed to the custody of the Department of Corrections or the Oregon Youth Authority.

(s) Employees at youth correction facilities as defined in ORS 420.005 whose primary job description involves the custody, control, treatment, investigation or supervision of juveniles placed in such facilities.

(t) Employees of the Oregon Youth Authority who are classified as juvenile parole and probation officers.

[(9)] (17) [The term] “Public employer” means the state, one of its agencies, any city, county, municipal or public corporation, any political subdivision of the state or any instrumentality thereof, or an agency created by two or more such political subdivisions to provide themselves governmental services. For purposes of this chapter, such agency created by two or more political subdivisions is a governmental instrumentality and a legal entity with power to enter into contracts, hold property and sue and be sued.

(18) “Prior service credit” means credit provided under section 75 of this 2001 Act or under ORS 238.225 (2) to (6) (1999 Edition).

[(10)] (19) [The term] “Retirement credit” means a period of time that is treated as creditable service for the purposes of this chapter.

[(11)(a)] (20)(a) [The term] “Salary” means the remuneration paid an employee in cash out of the funds of a public employer in return for services to the employer, plus the monetary value, as determined by the Public Employees Retirement Board, of whatever living quarters, board, lodging, fuel, laundry and other advantages the employer furnishes the employee in return for services.

(b) “Salary” includes but is not limited to:

(A) Payments of employee and employer money into a deferred compensation plan, which are deemed salary paid in each month of deferral;

(B) The amount of participation in a tax-sheltered or deferred annuity, which is deemed salary paid in each month of participation; and

(C) Retroactive payments made to an employee to correct a clerical error or pursuant to an award by a court or by order of or a conciliation agreement with an administration agency charged with enforcing federal or state law protecting the employee's rights to employment or wages, which shall be allocated to and deemed paid in the periods in which the work was done or in which it would have been done.

(A) Travel or any other expenses incidental to employer's business which is reimbursed by the employer;

(B) Payments for insurance coverage by an employer on behalf of employee or employee and dependents, for which the employee has no cash option;

(D) Any lump sum payment for accumulated unused sick leave;

(E) Any accelerated payment of an employment contract for a future period or an advance against future wages;

(F) Any retirement incentive, retirement severance pay, retirement bonus or retirement gratuitous payment;

(G) Payments for periods of leave of absence after the date the employer and employee have agreed that no future services qualifying pursuant to ORS 238.015 (3) will be performed, except for sick leave and vacation;

(H) Payments for instructional services rendered to institutions of the Department of Higher Education or the Oregon Health Sciences University when such services are in excess of full-time employment subject to this chapter. A person employed under a contract for less than 12 months is subject to this subparagraph only for the months to which the contract pertains; or

(I) Payments made by an employer for insurance coverage provided to a domestic partner of an employee.

(21) “School year” means the period beginning July 1 and ending June 30 next following.

(22) “System” means the Public Employees Retirement System.

[(12)] (23) [The term] “Volunteer firefighter” means a firefighter whose position normally requires less than 600 hours of service per year.

[(13) The term “school year” means the period beginning July 1 and ending June 30 next following.]

[(14) The term “police officer” includes:]

[(a) Employees of institutions defined in ORS 421.005 as Department of Corrections institutions, whose duties, as assigned by the director, include the custody of persons committed to the custody of or transferred to the Department of Corrections and any other employee of the Department of Corrections who was classified as a police officer on or before July 27, 1989, whether or not such classification was authorized by law.]

[(b) Employees of the Department of State Police who are classified as police officers by the Superintendent of State Police.]

[(c) Employees of the Oregon Liquor Control Commission who are classified as enforcement officers by the administrator of the commission.]

[(d) Sheriffs and those deputy sheriffs or other employees of a sheriff whose duties, as classified by the sheriff, are the regular duties of police officers or corrections officers.]

[(e) Police chiefs and police personnel of a city who are classified as police officers by the council or other governing body of the city.]

[(f) Parole and probation officers employed by the Department of Corrections and parole and probation officers who are transferred to county employment under ORS 423.549.]

[(g) Police officers appointed under ORS 276.021 or 276.023.]

[(h) Employees of the Port of Portland who are classified as airport police by the Board of Commissioners of the Port of Portland.]

[(i) Employees of the State Department of Agriculture who are classified as livestock police officers by the Director of Agriculture.]

[(j) Employees of the Department of Public Safety Standards and Training who are classified by the department as other than secretarial or clerical personnel.]

[(k) Investigators of the Criminal Justice Division of the Department of Justice.]

[(L) Corrections officers as defined in ORS 181.610.]

[(m) Employees of the Oregon State Lottery Commission who are classified by the Director of the Oregon State Lottery as enforcement agents pursuant to ORS 461.110.]

[(n) The Director of the Department of Corrections.]

[(o) An employee who for seven consecutive years has been classified as a police officer as defined by this section, and who is employed or transferred by the Department of Corrections to fill a position designated by the director as being eligible for police officer status.]

[(p) An employee of the Department of Corrections classified as a police officer on or prior to July 27, 1989, whether or not that classification was authorized by law, so long as the employee remains in the position held on July 27, 1989. The initial classification of an employee under a system implemented pursuant to ORS 240.190 will not affect police officer status.]

[(q) Employees of a school district who are appointed and duly sworn members of a law enforcement agency of the district as provided in ORS 332.531 or otherwise employed full-time as police officers commissioned by the district.]

[(r) Employees at the MacLaren School, Hillcrest School of Oregon and other youth correction facilities and juvenile detention facilities under ORS 419A.050, 419A.052 and 420.005 to 420.915, who are required to hold valid Oregon teaching licenses and who have supervisory, control or teaching responsibilities over juveniles committed to the custody of the Department of Corrections or the Oregon Youth Authority.]

[(s) Employees at youth correction facilities as defined in ORS 420.005 whose primary job description involves the custody, control, treatment, investigation or supervision of juveniles placed in such facilities.]

[(t) Employees of the Oregon Youth Authority who are classified as juvenile parole and probation officers.]

[(15) The term “final average salary” means whichever of the following is greater:]

[(a) The average salary per calendar year paid by one or more participating public employers to an employee who is an active member of the system in three of the calendar years of membership before the effective date of retirement of the employee, in which three years the employee was paid the highest salary. The three calendar years in which the employee was paid the largest total salary may include calendar years in which the employee was employed for less than a full calendar year. If the number of calendar years of active membership before the effective date of retirement of the employee is three or less, the final average salary for the employee is the average salary per calendar year paid by one or more participating public employers to the employee in all of those years, without regard to whether the employee was employed for the full calendar year.]

[(b) One-third of the total salary paid by a participating public employer to an employee who is an active member of the system in the last 36 calendar months of active membership before the effective date of retirement of the employee.]

[(16) The term “firefighter” does not include a volunteer firefighter as defined in subsection (12) of this section, but does include:]

[(a) The State Fire Marshal, the chief deputy fire marshal and deputy state fire marshals; and]

[(b) An employee of the State Forestry Department who is certified by the State Forester as a professional wildland firefighter and whose primary duties include the abatement of uncontrolled fires as described in ORS 477.064.]

[(17) “Earliest service retirement age” means the age attained by a member when the member could first make application for retirement under the provisions of ORS 238.280.]

[(18) The term “normal retirement age” means:]

[(a) For a person who establishes membership in the system before January 1, 1996, as described in ORS 238.430, 55 years of age if the employee retires at that age as a police officer or firefighter or 58 years of age if the employee retires at that age as other than a police officer or firefighter.]

[(b) For a person who establishes membership in the system on or after January 1, 1996, as described in ORS 238.430, 55 years of age if the employee retires at that age as a police officer or firefighter or 60 years of age if the employee retires at that age as other than a police officer or firefighter.]

SECTION 29a. If House Bill 3406 becomes law, section 29 of this 2001 Act (amending ORS 238.005) is repealed and ORS 238.005, as amended by section 1, chapter 968, Oregon Laws 2001 (Enrolled House Bill 3406), is amended to read:

238.005. For purposes of this chapter:

(1) [The term] “Annuity” means payments for life derived from contributions made by a member as provided in this chapter.

(2) “Board” means the Public Employees Retirement Board.

[(2)] (3) [The term] “Calendar year” means 12 calendar months commencing on January 1 and ending on December 31 following.

(6) “Earliest service retirement age” means the age attained by a member when the member could first make application for retirement under the provisions of ORS 238.280.

[(5)] (7) [The term] “Employee” includes, in addition to employees, public officers, but does not include:

(a) Persons engaged as independent contractors.

(b) Seasonal, emergency or casual workers whose periods of employment with any public employer or public employers do not total 600 hours in any calendar year.

(8) “Final average salary” means whichever of the following is greater:

(9) “Firefighter” does not include a volunteer firefighter as defined in subsection (23) of this section, but does include:

(a) The State Fire Marshal, the chief deputy fire marshal and deputy state fire marshals; and

[(6)] (10) [The term] “Fiscal year” means 12 calendar months commencing on July 1 and ending on June 30 following.

(11) “Fund” means the Public Employees Retirement Fund.

(d) “Retired member” means a member who is retired for service or disability.

(13)(a) “Member account” means the regular account and the variable account.

(b) “Regular account” means the account established for each active and inactive member under ORS 238.250.

(c) “Variable account” means the account established for a member who participates in the Variable Annuity Account under ORS 238.260.

(14) “Normal retirement age” means:

[(8)] (15) [The term] “Pension” means annual payments for life derived from contributions by one or more public employers.

(16) “Police officer” includes:

(b) Employees of the Department of State Police who are classified as police officers by the Superintendent of State Police.

(c) Employees of the Oregon Liquor Control Commission who are classified as enforcement officers by the administrator of the commission.

(d) Sheriffs and those deputy sheriffs or other employees of a sheriff whose duties, as classified by the sheriff, are the regular duties of police officers or corrections officers.

(e) Police chiefs and police personnel of a city who are classified as police officers by the council or other governing body of the city.

(f) Parole and probation officers employed by the Department of Corrections, parole and probation officers who are transferred to county employment under ORS 423.549 and adult parole and probation officers, as defined in ORS 181.610, who are classified as police officers for the purposes of this chapter by the county governing body. If a county classifies adult parole and probation officers as police officers for the purposes of this chapter, and the employees so classified are represented by a labor organization, any proposal by the county to change that classification or to cease to classify adult parole and probation officers as police officers for the purposes of this chapter is a mandatory subject of bargaining.

(g) Police officers appointed under ORS 276.021 or 276.023.

(h) Employees of the Port of Portland who are classified as airport police by the Board of Commissioners of the Port of Portland.

(i) Employees of the State Department of Agriculture who are classified as livestock police officers by the Director of Agriculture.

(j) Employees of the Department of Public Safety Standards and Training who are classified by the department as other than secretarial or clerical personnel.

(k) Investigators of the Criminal Justice Division of the Department of Justice.

(L) Corrections officers as defined in ORS 181.610.

(m) Employees of the Oregon State Lottery Commission who are classified by the Director of the Oregon State Lottery as enforcement agents pursuant to ORS 461.110.

(n) The Director of the Department of Corrections.

(t) Employees of the Oregon Youth Authority who are classified as juvenile parole and probation officers.

(18) “Prior service credit” means credit provided under section 75 of this 2001 Act or under ORS 238.225 (2) to (6) (1999 Edition).

[(10)] (19) [The term] “Retirement credit” means a period of time that is treated as creditable service for the purposes of this chapter.

(b) “Salary” includes but is not limited to:

(A) Payments of employee and employer money into a deferred compensation plan, which are deemed salary paid in each month of deferral;

(B) The amount of participation in a tax-sheltered or deferred annuity, which is deemed salary paid in each month of participation; and

(A) Travel or any other expenses incidental to employer's business which is reimbursed by the employer;

(B) Payments for insurance coverage by an employer on behalf of employee or employee and dependents, for which the employee has no cash option;

(D) Any lump sum payment for accumulated unused sick leave;

(E) Any accelerated payment of an employment contract for a future period or an advance against future wages;

(F) Any retirement incentive, retirement severance pay, retirement bonus or retirement gratuitous payment;

(I) Payments made by an employer for insurance coverage provided to a domestic partner of an employee.

(21) “School year” means the period beginning July 1 and ending June 30 next following.

(22) “System” means the Public Employees Retirement System.

[(12)] (23) [The term] “Volunteer firefighter” means a firefighter whose position normally requires less than 600 hours of service per year.

[(13) The term “school year” means the period beginning July 1 and ending June 30 next following.]

[(14) The term “police officer” includes:]

[(b) Employees of the Department of State Police who are classified as police officers by the Superintendent of State Police.]

[(c) Employees of the Oregon Liquor Control Commission who are classified as enforcement officers by the administrator of the commission.]

[(d) Sheriffs and those deputy sheriffs or other employees of a sheriff whose duties, as classified by the sheriff, are the regular duties of police officers or corrections officers.]

[(e) Police chiefs and police personnel of a city who are classified as police officers by the council or other governing body of the city.]

[(f) Parole and probation officers employed by the Department of Corrections, parole and probation officers who are transferred to county employment under ORS 423.549 and adult parole and probation officers, as defined in ORS 181.610, who are classified as police officers for the purposes of this chapter by the county governing body. If a county classifies adult parole and probation officers as police officers for the purposes of this chapter, and the employees so classified are represented by a labor organization, any proposal by the county to change that classification or to cease to classify adult parole and probation officers as police officers for the purposes of this chapter is a mandatory subject of bargaining.]

[(g) Police officers appointed under ORS 276.021 or 276.023.]

[(h) Employees of the Port of Portland who are classified as airport police by the Board of Commissioners of the Port of Portland.]

[(i) Employees of the State Department of Agriculture who are classified as livestock police officers by the Director of Agriculture.]

[(j) Employees of the Department of Public Safety Standards and Training who are classified by the department as other than secretarial or clerical personnel.]

[(k) Investigators of the Criminal Justice Division of the Department of Justice.]

[(L) Corrections officers as defined in ORS 181.610.]

[(m) Employees of the Oregon State Lottery Commission who are classified by the Director of the Oregon State Lottery as enforcement agents pursuant to ORS 461.110.]

[(n) The Director of the Department of Corrections.]

[(t) Employees of the Oregon Youth Authority who are classified as juvenile parole and probation officers.]

[(15) The term “final average salary” means whichever of the following is greater:]

[(16) The term “firefighter” does not include a volunteer firefighter as defined in subsection (12) of this section, but does include:]

[(a) The State Fire Marshal, the chief deputy fire marshal and deputy state fire marshals; and]

[(17) “Earliest service retirement age” means the age attained by a member when the member could first make application for retirement under the provisions of ORS 238.280.]

[(18) The term “normal retirement age” means:]

SECTION 30. ORS 238.015 is amended to read:

238.015. (1) No person may become a member of the system unless that person is in the service of a public employer and has completed six months' service uninterrupted by more than 30 consecutive working days during the six months' period. Every employee of a participating employer shall become a member of the system at the beginning of the first full pay period of the employee following the six months' period. All public employers participating in the Public Employees Retirement System established by chapter 401, Oregon Laws 1945, as amended, at the time of repeal of that chapter, and all school districts of the state, shall participate in, and their employees shall be members of, the system, except as otherwise specifically provided by law.

(2) Any active member of the Public Employees Retirement System who, through the annexation of a political subdivision employing the member or by change of employment, becomes the employee of another political subdivision which is participating in the Public Employees Retirement System and has also a separate retirement system for its employees, shall remain an active member of the Public Employees Retirement System unless, within 60 days after the effective date of the annexation or change of employment or April 8, 1953, the member shall by written notice to the Public Employees Retirement Board and to the administrative body of the new public employer elect to relinquish membership in the Public Employees Retirement System and become a member of the separate retirement system of the employer, if eligible for membership in that retirement system, and the member shall be so carried by the new employer. Immediately upon such annexation of any political subdivision or such change of employment, the new public employer shall inform such employee in writing of the right of the employee to exercise an election as in this section provided.

(3) A political subdivision (other than a school district) not participating in the retirement system established by chapter 401, Oregon Laws 1945, as amended, which employs one or more employees, each of whose position requires 600 hours of service per year, or an agency created by two or more political subdivisions to provide themselves governmental services, which employs one or more employees, each of whose position requires 600 hours of service per year, may, through its governing body, notify the board in writing, that it elects to include its employees in the system hereby established. Such public employer may request the board to make a study and estimate of the cost of including it and its eligible employees, other than volunteer firefighters, in the system, which the board thereupon shall cause to be made and the cost of which the employer shall bear. Upon completion of the study and estimate the employer may apply for admission to the system, whereupon it shall begin to participate therein and its eligible employees other than volunteer firefighters shall become members of the system. If the employer is an agency created by two or more political subdivisions to provide themselves governmental services and ceases thereafter to transmit to the board [current service] contributions for any of its eligible employees, the benefits based upon employer [current service] contributions to which such employees would otherwise be entitled shall be reduced accordingly.

(4) Except as subsection (7) of this section provides otherwise with reference to volunteer firefighters, no employee whose position with one public employer or concurrent positions with two or more public employers normally require less than 600 hours of service per year may become a member of the system.

(5) No inmate of a state institution or an alien on a training or educational visa working for any participating employer, even though the inmate or alien received compensation from a participating employer, shall be eligible to become a member of the system. No person employed by a participating employer and defined by such employer as a student employee is eligible to become a member of the system for such student employment.

(6) A person holding an elective office or an appointive office with a fixed term or an office as head of a department to which the person is appointed by the Governor may become a member of the system by giving the board written notice of desire to do so within 30 days after taking the office or, in the event that the officer is not eligible to become a member of the system at the time of taking the office, within 30 days after becoming so eligible. Membership so established shall not be discontinued during the appointive or elective term of the officer except upon separation of the officer from service.

(7) A public employer employing volunteer firefighters may apply to the board at any time for them to become members of the system. Upon receiving the application the board shall fix a wage at which, for purposes of this chapter only, they shall be considered to be employed and which shall be the basis for computing the amounts of the contributions which they pay into, and of the benefits which they and their beneficiaries receive from, the fund; and if the wage so fixed is satisfactory to the employer, shall include the firefighters in the system.

(8)(a) In the event that an employee enters the service of a public employer which is participating in or later begins to participate in the system and in the event that at the time of entering that service or at the time that the employer begins to participate in the system the employee has commenced to purchase and is continuing to purchase a retirement annuity, if the employer deems the annuity adequate for the purposes of this chapter, it may enter into an agreement with the employee and the board pursuant to which the employee may be exempted from contributing to the Public Employees Retirement Fund, and, if no public funds are being used to purchase the annuity or a corresponding pension, the employer, in lieu of the contributions which it otherwise would make to the fund on account of the employee, may make contributions toward the cost of purchasing the annuity. Such employee otherwise shall be subject to the provisions of this chapter, except that neither the employee nor any person claiming under the employee shall receive any payments from the retirement fund as service or disability allowance.

(b) An employee who enters into an agreement under paragraph (a) of this subsection may elect at any time thereafter to start to participate in the system by giving written notice of desire to participate to the board and to the employer. The employee shall receive no retirement credit for the period during which the employee was exempted from contributing to the fund under the agreement, but the employee shall be considered to have completed the six months' service required for membership in the system. When the employee starts to participate in the system the employer shall start to contribute to the fund on [the] account of the employee in the same manner as the employer contributes on [the] account of other employees who are active members of the system and the employer shall stop making contributions toward the cost of purchasing the retirement annuity.

(9)(a) All new appointees in the Federal Cooperative Extension Service or in any other service in which participation in the Federal Civil Service retirement program is mandatory, who receive a federal appointment on or after July 1, 1955, may participate in the Public Employees Retirement System only by giving written notice of their election to so participate to the Public Employees Retirement Board within six months after the effective date of their appointment.

(b) All persons employed by the Federal Cooperative Extension Service or by any other service in which participation in the Federal Civil Service retirement program is mandatory, who are under federal appointment as of July 1, 1955, and who are members of the state retirement system, shall continue such membership unless, prior to February 1, 1956, they give written notice to the Public Employees Retirement Board of their desire to cancel their membership.

(c) Any person who is an active member of the Public Employees Retirement System, who, on or after July 1, 1955, is employed by the Federal Cooperative Extension Service or by any other service in which participation in the Federal Civil Service retirement program is mandatory, and who is given a federal appointment, shall continue such membership in the Public Employees Retirement System unless, within six months after the effective date of the appointment, the person gives written notice to the Public Employees Retirement Board of the desire to cancel membership.

(d) A cancellation of membership under paragraph (b) or (c) of this subsection terminates membership in the Public Employees Retirement System and cancels the right to any benefits from, or claims against, that system. Such cancellation prevents the withdrawing member from claiming thereafter any retirement credit for any period of employment before the cancellation. Upon receipt of a notice of cancellation, the Public Employees Retirement Board shall refund [to] the member account of the withdrawing member, regardless of the age[, the account balance of the employee in the retirement fund] of the withdrawing member.

(10) Managers and other employees of foreign trade offices of the Economic and Community Development Department who live and perform services in foreign countries under the provisions of ORS 285A.090 (13) shall not be members of the system. However, any person who is an active member of the system immediately before becoming a manager or employee of a foreign trade office shall continue to be a member of the system during the period of time the person serves as a manager or employee of the foreign trade office.

(11) An employee who is an employee of the Oregon Health Sciences University may not be an active member of the Public Employees Retirement System if that employee is participating in an alternative retirement program established by the university pursuant to ORS 353.250.

SECTION 31. ORS 238.035 is amended to read:

238.035. (1) A public employer that is not participating in the system may, by application to the board, designate any class of employees of the public employer to become members of the system at the time of entering the system.

(2) The board shall consider an application received under this section to be an application to become a participating employer under this chapter, but only to the extent of providing membership for the class of employees designated in the application.

(3) The board, upon such terms as are set forth in a contract between the board and the employer, shall allow every employee in the designated class to become members of the Public Employees Retirement System in accordance with this chapter. A contract entered into under this section shall require the public employer to agree to eventually contract to provide membership to all of the employees who do not become members of the system at the time that the employer becomes a participating employer.

(4) All employees who have completed the period of service with the public employer that is required under ORS 238.015 shall become members of the system on a date specified by the board. All other employees in the designated class shall become members upon completion of the required period of service.

(5) The contract provided for in subsection (3) of this section may be in addition to or in lieu of a contract of integration under ORS 238.680.

(6) An employer entering into a contract under subsection (3) of this section may at any time thereafter enter into a contract with the board to provide membership to all or part of the employees who do not become members of the system at the time that the employer becomes a participating employer. Except as may be provided for prior service [under ORS 238.225] credit, or under a contract of integration under ORS 238.680, employees shall receive no retirement credit for the period during which the employee was exempted from contributing to the fund under the agreement, but the employee shall be considered to have completed the six months' service required for membership in the system if the employee has served with the employer for at least six months. When the employee starts to participate in the system the employer shall start to contribute to the fund on [the] account of the employee in the same manner as the employer contributes on [the] account of other employees who are members of the system.

SECTION 32. ORS 238.055 is amended to read:

238.055. (1) On August 1, 1991, all judges receiving retirement pay from the Judges' Retirement Fund and all surviving spouses of judges receiving a pension from the Judges' Retirement Fund shall be retired members of the Public Employees Retirement System, except that:

(a) The amount of retirement pay or pension payable to the judge or surviving spouse of a judge and the terms and conditions of eligibility to receive retirement pay or a pension shall be as established by ORS 1.314 to 1.380 (1989 Edition); and

(b) The right of any person to receive any benefit as a result of the death of a judge by reason of the provisions of ORS 1.314 to 1.380 (1989 Edition) shall solely be as provided by ORS 1.314 to 1.380 (1989 Edition).

(2) After August 1, 1991, any judge who would have become eligible to receive retirement pay from the Judges' Retirement Fund shall, upon retirement, be a retired member of the Public Employees Retirement System, except that:

(a) The amount of retirement pay or pension payable to the judge or the surviving spouse of the judge and the terms and conditions of eligibility to receive retirement pay or a pension shall be as established by ORS 1.314 to 1.380 (1989 Edition); and

(b) The right of any person to receive any benefit as a result of the death of the judge by reason of the provisions of ORS 1.314 to 1.380 (1989 Edition) shall solely be as provided by ORS 1.314 to 1.380 (1989 Edition).

(3) On August 1, 1991, the Judges' Retirement Fund shall cease to exist as a separate fund and the assets and earnings of the Judges' Retirement Fund shall be paid into the employer reserves for judge members of the Public Employees Retirement Fund. The Public Employees Retirement Board shall continue to keep a separate [member] regular account for any person who may become eligible to receive a retirement benefit under subsection (2) of this section and for any person whose child or children may become entitled to a benefit under ORS 1.346 (1989 Edition).

(4) Upon deposit of the assets and earnings of the Judge's Retirement Fund as provided under subsection (3) of this section, the Public Employees Retirement Board shall cause to be deposited from the employer reserves for judge members to the retired reserves of the Public Employees Retirement Fund, the amount actuarially determined to be necessary to fund the retirement pay and pensions of those judges and surviving spouses of judges who were receiving retirement pay or a pension from the Judges' Retirement Fund on August 1, 1991.

(5) The amount of retirement pay or pension payable to a judge or spouse of a retired judge who previously received retirement pay or a pension from the Judges' Retirement Fund, or who would have received retirement pay or a pension from the Judges' Retirement Fund, shall not be recalculated or affected in any way based on the provisions of ORS chapter 238, nor shall the eligibility of a judge or surviving spouse of a judge to receive retirement pay or a pension be affected by ORS chapter 238.

(6) The provisions of ORS 238.390, 238.395, 238.400 and 238.500 to 238.585 do not apply to a judge or surviving spouse of a judge who received retirement pay or a pension from the Judges' Retirement Fund prior to August 1, 1991, or to a judge who retires as a member of the Public Employees Retirement System under subsection (2) of this section.

SECTION 33. ORS 238.068 is amended to read:

238.068. (1) Notwithstanding ORS 238.015, any person who is a member of the Legislative Assembly at any time on or after September 13, 1975, and before January 1, 1988, regardless of whether the person has reached the age of 65 years, may become a member of the Public Employees Retirement System by giving the Public Employees Retirement Board, before January 1, 1990, written notice of desire to do so. The written notice shall take effect on the first day of the month following the date of receipt thereof by the board or upon the person's completion of six months' service, whichever occurs last.

(2) Notwithstanding any other provision of this chapter, any person who is a member of the Legislative Assembly and a member of the system, and any person who is not a member of the Legislative Assembly but was a member thereof before January 11, 1987, upon payment to the board before July 1, 1991, of the total amount of the employee contributions the person would have made to the Public Employees Retirement Fund for all periods of service as a member of the Legislative Assembly before the date of that payment for which the person was not a member of the system, is entitled to retirement credit for those periods served as a member of the Legislative Assembly, including those periods after reaching the age of 65 years, that the person would have been entitled to had the person been a member of the system for those periods. Employee contributions to be paid by a person under this subsection may be paid at the option of the person in a lump sum or in installments. If the person is a member of the Legislative Assembly, upon request by the person in writing to the state official authorized to disburse funds in payment of the salary of the person as a member of the Legislative Assembly, the state official shall deduct monthly from that salary the amount of money indicated in the request for payment of employment contributions under this subsection and shall pay amounts so deducted to the board.

(3) Notwithstanding any other provision of this chapter, any person who is a member of the Legislative Assembly and a member of the system, and any person who is not a member of the Legislative Assembly but was a member thereof before January 9, 1989, who previously had been employed by an employer participating in the system, but had separated from all service with that employer entitling the employee to membership in the system and withdrawn the amount credited to the [employee's] member account of the member, may have all of the rights in the system which were forfeited by the withdrawal restored by repaying to the board by July 1, 1991, the full amount so withdrawn together with the interest that would have accumulated on the sum had the amount not been withdrawn.

SECTION 34. ORS 238.072 is amended to read:

238.072. An employee shall not be considered to have ceased to be a member of the system under ORS 238.095 (2) by reason of any year in which the employee is employed by the Legislative Assembly or either house thereof, or by a committee of the Legislative Assembly or either house thereof, for periods aggregating eight months or more during the year, whether or not contributions are made to the fund by or on behalf of the employee for those periods of employment, unless the employee withdraws the amount credited to the member account of the [employee in the fund] member.

SECTION 35. ORS 238.092 is amended to read:

238.092. (1) Notwithstanding any other provision of this chapter:

(a) A retired member of the system who has retired as other than a member of the Legislative Assembly and who thereafter becomes a member of the Legislative Assembly and elects to become an active member of the system as a member of the Legislative Assembly may also elect, by giving the board written notice of desire to do so, to receive the pension and annuity provided by this chapter for service as other than a member of the Legislative Assembly, and be an active member of the system as a member of the Legislative Assembly for the period the member holds office as a member of the Legislative Assembly. The notice provided for in this paragraph shall be given within 30 days after the retired member takes office as a member of the Legislative Assembly.

(b) A member of the Legislative Assembly who is a member of the system as a member of the Legislative Assembly and who becomes eligible to retire by reason of service as other than a member of the Legislative Assembly, without regard to when that service was performed, may elect, by giving the board written notice of desire to do so, to retire and receive the pension and annuity provided by this chapter for service as other than a member of the Legislative Assembly, and to continue, for the period the member holds office as a member of the Legislative Assembly, as an active member of the system as a member of the Legislative Assembly.

(c) Upon receipt of the notice provided for in paragraphs (a) and (b) of this subsection, the board shall determine that portion of the accumulated contributions of the member and interest thereon attributable to service as other than a member of the Legislative Assembly, which shall be used in determining the amount of the annuity the member shall receive for that service. The portion of the accumulated contributions of the member and interest thereon attributable to service as a member of the Legislative Assembly shall remain in the [individual] member account of the member and, together with subsequent contributions and interest thereon, be used in determining the amount of the additional annuity the member shall receive for that service upon ceasing to hold office as a member of the Legislative Assembly.

(2) Notwithstanding any other provision of this chapter, a person who has reached the age of 65 years, whether or not previously employed by a public employer and whether or not a retired member of the system, may be employed by the Legislative Assembly, either house thereof or the Oregon State Police for all or any part of a regular or special session of the Legislative Assembly. A person employed under this subsection:

(a) Unless an active member of the system continuing in employment past the age of 65 years, shall not be permitted to make contributions to the retirement fund, nor shall the employer make contributions on behalf of the person.

(b) If a retired member of the system, is entitled, during the period of such employment, to any pension or annuity provided by this chapter.

SECTION 36. ORS 238.095 is amended to read:

238.095. (1) An employee shall cease to be a member of the Public Employees Retirement System if the employee withdraws the [employee] member account [balance] of the member in the manner provided by ORS 238.265.

(2) Except as provided in subsection (3) of this section, an employee shall cease to be a member of the system if the employee is absent from the service of all employers participating in the system for a total of more than five consecutive years after the employee becomes a member of the system.

(3) A school district employee shall not cease to be a member of the system under subsection (2) of this section if:

(a) After completing a school year, the member is absent from the service of all employers participating in the system for the next following five school years; and

(b) The member either returns to school employment at the beginning of the sixth school year, or reaches earliest service retirement age before the beginning of the sixth school year.

(4) Interest shall not accrue on the amount in the [employee] member account of the former member from the date that membership is terminated under subsection (2) of this section. The Public Employees Retirement Board shall pay the amount in [an employee] a member account [for] to a former member upon the termination of the membership of the former member under subsection (2) of this section if the former member is separated from all service with employers who are treated as part of a participating public employer's controlled group under the federal laws and rules governing the status of the system and the fund as a qualified governmental retirement plan and trust.

SECTION 37. ORS 238.105 is amended to read:

238.105. Whenever, within five years after the employee is separated from all service entitling the employee to membership in the system, an employee who has withdrawn the amount credited to the [employee's account] member account of the member reenters the service of an employer participating in the system, the employee's rights in the system [which] that were forfeited by the withdrawal shall be restored upon repaying to the board within one year after reentering the service of the employer, the full amount so withdrawn together with the interest that would have been accumulated on the sum had the amount not been withdrawn.

SECTION 38. ORS 238.115 is amended to read:

238.115. (1)(a) A member of the system who, after separation from all service entitling the employee to membership in the system and withdrawal of the amount credited to the member account of the [employee in the fund] member, reenters the service of an employer participating in the system and serves as an active member of the system for 10 years after that reentry, and who has not otherwise obtained restoration of creditable service forfeited by the withdrawal, shall obtain restoration of one full month of creditable service forfeited by the withdrawal for each three full months of service as an active member after that reentry if the member, within 90 days before the effective date of retirement of the [employee] member:

(A) Applies in writing to the board for restoration of creditable service; and

(B) Pays to the board in a lump sum for credit to the member account of the [employee in the fund] member the amount withdrawn and interest on the amount withdrawn compounded annually for each year or portion of a year after the date of the withdrawal and before the effective date of retirement of the [employee] member. The interest shall be computed at the annual rate of 7.5 percent.

(b) If [an employee] a member who obtains restoration of creditable service as provided in this subsection does not obtain restoration of all creditable service forfeited by the withdrawal pursuant to service after reentry, the payment under paragraph (a) of this subsection shall be reduced proportionately to reflect the percentage of creditable service restored.

(c) [An employee] A member who obtains restoration of creditable service as provided in this subsection is not entitled to elect to receive the service retirement benefit described in ORS 238.305 (2).

(2) [An employee who is] A member [of the system,] who forfeited creditable service rendered to a public employer before March 27, 1953, because under ORS 237.976 (2) the employee withdrew contributions of the employee to the Public Employees Retirement System established by chapter 401, Oregon Laws 1945, and who did not obtain restoration of creditable service so forfeited as provided in chapter 857, Oregon Laws 1977, shall, upon retirement, receive restoration of creditable service so forfeited, if the [employee] member, before the effective date of retirement of the [employee] member:

(a) Applies in writing to the board for the restoration of the creditable service; and

(b) Pays to the board in a lump sum for credit to the member account of the [employee in the fund] member an amount determined by the board to be equal to the full amount of contributions so withdrawn and the interest that would have accumulated to the regular account of the [employee in the fund] member had those contributions not been withdrawn.

(3)(a) A member of the Public Employees Retirement System who was a member of an association established pursuant to ORS chapter 239 (1997 Edition), but separated from all service entitling the employee to membership in the system of the association and withdrew the amount credited to the member account of the employee in the retirement fund of the association, and who, after that separation, entered the service of an employer in the field of education participating in the Public Employees Retirement System and served as an active member of that system for 10 years after that entry, and who has not otherwise obtained restoration of all creditable service forfeited by the withdrawal, shall obtain creditable service as a member of the Public Employees Retirement System equal to all creditable service forfeited by the withdrawal if the member within 90 days before the effective date of retirement of the member:

(A) Applies in writing to the Public Employees Retirement Board for that creditable service; and

(B) Pays to the board in a lump sum for credit to the member account of the member [in the Public Employees Retirement Fund] the amount withdrawn and interest on the amount withdrawn compounded annually for each year or portion of a year after the date of the withdrawal and before the effective date of retirement or effective date of application of the member. The interest shall be computed at the rate actually credited to [member] regular accounts for that period.

SECTION 39. ORS 238.125 is amended to read:

238.125. A member of the system who has a combined total of 10 years or more of creditable service in the system and prior service credit [under ORS 238.225] at the time of retirement, and who was required to complete one or more periods of six months or less in the service of an employer participating in the system before becoming a member of the system, shall receive retirement credit for those periods of six months or less if the member, within 90 days before the effective date of retirement of the member, applies in writing to the board for that retirement credit and pays to the board in a lump sum an amount determined by the board to be equal to:

(1) The total amount of employee contributions to the fund by or on behalf of the employee that would have been required for the six months' period if the employee had been a member of the system during that period, which amount shall be credited to the regular account of the [employee in the fund] member; and

(2) The total amount of employer contributions to the fund the employer of the employee would have been required to make in respect to the employee if the employee had been a member of the system during the six months' period, which amount shall be credited to the reserve for pension accounts in the fund.

SECTION 40. ORS 238.135 is amended to read:

238.135. (1) A member of the system who has 10 years or more of creditable service in the system at the time of retirement, and who served for less than six months working full-time in a seasonal position with a public employer participating in the system before becoming a member of the system, shall receive retirement credit for those periods of less than six months if the member, within 90 days before the effective date of retirement of the member, applies in writing to the board for that retirement credit and pays to the board in a lump sum an amount determined by the board to be equal to:

(a) The total amount of employee contributions to the fund by or on behalf of the employee that would have been required for the six months' period if the employee had been a member of the system during that period, plus interest at the rate of eight percent per annum from the date the contributions would have been made, which amount shall be credited to the regular account of the [employee in the fund] member; and

(b) The total amount of employer contributions to the fund the employer of the employee would have been required to make in respect to the employee if the employee had been a member of the system during the six months' period, plus interest at the rate of eight percent per annum from the date the contributions would have been made, which amount shall be credited to the reserve for pension accounts in the fund.

(2) As used in this section, “seasonal position” means an apprenticeship, internship or entry level role in the employ of a participating public employer that is served by a person before being employed in a technical or professional position with that public employer.

(3) No retirement credit shall be allowed under this section for any period of employment for which retirement credit is acquired under ORS 238.125.

SECTION 41. ORS 238.145 is amended to read:

238.145. (1) A member of the system employed as a police officer or firefighter shall be entitled to receive retirement credit as provided in subsection (3) of this section if:

(a) The member was employed by a public employer as a police officer or firefighter prior to becoming a member of the system;

(b) The public employer that had previously employed the member was not a participant in the system at the time the member was in the service of that public employer; and

(2) In addition to the requirements of subsection (1) of this section, if the member first becomes a member of the system on or after January 1, 2000, as described in subsection (5) of this section, the member must have been a member of the system for at least 60 calendar months at the time the purchase is made.

(3) Except as provided in subsection (4) of this section, a member of the system employed as a police officer or firefighter who meets the requirements of this section shall be entitled to receive retirement credit for the period of employment with a previous public employer as described in subsection (1) of this section up to a maximum of 10 years' retirement credit if the member:

(a) Applies in writing to the Public Employees Retirement Board for such retirement credit; and

(b) Pays to the board, in a lump sum, an amount representing the contributions the member and the member's employer would have made for the years for which the member seeks retirement credit calculated as though the member had received a salary for each of those years equal to the salary received by the member in the first full calendar year of employment as a police officer or firefighter within the system. In addition, the member shall pay the interest that would have accrued had the contributions been paid in the years for which the member seeks retirement credit, compounded annually. The interest shall be computed at the annual rate of eight percent. Payment of the lump sum shall be made on or before the effective date of retirement for the member. The amounts representing the contributions the member would have made and the interest on those amounts shall be credited to the regular account of the [employee in the fund] member. The amounts representing the contributions the employer would have made and the interest on those amounts shall be credits to the account of the member's current participating employer.

(4) If a person first becomes a member of the system on or after January 1, 2000, as described in subsection (5) of this section, the person may not acquire more than five years of credit under this section in combination with any credit acquired under ORS 526.052 for periods of service with another employer that entitle the employee to retirement credit under a retirement plan offered by the other employer. If a person subject to limitation imposed by this subsection also is eligible for credit under ORS 526.052, the total years of credit that may be acquired under this subsection and ORS 526.052 may not exceed five years.

(5) A person becomes a member of the system before January 1, 2000, for the purposes of this section if:

(a) The person is a member of the system on January 1, 2000; or

(b) The person was a member of the system before January 1, 2000, ceased to be a member of the system under the provisions of ORS 238.095, 238.265 or 238.545 before January 1, 2000, but restores part or all of the forfeited creditable service from before January 1, 2000, under the provisions of ORS 238.105 or 238.115 after January 1, 2000.

SECTION 42. ORS 238.156 is amended to read:

238.156. (1) Notwithstanding any other provision of this chapter, but subject to subsection (4) of this section, an employee who leaves a position that meets the requirements of ORS 238.015 (4) for the purpose of performing service in the uniformed services is entitled to receive contributions, benefits and service credit for the period under rules adopted by the Public Employees Retirement Board pursuant to subsection (2) of this section.

(2) The board shall adopt rules establishing contributions, benefits and service credit for any period of service in the uniformed services by an employee described in subsection (1) of this section. For the purpose of adopting rules under this subsection, the board shall consider and take into account all federal law relating to contributions, benefits and service credit for any period of service in the uniformed services. Contributions, benefits and service credit under rules adopted by the board pursuant to this subsection may not exceed contributions, benefits and service credit required under federal law for periods of service in the uniformed services.

(3) Subject to subsection (4) of this section, an employee who leaves a position that meets the requirements of ORS 238.015 (4) for the purpose of entering or reentering active service in the Armed Forces shall acquire retirement credit for the period during which the employee served in the Armed Forces if:

(a) The employee returns to the service of the employer who employed the employee immediately before commencing service in the Armed Forces in a position that meets the requirements of ORS 238.015 (4);

(b) The employee returns to that employment within one year after being otherwise than dishonorably discharged from the Armed Forces and within five years after the date that the employee entered or reentered active service in the Armed Forces; and

(c) After returning to employment and before retirement, the employee pays to the Public Employees Retirement Board in a lump sum the total amount of contributions the employee would have made throughout the period of military service in the Armed Forces based on the employee's salary rate at the time the employee entered or reentered the Armed Forces, as though the employee had remained in the employment of the employer. Any lump sum contribution made under this paragraph shall be added to the employee's regular account [in the retirement fund] and in all respects shall be considered as though made by payroll deduction.

(4) An employee may not receive benefits under both subsections (1) and (3) of this section for the same period of service in the Armed Forces or uniformed services. If an employee is entitled to benefits under both subsections (1) and (3) of this section by the terms of those provisions, the employee shall receive benefits under the subsection that provides the greater benefit.

(5) For the purposes of this section, “Armed Forces” means the Army, Navy, Air Force, Marine Corps and Coast Guard.

SECTION 43. ORS 238.200 is amended to read:

238.200. (1)(a) [Each employee who is] An active member of the system shall contribute to the fund and there shall be withheld from salary of the [employee] member six percent of that salary.

(b) Notwithstanding paragraph (a) of this subsection, an employee who is an active member of the system on August 21, 1981, shall contribute to the fund and there shall be withheld from salary of the [employee, so] member, as long as the employee continues to be [a] an active member of the system, four percent of that salary if the salary for a month is less than $500, or five percent of that salary if the salary for a month is $500 or more and less than $1,000. Notwithstanding subsection (2) of this section, for the purpose of computing the percentage of salary to be withheld under this paragraph from a member who is an employee of a school district or of the State Board of Higher Education whose salary is based on an annual agreement, the agreed annual salary of the [employee] member shall be divided into 12 equal installments, and each installment shall be considered as earned and paid in separate, consecutive months, commencing with the first month that payment is actually made under the terms of the salary agreement.

(2) The contributions of each [employee] member as provided in subsection (1) of this section shall be deducted by the employer from each payroll and transmitted by the employer to the board, which shall cause them to be credited to the member account of the [employee in the fund] member. Salary shall be considered earned in the month in which it is paid. The date inscribed on the paycheck or warrant shall be considered as the pay date, regardless of when the salary is actually delivered to the [employee] member.

(3) An active member who is concurrently employed by more than one participating public employer, and who is a member of or entitled to membership in the system, shall make contributions to the fund on the basis of salary paid by each employer.

SECTION 44. ORS 238.205 is amended to read:

238.205. Notwithstanding any other provision of this chapter, and subject to the provisions of this section, a public employer participating in the system may agree, by a written employment policy or agreement in effect on or after July 1, 1979, to “pick-up,” assume or pay the full amount of contributions to the fund required of all or less than all active members of the system employed by the employer. If a public employer so agrees:

(1) The rate of contribution of each active member of the system employed by the employer who is covered by such policy or agreement shall uniformly be six percent of salary regardless of the amount of monthly salary.

(2) The full amount of required employee contributions assumed or paid by the employer on behalf of its employees shall be considered “salary,” [within the meaning of] as defined in ORS 238.005 [(11)], only for the purpose of computing a member's “final average salary,” [within the meaning of] as defined in ORS 238.005 [(15)], and shall not constitute additional “salary” or “other advantages,” [within the meaning of] as defined in ORS 238.005 [(11)], for any other purpose.

(3) The full amount of required employee contributions “picked-up” by the employer on behalf of its employees shall be considered “salary,” [within the meaning of] as defined in ORS 238.005 [(11)], for the purpose of calculating the amount of the contribution, for the purpose of computing a member's “final average salary,” [within the meaning of] as defined in ORS 238.005 [(15)], and for all other purposes.

(4) The full amount of required employee contributions “picked-up,” assumed or paid by the employer on behalf of its employees shall be added to the [individual account balances] member accounts of the [employees] members for their annuities and shall be considered employee contributions for all other purposes of this chapter.

(5) For the purposes of this section:

(a) Employee contributions are “picked-up” if the written employment policy or agreement described in subsection (1) of this section provides that employee compensation will be reduced to generate the funds needed to make the employee contributions; and

(b) Employee contributions are “assumed or paid” by an employer if the written employment policy or agreement described in subsection (1) of this section provides that additional amounts shall be paid by the employer for the purpose of making the employee contributions, and employee compensation will not be reduced for the purpose of generating the funds needed to make the employee contributions.

(6) A participating public employer must give written notice to the Public Employees Retirement Board at the time that a written employment policy or agreement described in subsection (1) of this section is adopted or changed. The notice must indicate whether the employer will “pick-up” or “assume or pay” the employee contributions as described in subsection (5) of this section. Any change in the manner in which employee contributions are to be paid applies only to employee contributions made on and after the date the notice is received by the board.

SECTION 45. ORS 238.220 is amended to read:

238.220. (1) The Public Employees Retirement Board may, at its discretion, accept rollover contributions from an active member. The board may accept rollover contributions under this section only if the amounts contributed qualify for pretax rollover treatment under the federal income tax laws governing qualified retirement plans.

(2) If the board accepts a rollover contribution under this section, the contribution shall be paid into the Public Employees Retirement Fund and credited to an individual rollover account in the name of the member who made the contribution. The rollover account must be kept separate from the [individual] member account [maintained for the employee under ORS 238.250 and any account maintained for the employee in the Variable Annuity Account under ORS 238.260,] of the member and must be invested separately from all other moneys in the Public Employees Retirement Fund. All earnings on the rollover account shall be credited by the board to the rollover account. If the membership of the employee in the Public Employees Retirement System is terminated under the provisions of ORS 238.095, the board shall cease investment of the amounts in the rollover account and, after the effective date of the termination, shall no longer credit earnings and losses to the rollover account.

(3) Except as provided in subsection (2) of this section, amounts in a rollover account established under this section shall be invested in the same manner as funds in [the individual account maintained for an employee under ORS 238.250] regular accounts. However, ORS 238.255 does not apply to rollover accounts.

(4) Rollover contributions shall not be considered in determining whether a member has contributed in each of five calendar years for purposes of ORS 238.265 and 238.425 or for the purpose of any other provision in this chapter relating to employee contributions.

(5) Amounts held in a rollover account under this section shall be distributed to the member within 90 days after the member's effective date of retirement under this chapter, or within 90 days after termination of the person's membership in the system under ORS 238.095.

(6) Distribution from a member's rollover account shall be made in a single lump sum payment. Distribution from a member's rollover account shall not affect the calculation of any other service or disability retirement allowance, death benefit or other benefit payable to a member under this chapter.

(7) The board shall adopt rules and establish procedures for determining whether a member will be allowed to make a rollover contribution under this section. Rules and procedures adopted by the board must ensure that the rollover contributions do not adversely affect the status of the system and the Public Employees Retirement Fund as a qualified governmental plan and trust under federal income tax law.

(8) The board shall by rule establish a maintenance fee for rollover accounts established under this section. The fee may be collected out of earnings on rollover accounts or, if there are no earnings, from the principal amounts paid into the rollover accounts. The fee shall be in an amount determined by the board to be adequate to pay the full cost to the system of maintaining rollover accounts under this section.

SECTION 46. ORS 238.250 is amended to read:

238.250. The board shall provide for [an individual] a regular account for each active and inactive member of the system. The regular account shall show the amount of the member's contributions to the fund and the interest which they have earned. The board shall furnish a written statement thereof upon request by any member or beneficiary of the system.

SECTION 47. ORS 238.260 is amended to read:

238.260. (1) The purpose of this section is to establish a well balanced, broadly diversified investment program for certain contributions and portions of [account balances of employees who are members of the system] the member accounts so as to provide retirement benefits for [those employees] members of the system that will fluctuate as the value and earnings of the investments vary in relation to changes in the general economy. It is anticipated that investment of those contributions and portions of [account balances] the member accounts in equities will result in the accumulation of larger deposit reserves for those [employees] members during their working years, tend to preserve the purchasing power of those reserves and the retirement benefits provided thereby and afford better protection in periods of economic inflation.

(2) There is established in the Public Employees Retirement Fund an account, separate and distinct from the General Fund, to be known as the Variable Annuity Account. Interest earned by the account shall be credited to the account.

(3) [An employee] A member may elect at any time to have 25, 50 or 75 percent of contributions by the [employee] member to the fund on and after the effective date of the election paid into the Variable Annuity Account, credited to [the] a variable account [of the employee therein], and reserved for the purchase of a variable annuity. [An employee] A member who has elected to have a percentage of contributions so paid, credited and reserved may elect at any time thereafter to have an additional 25 or 50 percent of contributions by the [employee] member, but not to exceed a maximum of 75 percent, so paid, credited and reserved. An election shall be in writing on a form furnished by the board and be filed with the board. An election shall be effective on January 1 following the filing thereof.

(4) [An employee] A member who has elected to have contributions paid into the Variable Annuity Account under subsection (3) of this section may thereafter cause the contributions to cease being paid into the member's variable account by filing a request in writing on a form furnished by the board and filed with the board. The contributions shall cease being paid into the member's variable account after December 31 following the filing of the request. Contributions paid into the member's variable account before the effective date of the request for cessation shall remain in the member's variable account.

(5)(a) An employee who is a member of the system on January 1, 1968, and who thereafter files an election under subsection (3) of this section, may elect at any time to have an amount equal to 10 percent per year, for not more than five years, of the balance of the regular account of the [employee] member in the fund on the effective date of an election filed under subsection (3) of this section, transferred from the regular account of the member [in the fund] to the Variable Annuity Account, credited to the member's variable account [of the employee therein], and reserved for the purchase of a variable annuity. An election shall be in writing on a form furnished by the board and be filed with the board. An election is final and irrevocable upon the filing thereof. The first transfer pursuant to an election shall be made on July 1 following the filing of the election, but may be made, in the discretion of the board, on an earlier date.

(b) If the transfers elected by [an employee] a member under this subsection have not been completed at the time of retirement, a transfer equal to one annual transfer shall be made pursuant to an election by the [employee] member made and filed as provided in this subsection.

(c) No transfer shall be made under this subsection after the first payment [on account] of the service retirement allowance of the member becomes normally due.

(6) Moneys in the Variable Annuity Account may be invested in investments authorized by law for investment of moneys in the Public Employees Retirement Fund; but, notwithstanding any other general or specific law, moneys in the account shall be invested primarily in equities, including common stock, securities convertible into common stock, real property and other recognized forms of equities, whether or not subject to indebtedness. Not more than five percent of the amortized value of all the investments of the Variable Annuity Account and of moneys in the account immediately available for investment may be invested in the obligations of or equities in a single, primary obligor or issuer. A pro rata share of the administrative expenses of the system shall be paid from interest earned by the Variable Annuity Account.

(7)(a) Except as provided in subsection (8) of this section, the policy-making investment authority for the Public Employees Retirement Fund shall enter into contracts with one or more persons whom the authority determines to be qualified, whereby the persons undertake to invest and reinvest moneys in the Variable Annuity Account available for investment and acquire, retain, manage and dispose of investments of the account in accordance with subsections (1) and (6) of this section and to the extent provided in the contracts.

(b) Performance of functions under contracts so entered into shall be paid for out of the gross interest or other income of the investments with respect to which the functions are performed, and the net interest or other income of the investments after that payment shall be considered income of the Variable Annuity Account.

(c) The policy-making investment authority may require a person contracted with to give to the state a fidelity bond in a penal sum as may be fixed by law or, if not so fixed, as may be fixed by the authority, with corporate surety authorized to do business in this state.

(d) Contracts so entered into and functions performed thereunder are not subject to the State Personnel Relations Law or ORS 279.545 to 279.746.

(e) A person contracted with shall report to the policy-making investment authority as often as the authority may require, but at least annually, the earnings of the moneys invested during the period covered by the report, the capital gains and losses of the Variable Annuity Account during the period, the changes in the market value of the investments of the account during the period and such other information as the authority may require.

(8) The policy-making investment authority for the Public Employees Retirement Fund, for and on behalf of the Public Employees Retirement System and Public Employees Retirement Board, may enter into group annuity contracts with one or more insurance companies authorized to do business in this state. In lieu of any investment of moneys in the Variable Annuity Account as provided in subsections (6) and (7) of this section, the authority may pay, from time to time under contracts so entered into, any moneys in that account available for investment purposes. Contracts so entered into:

(a) May provide that annuities purchased thereunder be payable in variable dollar amounts, but if that provision is made, provision also shall be made that [a person who is] a member of the system [and] who has [an] a variable account [in the Variable Annuity Account], upon retiring from service and before the first payment of retirement allowance becomes normally due, may elect an option to have the annuities payable to the member or the beneficiary of the member in fixed or variable dollar amounts or both.

(b) May provide that payment of annuities purchased thereunder may be made by the insurance company directly to persons entitled thereto or to the Variable Annuity Account for payment therefrom to those persons.

(9) Upon retiring from service but within 60 days after the date of the first benefit payment, [a person who is] a member of the system [and] who has [an] a variable account [in the Variable Annuity Account] may elect to transfer the balance in [that] the variable account to the regular account of the member [in the Public Employees Retirement Fund], and by that transfer the annuity shall be based on the [account balance in the Public Employees Retirement Fund] amount in the regular account of the member as otherwise provided in this chapter and the member shall not receive a variable annuity as provided in this section.

(10) When an annuity is payable under this chapter to [a person who is] a member of the system [and] who has [an] a variable account, [in the Variable Annuity Account] or is payable to a beneficiary of that person, the portion of the annuity payable from the Variable Annuity Account shall be proportionately increased or decreased for a calendar year when, as of October 31 of the preceding calendar year, the balance of the member's variable account [of that person in the Variable Annuity Account] exceeds or is less than the current value of the annuity, determined in accordance with the rate of interest and approved actuarial tables then in effect.

(11) Notwithstanding subsection (10) of this section, the board, in the event of extraordinary fluctuation in the market value of investments of the Variable Annuity Account and in order to avoid substantial inequities, may increase or decrease the portions of annuities paid from the account for periods less than a calendar year and determined as of dates other than October 31.

(12) Notwithstanding any other provision of this chapter, the retirement allowance to which [a person who is] a member of the system [and] who has [an] a variable account [in the Variable Annuity Account] or who made contributions on salary in excess of $4,800 per year during the period January 1, 1956, through December 31, 1967, and whose effective date of retirement is January 1, 1982, or later, is otherwise entitled under this chapter shall be subject to the following adjustment:

(a) The board shall determine the difference between the [total] member account of the member [in the system] and what the [total] member account of the member would have been had the member not participated in the variable annuity program on or after January 1, 1982, plus the contributions made on salary in excess of $4,800 per year during the period January 1, 1956, through December 31, 1967.

(b) If the [total] member account of the member due to participation in the variable annuity program or due to the contributions made on salary in excess of $4,800 per year is greater, the monthly retirement allowance of the member shall be increased by the value of the difference, using the annuity tables applicable to the plan selected by the member.

(c) If the [total] member account of the member due to participation in the variable annuity program or due to the contributions made on salary in excess of $4,800 per year is lesser, the monthly retirement allowance of the member shall be decreased by the value of the difference, using the annuity tables applicable to the plan selected by the member.

(13) Except as otherwise specifically provided in this section, the rights and benefits under this chapter of an active or retired member of the system or of a beneficiary of the member are not affected by this section and the provisions of this chapter applicable to regular accounts of active and retired members of the system in the [Public Employees Retirement] fund are also applicable to [such] variable accounts [in the Variable Annuity Account].

(14)(a) In addition to the transfer provided for in subsection (9) of this section, a member of the system who has [an] a variable account [in the Variable Annuity Account] may at any time prior to retirement elect to transfer the balance in that account to the regular account of the member in the [Public Employees Retirement] fund if:

(A) The member is other than a police officer or firefighter and has attained the age of 50;

(B) The member is a police officer or firefighter and has attained the age of 45; or

(C) The member has a combined total of 25 years or more of creditable service in the system and prior service credit [under ORS 238.225].

(b) An election under paragraph (a) of this subsection is irrevocable, and a member who has so elected may not thereafter elect to make contributions to the Variable Annuity Account under subsection (3) of this section.

[(c) An election under paragraph (a) of this subsection shall be filed with the board, and shall be in such form as the board may provide by rule.]

[(d)] (c) An election under paragraph (a) of this subsection shall be in writing and shall be filed with the board. The board by rule shall prescribe a form for the purposes of application. An election so made shall be effective on January 1 of the year following the year in which the election is made, except that an election shall have no effect whatsoever unless the [member's total] member account of the member [in the system] as of the effective date of the election is greater than what the [total] member account of the member would have been had the member not participated in the variable annuity program on or after January 1, 1982, not including the contributions made on salary in excess of $4,800 per year during the period January 1, 1956, through December 31, 1967.

[(e)] (d) As of the effective date of an election under this subsection, the board shall credit all earnings to the member's variable account [in the Variable Annuity Account] based on the actual calendar year variable earnings rate for the year in which the election is made. This account balance shall:

(A) Be used by the board in determining whether the member's election is effective under paragraph [(d)] (c) of this subsection; and

(B) Be the account balance credited by the board to the regular account of the member in the [Public Employees Retirement] fund if the election is determined to be effective.

[(f)] (e) The annuity of a member who makes an effective transfer under this subsection shall be based on the [member's] amount in the regular account [balance] of the member in the [Public Employees Retirement] fund as otherwise provided in this chapter, and the member shall not receive a variable annuity as provided in this section.

SECTION 48. ORS 238.265 is amended to read:

238.265. (1) Except as otherwise provided in this section, a member of the Public Employees Retirement System may withdraw from the Public Employees Retirement Fund the amount credited to the [employee] member account for the member if:

(a) The member is separated from all service with participating public employers;

(b) The member is separated from all service with employers who are treated as part of a participating public employer's controlled group under the federal laws and rules governing the status of the system and the fund as a qualified governmental retirement plan and trust;

(d) The separation from service is not by reason of death or disability.

(2) If a member wishes to withdraw the [employee] member account [balance] of the member under this section, the member must transmit to the Public Employees Retirement Board a withdrawal request. The board shall deny the withdrawal, or shall take all reasonable steps to recover withdrawn amounts, if:

(a) The board determines that the separation is not a bona fide separation; or

(b) The member fails to remain absent from the service of all employers described in subsection (1) of this section for at least one calendar month following the month in which the member separates from service.

(3) If a member has contributed to the fund in each of five calendar years and has separated from all service in the manner described in subsection (1) of this section before reaching earliest service retirement age, the member may elect to withdraw the [employee] member account [balance] of the member under this section at any time before reaching earliest service retirement age. If the inactive member does not make an election to withdraw under this section, the member shall be paid the benefits or retirement allowances described in ORS 238.425.

(4) Withdrawal of [the employee] a member account [balance] under this section cancels all membership rights in the system, including the right to claim credit for any employment before withdrawal.

SECTION 49. ORS 238.270 is amended to read:

238.270. Whenever [an employee] a person who is past the earliest service retirement age separates from the service of a public employer participating in the Public Employees Retirement System and who thereafter, but before applying to the Public Employees Retirement Board for retirement benefits, is employed in a position [which] that entitles the [employee] person to membership in another public [employees'] employees retirement system, either within or without this state, the board, upon the written request of the [employee] person and if in conformance with the provisions of law governing the other public [employees'] employees retirement system, may transfer the member account [balance] of the [employee under the Public Employees Retirement System] person in the fund to the other public [employees'] employees retirement system. Such transfer shall cancel the right of the [employee] person to claim any future benefits under the Public Employees Retirement System for service rendered to a public employer in this state prior to the date of the transfer.

SECTION 50. ORS 238.300 is amended to read:

238.300. Upon retiring from service at normal retirement age or thereafter, [a person who is] a member of the system shall receive a service retirement allowance which shall consist of the following annuity and pensions:

(1) A refund annuity which shall be the actuarial equivalent of accumulated contributions by the member and interest thereon credited at the time of retirement, which annuity shall provide an allowance payable during the life of the member and at death a lump sum equal in amount to the difference between accumulated contributions at the time of retirement and the sum of the annuity payments actually made to the member during life shall be paid to such person, if any, as the member nominates by written designation duly acknowledged and filed with the board or shall otherwise be paid according to the provisions of this chapter for disposal of an amount credited to the member account of a member at the time of death in the event the member designates no beneficiary to receive the amount or no such beneficiary is able to receive the amount. If death of the member occurs before the first payment is due, the member account of the member shall be treated as though death had occurred before retirement.

(2)(a) A life pension (nonrefund) for current service provided by the contributions of employers, which pension, subject to paragraph (b) of this subsection, shall be an amount which, when added to the sum of the annuity under subsection (1) of this section and the annuity, if any, provided on the same basis and payable from the Variable Annuity Account, both annuities considered on a refund basis, results in a total of:

(A) For service as a police officer or firefighter, two percent of final average salary multiplied by the number of years of membership in the system as a police officer or firefighter before the effective date of retirement.

(B) For service as a member of the Legislative Assembly, two percent of final average salary multiplied by the number of years of membership in the system as a member of the Legislative Assembly before the effective date of retirement.

(C) For service as other than a police officer, firefighter or member of the Legislative Assembly, 1.67 percent of final average salary multiplied by the number of years of membership in the system as other than a police officer, firefighter or member of the Legislative Assembly before the effective date of retirement.

(b) A pension under this subsection shall be at least:

(A) The actuarial equivalent of the annuity provided by the accumulated contributions of the member.

(B) For a member who made contributions before August 21, 1981, the equivalent of a pension computed pursuant to this subsection as it existed immediately before that date.

(c) As used in this subsection, “number of years of membership” means the number of full years plus any remaining fraction of a year for which salary was paid and contributions to the Public Employees Retirement System made. Except as otherwise provided in this paragraph, in determining a remaining fraction a full month shall be considered as one-twelfth of a year and a major fraction of a month shall be considered as a full month. Membership of a school district employee, an employee of the State Board of Higher Education engaged in teaching or other school activity at an institution of higher education or an employee of the State Office for Services to Children and Families, the Oregon Youth Authority, the Department of Corrections, the Mental Health and Developmental Disability Services Division or the State Board of Education engaged in teaching or other school activity at an institution supervised by the office, authority, board, department or division, for all portions of a school year in a calendar year in which the district school, institution of higher education or school activity at an institution so supervised in which the member is employed is normally in session shall be considered as a full one-half year of membership. The number of years of membership of a member who received a refund of contributions as provided in ORS 237.976 (2) is limited to the number of years after the day before the date on which the refund was received. The number of years of membership of a member who is separated, for any reason other than death or disability, from all service entitling the member to membership in the system, who withdraws the amount credited to the member account of the member in the fund during absence from such service and who thereafter reenters the service of an employer participating in the system but does not repay the amount so withdrawn as provided in this chapter, is limited to the number of years after the day before the date of so reentering.

(3) An additional life pension (nonrefund) for prior service credit, including military service, credited to the member at the time of first becoming a member of the system, as elsewhere provided in this chapter, which pension shall be provided by the [prior service] contributions of the employer [or, in case the member is an employee of a school district, by a uniform rate of contribution by all school districts].

SECTION 51. ORS 238.320 is amended to read:

238.320. (1) Whenever an employee who is a member of the system is found, after being examined by one or more physicians selected by the board, to be mentally or physically incapacitated for an extended duration, as determined by medical examination, and thereby unable to perform any work for which qualified, by injury or disease sustained while in actual performance of duty and not intentionally self-inflicted, the member shall receive a disability retirement allowance consisting of:

(a) A disability retirement refund annuity based on the contributions credited to the member account of the member.

(b) A current service pension provided by the contributions of employers equal to:

(A) For a police officer or firefighter, the pension to which the member would have been entitled if the member had worked continuously until attaining the age of 55, or if the member has attained the age of 55, the pension which the member would receive were the member to retire for service, as provided in this chapter.

(B) For [an employee] a member other than a police officer or firefighter, the pension to which the member would have been entitled if the member had worked continuously until attaining the age of 58, or if the member has attained the age of 58, the pension which the member would receive were the member to retire for service, as provided in this chapter.

(2) As used in subsection (1) of this section, “injury” means bodily injury causing the disability directly and independently of all other causes and effected solely through accidental means.

(3) Whenever an employee who is a member of the system and who has been an employee for 10 years or more of an employer participating in the system is found, after being examined by one or more physicians selected by the board, to be mentally or physically incapacitated for an extended duration, as determined by medical examination, and thereby unable to perform any work for which qualified, from cause other than injury or disease sustained while in actual performance of duty or intentionally self-inflicted, the member shall receive a disability retirement allowance as provided in subsection (1) of this section.

(4) Payments under a disability retirement allowance provided for in subsection (1) or (3) of this section for the first 90-day period of incapacity shall be withheld until such 90-day period has elapsed.

(5) An inactive member is not eligible for disability benefits referred to in subsection (1) or (3) of this section unless the member applies for such disability benefits within five calendar years after the date of separation from service with a participating public employer if the disability is continuous from such separation date or within six months after the date of such separation from service if disability occurs after such separation date.

(6) In computing years of employment for the purpose of subsection (3) of this section, the following schedule shall be used: For employment before the employee established membership in the Public Employees Retirement System, a member shall be considered to have been employed for one year for each year of prior service credit allowed, and for any minor fraction of a year of continuous service as certified by the employer for which no prior service credit was granted. After having established membership in the Public Employees Retirement System a member shall be considered to have been employed one year for each 12-month period or major fraction thereof during which time the member received compensation for employment which entitled the member to membership in the system, as evidenced by payroll records. For the purpose of determining a member's eligibility for disability benefits, no leave of absence after [an employee] a member ceases to work for any participating employer shall be considered other than accumulated sick leave not in excess of 90 days. The effective date of the disability shall not in any event be determined by the board as prior to the last day for which the disabled member performed services for a participating employer. No benefits may be paid for any month in which the [employee] member received salary or sick leave benefits from the participating employer.

(7) For the purposes of subsections (1) and (3) of this section, a member of the system shall be considered to be mentally or physically incapacitated for an extended duration if the mental or physical incapacity can be expected to result in death or has lasted or can be expected to last for a continuous period of not less than 90 days.

SECTION 52. ORS 238.325 is amended to read:

238.325. (1) At any time after establishing membership, but before the expiration of 90 days after the board makes its finding that the employee is disabled, an employee who is a member of the system may elect to convert the disability retirement allowance otherwise payable on the member account of the [employee] member into a disability retirement annuity of equivalent actuarial value, by selecting one of the optional forms named below. The election of Option 2, 2A, 3 or 3A shall be effective immediately upon the effective date of the member's disability, and in the event of death within the first 90-day period of incapacity, payment to the beneficiary of the member shall be made in accordance with the option selected.

Option 1. (a) A life annuity (nonrefund) payable during the member's life only, which shall be the actuarial equivalent of the accumulated contributions and interest thereon credited to the member at the time the member retires (if death occurs before the first payment is due, the member account of the member shall be treated as though death had occurred before retirement); (b) a life pension (nonrefund) provided by the contributions of employers as provided in ORS 238.320 (1)(b); (c) an additional nonrefund pension for prior service credit, including military service, credited to the member at the time the member first becomes a member of the system, as elsewhere provided in this chapter, which pension shall be provided by the [prior service] contributions of the employer [or, in case the member is an employee of a school district, by a uniform rate of contribution by all school districts]; or

Option 2. A reduced disability retirement allowance payable during the period of incapacity, with the provision that after death, if death shall occur after the effective date of the disability and during the period of incapacity, it shall continue for the life of the beneficiary whom the member has designated in writing duly acknowledged and filed with the Public Employees Retirement Board at the time of election, should the beneficiary survive the member; or

Option 2A. A reduced disability retirement allowance payable during the period of incapacity which, unless modified under subsection (3) of this section, continues after death, if death shall occur after the effective date of the disability and during the period of incapacity, for the life of the beneficiary whom the member nominates by written designation duly acknowledged and filed with the board at the time of election, should the beneficiary survive the member; or

Option 3. A reduced disability retirement allowance payable during the period of incapacity, with the provision that after death, if death shall occur after the effective date of the disability and during the period of incapacity, such allowance shall continue at one-half the rate paid to the member and be paid for the life of the beneficiary whom the member has designated in writing duly acknowledged and filed with the board at the time of election, should the beneficiary survive the member; or

Option 3A. A reduced disability retirement allowance payable during the period of incapacity which, unless modified under subsection (3) of this section, continues after death, if death shall occur after the effective date of the disability and during the period of incapacity, at one-half the rate paid to the member and is paid for the life of the beneficiary whom the member nominates by written designation duly acknowledged and filed with the board at the time of election, should the beneficiary survive the member; or

Option 4. A reduced disability retirement allowance payable during the period of incapacity, with the provisions that if the member dies during the period of incapacity and before a total of 180 monthly payments is made, the remainder of the 180 monthly payments shall be paid monthly to the beneficiary the member nominates by written designation duly acknowledged and filed with the board at any time before the member's death; and that if the member designates no beneficiary to receive the monthly payments or no such beneficiary is able to receive the monthly payments, an amount equal to the actuarial value, on the date of the member's death, of the total of the monthly payments not made to the member shall be paid according to ORS 238.390 for disposal of an amount credited to the member account of a member at the time of death; and that if the beneficiary receiving monthly payments dies before the total number of monthly payments to which the beneficiary is entitled is made, an amount equal to the actuarial value, on the date of the beneficiary's death, of the total of the monthly payments not made to the member and beneficiary shall be paid according to ORS 238.390 for disposal of an amount credited to the member account of a member at the time of death and as if the beneficiary had been a member.

(2) The beneficiary designated by a member to receive any benefit under this section shall be the same as designated under ORS 238.390 (1). The designation of a beneficiary or the election of an option may be changed by a member within 60 days after the date of the first benefit payment, except that the designation of a beneficiary under Option 4 may be changed by the member at any time before the member's death.

(3) If a retired member has elected to receive a [service] disability retirement allowance under Option 2A or Option 3A as provided in subsection (1) of this section, and if the beneficiary under that option dies after the expiration of the time within which the member could change the election of an option or if the beneficiary is the spouse of the member and the marriage relationship is terminated as provided by law after the expiration of the time within which the member could change the election of an option, the member may elect to receive, in lieu of the optional form of allowance previously elected, the allowance that the member would have received on the effective date of retirement under Option 1 as provided in subsection (1) of this section and adjusted by the actual amount of any cost of living or other post-retirement adjustments made to the original allowance since the effective date of retirement. Notice of election under this subsection shall be in a form approved by the board. Payment under Option 1 shall be effective for months beginning on or after the date the board receives the election.

(4) The cost to the retirement system of a disability retirement allowance in any optional form shall not exceed the cost to the retirement system of a nonrefund disability retirement allowance payable to, and on account of, the member making such election.

(5) The obligation for payment of any benefit in force prior to April 8, 1953, shall not be altered by subsections (1) to (4) of this section. However, the beneficiary of a retired member who prior to July 1, 1953, elected an option but died prior to the effective date of such election, shall have a right to repay, before December 31, 1953, the amount of the lump sum refund made in lieu of the monthly life benefit elected and receive payment of such benefit, computed as of the date of the member's death and payable from such date.

(6) If a member who would have qualified for disability benefits makes preliminary application for such benefits but dies prior to being found by the board to be disabled or prior to electing a plan of benefit payments, and the records of the board indicate that the member had designated the surviving spouse as beneficiary under ORS 238.390 (1), such surviving spouse may, not more than 90 days after the board makes its finding that the member would have qualified for disability benefits if living:

(a) Elect to receive the amount referred to in ORS 238.395 if such benefit would have been available if the member had not applied for disability benefits; [or]

(b) If not eligible for benefits under ORS 238.395, elect to receive benefits under ORS 238.390 (1); or

(c) Elect Option 2 or 3 under subsection (1) of this section and designate the surviving spouse as beneficiary thereunder with the same force and effect as if the election and designation had been properly made by the deceased member.

(7) The board may deny an election to convert a disability retirement allowance under this section, a change of beneficiary under this section or a change in benefit options under this section if that denial is required to maintain the status of the system and the Public Employees Retirement Fund as a qualified governmental retirement plan and trust under the Internal Revenue Code and under regulations adopted pursuant to the Internal Revenue Code.

SECTION 53. ORS 238.340 is amended to read:

238.340. When a member retired because of disability is determined by the Public Employees Retirement Board to be not incapacitated to the extent that the member is disabled from the performance of any work for which the member is qualified, the disability retirement shall be canceled forthwith, the member shall be eligible for reemployment and the [individual] member account of the member shall be credited with the amount [which] that stood to the credit in the member account of the member in the fund at the time of retirement for disability. Any such person who for any reason is not reinstated in the service of an employer participating in the system shall receive separation benefits or service retirement benefits as provided in this chapter.

SECTION 54. ORS 238.380 is amended to read:

238.380. (1)(a) Upon retirement of an employee who is a member of the Public Employees Retirement System and computation of that member's service retirement allowance under ORS 238.300, 238.305 or 238.425, or computation of any disability retirement allowance under ORS 238.320, 238.325, 238.330, 238.345 or 238.425, the Public Employees Retirement Board shall add to the amount of the allowance, including amounts attributable to prior service credit [acquired under ORS 238.225] and the amount of any refund of accumulated employee contributions, the greater of the percentage increase calculated under ORS 238.385 or a percentage increase calculated under subsection (4) of this section. No benefit shall be paid to a member or beneficiary under ORS 238.385 if the benefit payable to the member or beneficiary under this section is larger than the benefit payable under ORS 238.385.

(b) The percentage increase provided for in this section shall be adjusted by the board to reflect increases or decreases in a member's retirement allowance that are attributable to the member's participation in the Variable Annuity Account established by ORS 238.260, that are attributable to a change in the member's beneficiary or payment option under ORS 238.305 or 238.325, or that are attributable to corrections to the member's retirement allowance calculation.

(c) The percentage increase provided for in this section shall be applied to any lump sum payment made to a member or a beneficiary of a member on or after January 1, 1991, that is attributable to a retroactive correction or adjustment of the amount payable to the member or beneficiary as a retirement allowance or that is attributable to a retroactive correction or adjustment to any other benefit that entitles a member or beneficiary to an increased benefit under this section. The percentage increase payable under this paragraph applies only to the principal amounts included in the lump sum payment as a retroactive correction or adjustment and does not apply to any interest on the retroactive correction or adjustment paid as part of the lump sum payment.

(2) The amount of any death benefit under ORS 238.390, 238.395, 238.400 or 238.405, including the amount of any monthly payments, shall be increased by the greater of the percentage provided for in ORS 238.385 or the percentage calculated under subsection (4) of this section.

(3)(a) A member of the system who elects to receive a lump sum in lieu of a retirement allowance or other benefit under ORS 238.315 shall receive an increase based on the greater of the percentage provided for in ORS 238.385 or the percentage calculated under subsection (4) of this section.

(b) A member of the system who withdraws the amount credited to the [employee's] member account of the member in the fund under the provisions of ORS 238.265, or whose member account is returned to the employee after the membership of the employee is terminated under the provisions of ORS 238.095, shall receive an additional amount calculated by multiplying the amount of the [employee's] member account of the member by the greater of the percentage provided for in ORS 238.385 or the percentage calculated under subsection (4) of this section. If a member thereafter elects to obtain restoration of creditable service by repaying the amount of the withdrawn [employee] member account pursuant to the provisions of ORS 238.105, the member must also repay all amounts paid under this section, together with interest from the date of withdrawal at the same rate as applied to the withdrawn [employee] member account under ORS 238.105. If a member repays only part of the withdrawn [employee] member account pursuant to the provisions of ORS 238.115, the member must repay that part of the amount paid under this section that is proportionate to the portion of the withdrawn [employee] member account that is repaid under ORS 238.115, together with interest from the date of withdrawal at the same rate as applied to the withdrawn [employee] member account under ORS 238.115. All amounts paid to the member that are subsequently repaid under ORS 238.105 or 238.115 shall be deposited by the board to the employer reserve for pension accounts in the fund.

(4)(a) The Public Employees Retirement Board shall calculate a multiplier for the purposes of this section equal to the percentage produced by the following formula:

_______________

1 - the maximum Oregon

personal income tax rate

(b) Upon the retirement or death of a member of the system, the board shall determine the fraction of the member's retirement allowance or death benefit, including any refund or lump sum payment, that is attributable to service rendered by the member before October 1, 1991. The board shall then calculate a percentage that is equal to that fraction multiplied by the multiplier determined by the board under paragraph (a) of this subsection. The percentage so calculated shall be used to determine the amount of the increase in benefits provided to a member, if any, under this section.

(5) For the purpose of determining that portion of a retirement allowance or death benefit attributable to service rendered before October 1, 1991, the board shall divide the number of years of creditable service performed before October 1, 1991, by the total number of years of creditable service during which the pension income was earned. For the purposes of this subsection:

(a) The number of years of creditable service does not include any period of employment for which a benefit is paid for prior service [under the provisions of ORS 238.225] credit.

(b) Except as provided in subsection (8)(a) of this section, the number of years of creditable service includes all retirement credit of the member, and any retirement credit of a member that is attributable to periods of service, employment or other activity performed before October 1, 1991, shall be considered creditable service performed before October 1, 1991.

(6) The increased benefits provided for in this section shall be funded by employer contributions.

(7) If the maximum Oregon income tax rate is changed for any taxable year, the board shall utilize the new rate for the purposes of calculating the benefit provided for in this section for all members of the system who retire or die after the change in rates takes effect. In addition, the board shall recalculate the benefits payable to all retired members of the Public Employees Retirement System, or to the beneficiaries of those members, using the new tax rate. The benefit so recalculated shall be applicable to the first full month after the recalculation is made, and be payable the first day of the month immediately following. If by reason of the calculation or recalculation of the benefit under this subsection the amount of the benefit provided for in this section is decreased, any benefits paid after the change in the tax rate takes effect and before the calculation or recalculation is made shall not be recoverable by the system, but the Public Employees Retirement Board shall ensure that only the amount of the benefit so calculated or recalculated shall be paid after the calculation or recalculation is made.

(8)(a) The increased benefits provided by this section apply only to members who establish membership in the Public Employees Retirement System before July 14, 1995, and whose effective date of retirement or date of death is on or after January 1, 1991. The increased benefits provided by this section do not apply to any creditable service or prior service credit acquired by a member under the terms of a contract of integration entered into pursuant to ORS 238.035, 238.680 or 238.690 on or after October 1, 1991.

(b) The recalculation of benefits provided for in subsection (7) of this section applies to all retired members, without regard to the date of the member's retirement or death.

(9) If a member is entitled to receive an increased benefit under the provisions of this section, and any portion of the member's retirement allowance or other benefit payable under the system is payable to an alternate payee under the provisions of ORS 238.465, the increased benefits payable under this section shall be divided between the member and the alternate payee in proportion to the share of the total benefit received by each person. If an alternate payee elects to begin receiving benefits under ORS 238.465 (1) before the member's effective date of retirement, the alternate payee may not begin receiving the increased benefit provided for in this section until benefits are first paid from the system on behalf of the member.

(10) A person establishes membership in the system before July 14, 1995, for the purposes of subsection (8) of this section if:

(a) The person is a member of the system, or a judge member of the system, on July 14, 1995;

(b) The person was a member of the system before July 14, 1995, ceased to be a member of the system under the provisions of ORS 238.095, 238.265 or 238.545 before July 14, 1995, but restores part or all of the forfeited creditable service from before July 14, 1995, under the provisions of ORS 238.105 or 238.115 after July 14, 1995; or

(c) The person performed any period of service for a participating public employer before July 14, 1995, that is credited to the six-month period of employment required of an employee under ORS 238.015 before an employee may become a member of the system.

SECTION 55. ORS 238.385 is amended to read:

238.385. (1)(a) Upon retirement of an employee who is a member of the Public Employees Retirement System and computation of that member's service retirement allowance under ORS 238.300, 238.305 or 238.425, or computation of any disability retirement allowance under ORS 238.320, 238.325, 238.330, 238.345 or 238.425, the Public Employees Retirement Board shall add to the amount of the allowance, including amounts attributable to prior service credit [acquired under ORS 238.225] and the amount of any refund of accumulated [employee] member contributions, an additional amount equal to the percentage increase provided in subsection (4) of this section.

(2) The amount of any death benefit under ORS 238.390, 238.395, 238.400 or 238.405, including the amount of any monthly payments, shall be increased by an amount equal to the percentage increase provided in subsection (4) of this section.

(3)(a) A member of the system who receives a lump sum under ORS 238.315 in lieu of a retirement allowance or other benefit shall receive an additional amount equal to the percentage increase provided in subsection (4) of this section.

(b) A member of the system who withdraws the amount credited to the [employee's] member account of the member [in the fund] under the provisions of ORS 238.265, or whose member account is returned to the employee after the membership of the employee is terminated under the provisions of ORS 238.095, shall receive an additional amount calculated by multiplying the amount of the [employee's] member account of the member by the percentage increase provided for under subsection (4) of this section. If a member thereafter elects to obtain restoration of creditable service by repaying the amount of the withdrawn [employee] member account pursuant to the provisions of ORS 238.105, the member must also repay all amounts paid under this section, together with interest from the date of withdrawal at the same rate as applied to the withdrawn [employee] member account under ORS 238.105. If a member repays only part of the withdrawn [employee] member account pursuant to the provisions of ORS 238.115, the member must repay that part of the amount paid under this section that is proportionate to the portion of the withdrawn [employee] member account that is repaid under ORS 238.115, together with interest from the date of withdrawal at the same rate as applied to the withdrawn [employee] member account under ORS 238.115. All amounts paid to the member that are subsequently repaid under ORS 238.105 or 238.115 shall be deposited by the board to the employer reserve for pension accounts in the fund.

(4)(a) The percentage increases provided for in this section to the benefits payable to or on account of a member of the system who is serving as other than a police officer or firefighter at the time of death or retirement shall be:

(A) For a member with a combined total of 10 or more years of creditable service in the system and prior service credit [under ORS 238.225] but less than a combined total of 20 years, one percent.

(B) For a member with a combined total of 20 or more years of creditable service in the system and prior service credit [under ORS 238.225] but less than a combined total of 25 years, two percent.

(C) For a member with a combined total of 25 or more years of creditable service in the system and prior service credit [under ORS 238.225] but less than a combined total of 30 years, three percent.

(D) For a member with a combined total of 30 or more years of creditable service in the system and prior service credit [under ORS 238.225], four percent.

(b) The percentage increases provided for in this section to the benefits payable to or on account of a member of the system who is serving as a police officer or firefighter at the time of death or retirement shall be:

(A) For a member with a combined total of 10 or more years of creditable service in the system and prior service credit [under ORS 238.225] but less than a combined total of 20 years, one percent.

(B) For a member with a combined total of 20 or more years of creditable service in the system and prior service credit [under ORS 238.225] but less than a combined total of 25 years, two and one-half percent.

(C) For a member with a combined total of 25 or more years of creditable service in the system and prior service credit [under ORS 238.225], four percent.

(c) The benefits payable to or on account of a member with less than a combined total of 10 years of creditable service in the system and prior service credit [under ORS 238.225] at the time of death or retirement shall not be increased under the provisions of this section.

(5) The increased benefits provided for in this section shall be funded by employer contributions.

(6) This section applies only to a member who establishes membership in the Public Employees Retirement System before July 14, 1995, as described in ORS 238.380 (10), and whose effective date of retirement or date of death is on or after January 1, 1991. The increased benefits provided by this section do not apply to any creditable service or prior service credit acquired by a member under the terms of a contract of integration entered into pursuant to ORS 238.035, 238.680 or 238.690 on or after October 1, 1991.

(7) If a member is entitled to receive an increased benefit under the provisions of this section, and any portion of the member's retirement allowance or other benefit payable under the system is payable to an alternate payee under the provisions of ORS 238.465, the increased benefits payable under this section shall be divided between the member and the alternate payee in proportion to the share of the total benefit received by each person. If an alternate payee elects to begin receiving benefits under ORS 238.465 (1) before the member's effective date of retirement, the alternate payee may not begin receiving the increased benefit provided for in this section until benefits are first paid from the system on behalf of the member.

SECTION 56. ORS 238.390 is amended to read:

238.390. (1) In the event that [a person who is] a member of the system dies before retiring, the amount of money credited at the time of death to the member account of the member in the fund shall be paid to the beneficiaries designated by the member. For this purpose a member may designate as a beneficiary any person or the executor or administrator of the estate of the member or a trustee named by the member to execute an express trust in regard to such amount. The withdrawal from the fund of the amount in the member account of a member pursuant to ORS 238.265 shall not invalidate a prior designation of beneficiary in the event a member returns to covered employment, regardless of whether the sum is repaid to the fund pursuant to ORS 238.105.

(2)(a) In the event that [a person who is] a member of the system dies before retiring and has not designated a beneficiary under subsection (1) of this section, the amount of money credited at the time of death to the member account of the member in the fund shall be paid to the deceased's estate if it is to be probated and, if not, then it shall be paid directly without probate to the surviving next of kin of the deceased or the guardian of the survivor's estate, share and share alike, payment to be made to survivors in the following groups in the order listed:

[(a)] (A) Husband or wife. [, or]

[(b)] (B) Children. [, or]

[(c)] (C) Father and mother. [, or]

[(d)] (D) Grandchildren. [, or]

[(e)] (E) Brothers and sisters. [, or]

[(f)] (F) Nieces and nephews.

(b) [No] Payment shall not be made to persons included in any of [these] the groups listed in paragraph (a) of this subsection should there be living at the date of payment persons in any of the groups preceding it as listed. Payment to the persons in any group, upon receipt from them of an affidavit upon a form supplied by the board, that there are no living individuals in a group preceding it, that the estate of the deceased will not be probated and that the amount of money, to the full extent thereof if necessary, will be used to pay the expenses of last illness and funeral of the deceased, shall completely discharge the board and system on account of the death.

(3) The beneficiary designated under subsection (1) of this section may elect to receive the amount payable in actuarially determined monthly payments for the life of such beneficiary [so] as long as such monthly payments are at least $30.

(4)(a) In the event that [a person who is] a member of the system dies before retiring, has not designated a beneficiary under subsection (1) of this section, has no surviving next of kin referred to in subsection (2) of this section and whose estate will not be probated, the amount of money credited at the time of death to the member account of the member in the fund shall be paid directly without probate for the following purposes in the order listed:

[(a)] (A) Expenses of the funeral of the deceased.

[(b)] (B) Medical expenses of the last illness of the deceased.

[(c)] (C) Hospital expenses of the last illness of the deceased.

(b) Claims for payment of expenses under this subsection shall be filed with the board within six months after the date of death of the deceased. If no claims are filed within the six-month period, the amount shall be credited to the fund as are employer contributions. If a balance of the amount remains after payment of valid claims filed within the six-month period, the balance shall be credited to the fund as are employer contributions. Payments under this subsection shall completely discharge the board and system on account of the death.

(5) Accrued benefits due a retired member at the time of death are payable to the designated beneficiary and, if none, to the administrator or executor of the estate of the member. If the estate will not be probated, they may be paid, upon receipt by the board of the affidavit referred to in subsection (2)(b) of this section, to the next of kin in the order listed in subsection (2)(a) of this section. If the estate will not be probated and if there is no beneficiary or next of kin, accrued benefits or a balance due under a refund annuity option shall be paid or credited for the purposes and in the manner provided in subsection (4) of this section. For the purpose of determining accrued benefits due a retired member at the time of death, accrued benefits are considered to have ceased as of the last day of the month preceding the month in which the retired member dies; but if Option 2 or Option 3 under ORS 238.305 has been elected as provided in this chapter and the beneficiary survives the retired member, the benefits to the beneficiary shall commence as of the first day of the month in which the retired member dies, and payment of benefits under Option 2 or Option 3 shall cease with the payment for the month preceding the month in which the beneficiary dies.

(6) Interest upon the member account of the member shall accrue until the date that the [amounts] amount in the member account [are] is distributed. Any balance in the variable account of the deceased member [in the Variable Annuity Account] is considered to be transferred to the [individual] regular account of the member as of the date of death. The board shall establish procedures for computing and crediting interest on the balance [of] in the member account for the period between the date of death and date of distribution.

(7) Payments by the Public Employees Retirement Board of credits or accrued benefits pursuant to the beneficiary designation on file with the board or any affidavit referred to in subsection (2)(b) of this section shall completely discharge the board and system on account of the death, and shall hold the board and system harmless from any claim for wrongful payment.

SECTION 57. ORS 238.395 is amended to read:

238.395. (1) In addition to any other benefits under this chapter, a death benefit, provided by [current service] contributions of the public employer under ORS 238.225, shall be paid to the beneficiaries designated under ORS 238.390 (1) of a person who is an active or inactive member of the system and who dies as a result of injuries received while employed in the service of the public employer or within 120 days after termination from service with a participating public employer. A member who is on a leave of absence without pay from employment with a participating public employer has not terminated service with that participating public employer for the purposes of this section.

(2) The death benefit referred to in subsection (1) of this section shall be an amount equal to the [member's] amount in the member account [balance] of the deceased member at the time of death.

(3) In the event that a beneficiary has not been named as provided in subsection (1) of this section and ORS 238.390 (1), the death benefit referred to in subsection (1) of this section shall be paid to the same person or persons and in the same manner as provided for payment of money credited to the member account of the member in ORS 238.390 (2).

(4) In the event that a beneficiary has not been designated and the deceased member has no surviving next of kin referred to in ORS 238.390 (2)(a), the death benefit referred to in subsection (1) of this section shall be used for the same purpose and in the same manner as provided for the use of money credited to the member account of the member in ORS 238.390 (4)(a).

(5) The beneficiary designated under subsection (1) of this section and ORS 238.390 (1) may elect to receive the amount payable in actuarially determined monthly payments for the life of such beneficiary [so] as long as such monthly payments, plus the monthly amount if elected under ORS 238.390 (3), are at least $30.

(6) Interest upon the death benefit provided by this section shall accrue until the date that the benefit is distributed. The board shall establish procedures for computing interest to be credited on the benefit for the period between the date of death and date of distribution.

(7) Payments by the Public Employees Retirement Board of additional death benefits pursuant to the beneficiary designation on file with the board or any affidavit referred to in ORS 238.390 (2)(b) shall completely discharge the board and system on account of the death, and shall hold the board and system harmless from any claim for wrongful payment.

SECTION 58. ORS 238.425 is amended to read:

238.425. In the event that an employee who is a member of the system, who has made contributions to the fund during each of five calendar years as established by this chapter, and who has not attained earliest service retirement age, is separated, for any reason other than death or disability, from all service entitling the employee to membership in the system, the member account of the member shall remain to the [employee's] member's credit in the fund unless the [employee] member elects to withdraw it and there shall be paid such death benefits as this chapter provides; or a disability retirement allowance or, after attaining earliest service retirement age, a service retirement allowance, either of which shall consist of:

(1) An annuity which shall be the actuarial equivalent of the [employee's] member's accumulated contributions and interest thereon credited to the [employee] member;

(2) A pension provided by the contributions of employers as provided in ORS 238.300 (2), but actuarially reduced and computed on the [employee's] member's then attained age; and

(3) An additional life pension (nonrefund) for prior service credit, including military service, credited to the [employee] member at the time the [employee] member first becomes a member of the system, as elsewhere provided in this chapter, which pension shall be provided by the [prior service] contributions of the employer [or, in case the employee is an employee of a school district, by a uniform rate of contribution by all school districts; except that an employee who is entitled to benefits under ORS 1.310 to 1.390 (1989 Edition) shall not also be entitled to the prior service pension provided by this subsection].

SECTION 59. ORS 238.515 is amended to read:

238.515. (1)(a) Each judge member shall contribute monthly to the Public Employees Retirement Fund seven percent of the monthly salary of the judge member. The contributions of a judge member shall be credited to the member account of the judge member [in the fund].

(b) The state shall “pick-up,” assume or pay the full amount of contributions to the fund required of judge members. The full amount of required judge member contributions “picked-up,” assumed or paid by the state on behalf of judge members shall be considered “salary” only for the purpose of computing a judge member's “final average salary” within the meaning of ORS 238.535 (2) and not for any other purpose. The full amount of required judge member contributions “picked-up,” assumed or paid by the state on behalf of judge members shall be added to the [individual account balances] member account of the judge members and shall be considered judge member contributions for all other purposes of ORS 238.500 to 238.585.

(2) The state shall make employer contributions to the fund in respect to judge members as provided in ORS 238.225 [(1)]. For the purposes of actuarial computation and contributions of the state based thereon under ORS 238.225 [(1)], judge members shall be considered a separate group of employees.

SECTION 60. ORS 238.545 is amended to read:

238.545. (1) Except as otherwise provided in this section, a judge member may withdraw from the Public Employees Retirement Fund the amount credited to the [employee] member account [for] of the judge member if:

(a) The judge member has made contributions to the Public Employees Retirement System during each of five calendar years;

(b) The judge member is separated from all service with participating public employers;

(c) The judge member is separated from all service with employers who are treated as part of a participating public employer's controlled group under the federal laws and rules governing the status of the Public Employees Retirement System and the Public Employees Retirement Fund as a qualified governmental retirement plan and trust;

(d) The judge member has not attained 60 years of age; and

(e) The separation from service is not by reason of death or disability.

(2) If a judge member wishes to withdraw the [employee] member account balance under this section, the judge member must transmit to the Public Employees Retirement Board a withdrawal request. The board shall deny the withdrawal, or shall take all reasonable steps to recover withdrawn amounts, if:

(a) The board determines that the separation is not a bona fide separation; or

(b) The judge member fails to remain absent from the service of all employers described in subsection (1) of this section for at least one calendar month following the month in which the judge member separates from service.

(3) If a judge member who is eligible to withdraw as provided in subsection (1) of this section does not elect to withdraw, the member account of the judge member [in the fund] shall remain to the credit of the judge member, and the judge member is entitled to such death benefits and disability retirement allowance as ORS 238.500 to 238.585 provide. Before attaining 60 years of age, a judge member who is eligible to withdraw as provided in subsection (1) of this section but who does not withdraw must elect in writing to retire under either ORS 238.535 (1)(a) or (b). The election is irrevocable after the judge member attains 60 years of age. Any inactive judge member who fails to make the election provided for in this subsection prior to attaining 60 years of age shall be retired under the provisions of ORS 238.535 (1)(a). The service retirement allowance of an inactive judge member who retires under ORS 238.535 (1)(a) shall be a reduced service retirement allowance that is the actuarial equivalent of the service retirement allowance provided for in ORS 238.535 (1)(a). An inactive judge member who elects to retire under ORS 238.535 (1)(b) must meet all other requirements imposed by ORS 238.535 for retirement under ORS 238.535 (1)(b).

(4) If approved by the Chief Justice of the Supreme Court, an inactive judge member who elects to retire under ORS 238.535 (1)(b) pursuant to the provisions of subsection (3) of this section may commence to serve the pro tem service obligation imposed by ORS 238.535 before the judge member's date of retirement. If the Chief Justice determines, at any time after the judge member commences performing the pro tem service obligation, that the judge member has failed to perform the pro tem services in the manner required by ORS 238.535 (1)(c), and the judge member has not been relieved of the obligation to perform those services in the manner provided by ORS 238.535 (1)(c), the Chief Justice shall notify the Public Employees Retirement Board. If the judge member has not yet retired, the board shall calculate the service retirement allowance of the noncomplying judge member at the time of retirement in the manner provided by ORS 238.535 (1)(a). If the judge member has retired, the board shall recalculate the service retirement allowance of the noncomplying judge member in the manner provided by ORS 238.535 (1)(a), and the noncomplying judge member shall receive only that recalculated amount thereafter. An inactive judge member may be relieved of the pro tem service obligation imposed by ORS 238.535 (1)(c) in the same manner as provided in ORS 238.535 for retired judge members.

(5) Withdrawal of the [employee] member account balance under this section cancels all membership rights in the system, including the right to claim credit for any employment before withdrawal.

(6) ORS 238.105 and 238.115 (1) apply to a former judge member who has withdrawn the [employee] member account balance under this section.

SECTION 61. ORS 238.565 is amended to read:

238.565. (1) For the purposes of this section, the beneficiary of the judge member shall be any person, or the personal representative of the estate of the judge member, or a trustee named by the judge member to execute an express trust, whom the judge member designates as a beneficiary by written designation duly acknowledged and filed with the board before the death of the judge member.

(2)(a) If a judge member who has six or more years of service as a judge dies before retiring, and the judge member is not an inactive judge member who is performing a pro tem service obligation under the provisions of ORS 238.545 (4), the surviving spouse of the judge member shall receive a life pension, payable monthly, equal to two-thirds of the service retirement allowance the judge member would have received under ORS 238.535 (1)(a) had the judge member retired on the date of death.

(b) If a judge member who has six or more years of service as a judge dies before retiring, and the judge member is an inactive member who is performing a pro tem service obligation under the provisions of ORS 238.545 (4), the surviving spouse of the judge member shall receive a life pension, payable monthly, equal to two-thirds of the service retirement allowance the judge member would have received under ORS 238.535 (1)(b) had the judge member retired on the date of death.

(c) If a surviving spouse receiving a pension under paragraph (a) or (b) of this subsection dies and the total amount received as pension by the surviving spouse is less than the amount credited to the member account of the judge member in the fund on the date of death of the judge member, the beneficiary shall receive a lump sum amount equal to the difference between the total amount received by the surviving spouse and the amount so credited to the member account of the judge member.

(d) If a judge member who has six or more years of service as a judge dies before retiring and has no surviving spouse, the beneficiary shall receive a lump sum amount equal to the amount credited to the member account of the judge member in the fund on the date of death of the judge member.

(e) If the surviving spouse of a judge member who dies before retiring is not entitled to a pension under paragraph (a) or (b) of this subsection, the surviving spouse shall receive a lump sum amount equal to the amount credited to the member account of the judge member in the fund on the date of death of the judge member.

(3)(a) If a judge member dies after retiring, the surviving spouse of the judge member shall receive a life pension, payable monthly, equal to two-thirds of the retirement allowance the judge member is receiving or is entitled to receive on the date of death.

(b) If a surviving spouse receiving a pension under paragraph (a) or (b) of this subsection dies and the total amount received as retirement allowance by the retired judge member and as pension by the surviving spouse is less than the amount credited to the member account of the judge member on the date of retirement of the judge member, the beneficiary shall receive a lump sum amount equal to the difference between the total amount received as retirement allowance and pension and the amount so credited to the member account of the judge member.

(c) If a judge member dies after retiring and has no surviving spouse, and the total amount received as retirement allowance by the retired judge member is less than the amount credited to the member account of the judge member on the date of retirement of the judge member, the beneficiary shall receive a lump sum amount equal to the difference between the total amount received as retirement allowance and the amount so credited to the member account of the judge member.

(4) At any time after becoming a judge member, but not later than the date on which the first payment on account of retirement is due, a judge member may elect to provide an addition to the pension of the surviving spouse of the judge member under subsection (3)(a) of this section by selecting a reduced retirement allowance for the judge member. The additional pension to the surviving spouse shall be the actuarial equivalent of the reduction in the retirement allowance of the judge member and, in no event, when added to the pension under subsection (3)(a) of this section, shall it exceed the reduced retirement allowance elected by the judge member.

(5) Any accrued retirement allowance due a retired judge member that is unpaid at the time of death of the judge member shall be paid to the surviving spouse of the judge member; or if there is no surviving spouse, to the beneficiary of the judge member; or if there is no surviving spouse or beneficiary, to the personal representative of the estate of the judge member; or if there is no surviving spouse or beneficiary and the estate of the judge member will not be probated, for the purposes and in the manner provided in ORS 238.390 (4)(a).

(6) Notwithstanding any other provision of this section, a judge member shall be considered to have died with no surviving spouse if:

(a) The judge member has entered into a prenuptial or antenuptial agreement with the spouse of the judge that provides that the spouse shall have no right or claim to a surviving spouse's pension; and

(b) The judge member has filed a copy of the prenuptial or antenuptial agreement with the board before the death of the judge member.

(7) The board shall not be liable for any payment made to a beneficiary by reason of a prenuptial or antenuptial agreement filed with the board under subsection (6) of this section unless the board has actual knowledge that the agreement has been revoked.

SECTION 62. ORS 238.580 is amended to read:

238.580. (1) ORS 238.005 [(2) and (11)] (3) and (20), 238.025, 238.078, 238.082, 238.092, 238.115 (1), 238.250, 238.255, 238.260, 238.350, 238.380, 238.410, 238.415, 238.420, 238.445, 238.458, 238.460, 238.465, 238.475, 238.600, 238.605, 238.610, 238.618, 238.630, 238.635, 238.645, 238.650, 238.655, 238.660, 238.665, 238.670 and 238.705 and the increases provided by ORS 238.385 for members of the system who are serving as other than police officers or firefighters apply in respect to service as a judge member.

(2) This chapter applies in respect to persons described in ORS 238.505 (1) and in respect to service as a judge member only as specifically provided in ORS 238.500 to 238.585.

SECTION 63. ORS 238.585 is amended to read:

238.585. (1) A judge member who has creditable service as other than a judge member is entitled to the use of all creditable service as a judge member for the purpose of establishing eligibility under ORS 238.115, 238.125, 238.135 or any other provision of this chapter that requires a specified number of years of creditable service.

(2) A judge member who has creditable service as other than a judge member is entitled to use of all creditable service as other than a judge member for the purpose of establishing eligibility under the provisions of ORS 238.385, 238.415, 238.420 or any other provision of this chapter that is applicable to a judge member and that requires a specified number of years of creditable service.

(3) A member of the system other than a judge member who separates from all service entitling the [employee] person to membership in the system and who withdraws the amount credited to the member account of the member in the fund may restore all rights forfeited by the withdrawal in the manner specified by ORS 238.105 if the [member] person becomes a judge member within five years after the date that the [employee] person is separated from all service entitling the [employee] person to membership in the system.

SECTION 64. ORS 238.665 is amended to read:

238.665. Contributions required by this chapter to be placed in the retirement fund, and interest required to be allocated to the member accounts of members of the retirement system and to participating employers, shall not be included in the biennial departmental budget of the board.

SECTION 65. ORS 238.675 is amended to read:

238.675. (1)(a) Any benefit payment that is payable as the result of the death of a member may be transferred by the Public Employees Retirement Board to another account or reserve in the fund if:

(A) The total benefit payable to the beneficiaries designated by the deceased member is less than $250 in amount;

(B) Ten years have passed since the death of the member; and

(b) Amounts transferred under this section shall be credited to accounts or reserves in the fund designated by the board in its discretion.

(c) The board shall establish procedures for the filing of a delayed claim by a beneficiary of a deceased member who would otherwise be entitled to receive a benefit payment. Delayed claims may be filed after the 10-year period provided for in paragraph (a) of this subsection.

(2)(a) The Public Employees Retirement Board may transfer the amount credited to the member account of [an employee] a former member to another account or reserve in the fund if:

(A) The total amount credited to the member account of the [employee] former member is less than $250;

(B) The membership of the [employee] person in the system has been terminated under the provisions of ORS 238.095 (2); and

(C) Ten years have passed since the [employee] former member ceased to be a member of the system and no claim has been made for payment of the amount credited to the member account of the [employee] former member.

(b) Amounts transferred under this section shall be credited to reserves or accounts in the fund designated by the board in its discretion.

(c) The board shall establish procedures for the filing of a delayed claim by a former member of the system who would otherwise be entitled to receive amounts credited to the [former member's] member account of the former member. Delayed claims may be filed after the 10-year period provided for in paragraph (a) of this subsection.

SECTION 66. ORS 243.800 is amended to read:

243.800. (1) Notwithstanding any provision of ORS chapter 238 or ORS 243.910 to 243.945, the State Board of Higher Education may establish and administer an optional retirement plan for administrative and academic employees of the State System of Higher Education who are eligible for membership in the Public Employees Retirement System. The optional retirement plan must be a qualified plan under the Internal Revenue Code, capable of accepting funds transferred under subsection (7) of this section without the transfer being treated as a taxable event under the Internal Revenue Code, and willing to accept those funds. Retirement and death benefits shall be provided under the plan by the purchase of annuity contracts, fixed or variable or a combination thereof, or by contracts for investments in mutual funds.

(2) The State Board of Higher Education shall select at least two life insurance companies providing fixed and variable annuities and at least two investment companies providing mutual funds, but not more than five companies in total, for the purpose of providing benefits under the optional retirement plan authorized by this section. The State Board of Higher Education shall establish selection criteria for the purpose of this subsection.

(3) An administrative or academic employee may elect to participate in an optional retirement plan offered under the provisions of this section in the following manner:

(a) An administrative or academic employee who is an active member of the Public Employees Retirement System may make an irrevocable election to participate in the plan within 180 days after the plan's implementation date, effective as of the date of election.

(b) An employee, as defined in ORS 243.910 (2), who is an active member of the Public Employees Retirement System and who has elected, and not canceled that election, to be assisted by the State Board of Higher Education under ORS 243.940 may make an irrevocable election to participate in the plan within 180 days of the plan's implementation date, effective as of the date of election.

(c) An administrative or academic employee who is hired after the plan's implementation date may make an irrevocable election to participate in the plan within the first six months of employment, effective on the first of the month following six full months of employment.

(4) Administrative or academic employees who do not elect to participate in an optional retirement plan:

(a) Remain members of the Public Employees Retirement System if they are members on the date the plan is implemented;

(b) Continue to be assisted by the State Board of Higher Education under ORS 243.920 if they are being so assisted; or

(c) Become members of the Public Employees Retirement System in accordance with ORS chapter 238, if they commence employment after the optional plan is implemented.

(5) Except as provided in subsection (6) of this section, employees who elect to participate in the plan are ineligible for active membership in the Public Employees Retirement System or for any assistance by the State Board of Higher Education under ORS 243.920 as long as those employees are employed in the State System of Higher Education and the plan is in effect.

(6)(a) An administrative or academic employee who elects to participate in the optional retirement plan authorized by this section and who has not made contributions to the Public Employees Retirement System during each of five calendar years shall be considered by the Public Employees Retirement Board to be a terminated member under the provisions of ORS 238.095 effective as of the effective date of the election, and the amount credited to the member account of the [employee] member [in the Public Employees Retirement Fund] shall be transferred directly to the optional retirement plan by the Public Employees Retirement Board in the manner provided by subsection (7) of this section.

(b) An administrative or academic employee who elects to participate in the optional retirement plan authorized by this section and who has made contributions to the Public Employees Retirement System during each of five calendar years shall be considered to be an inactive member by the Public Employees Retirement Board and shall retain all the rights, privileges and options under ORS chapter 238 unless the employee withdraws the amounts credited to the member account of the [employee] member[in the Public Employees Retirement Fund] pursuant to ORS 238.265.

(7) Any withdrawals from the Public Employees Retirement Fund under subsection (6) of this section, whether by termination under subsection (6)(a) of this section or by elective withdrawal under subsection (6)(b) of this section, shall be transferred directly to the optional retirement plan by the Public Employees Retirement Board and shall not be made available to the employee.

(8) An employee participating in the optional retirement plan authorized by this section shall contribute monthly an amount equal to the percentage of the employee's salary that the employee would otherwise have contributed as an employee contribution to the Public Employees Retirement System if the employee had not elected to participate in the optional retirement plan.

(9) The State Board of Higher Education shall contribute monthly to the optional retirement plan authorized under this section the percentage of salary of each employee participating in the plan equal to the percentage of salary that would otherwise have been contributed as an employer contribution on behalf of the employee to the Public Employees Retirement System if the employee had not elected to participate in the optional retirement plan.

(10) Both employee and employer contributions to an optional retirement plan authorized under this section shall be remitted directly to the companies that have issued annuity contracts to the participating employees or directly to the mutual funds.

(11) Benefits under the optional retirement plan authorized under this section are payable to employees who elect to participate in the plan and their beneficiaries by the selected annuity provider or mutual fund in accordance with the terms of the annuity contracts or the terms of the contract with the mutual fund. Employees electing to participate in the plan agree that benefits payable under the plan are not obligations of the State of Oregon or of the Public Employees Retirement System.

SECTION 67. ORS 526.052 is amended to read:

526.052. (1) For purposes of this section, “forest protective association” or “association” has the meaning for that term provided in ORS 477.001.

(2) Subject to subsection (3) of this section, a person employed by a forest protective association at a time when the association was under contract or cooperative agreement with the forester or State Board of Forestry by authority of ORS chapter 477 and this chapter, with specific reference to ORS 477.406 to 477.412, or predecessor statutes, shall receive the following credits when transferring directly from association employment to employment by the State Forestry Department:

(a) Sick leave accrual earned during employment as an association employee.

(b) Rate of accumulating annual leave based on years of service as an association employee.

(c) Credit for current service under the Public Employees Retirement System equal to periods of service as an association employee as determined by the Public Employees Retirement Board, if the person, before the effective date of retirement of the person as [an employee] a member of the system, applies in writing to the retirement board for that credit or any part thereof and pays to the retirement board in a lump sum for credit to the member account of the [person] member [in the Public Employees Retirement Fund] an amount determined by the retirement board to be equal to the total amount of employee and employer contributions with interest that would have accumulated had the person been a member of the system as an employee of the State Forestry Department in a position equivalent to that held by the person for the periods of service or part thereof as an association employee.

(3) The credits granted by subsection (2) of this section shall be granted if the employee makes an immediate transfer from association employment to state employment, and if the person earned employment credits as an association employee under standards comparable to laws and rules of the State of Oregon governing similar credits in state employment.

(4) Unless the employee transferring to employment with the State Forestry Department first becomes a member of the Public Employees Retirement System before January 1, 2000, as described in subsection (6) of this section:

(a) The employee may acquire credit under subsection (2)(c) of this section only after the employee has been a member of the Public Employees Retirement System for at least 60 calendar months; and

(b) The maximum number of years of retirement credit that a person may acquire under subsection (2)(c) of this section is five years.

(5) If a person subject to the limitation imposed by subsection (4)(b) of this section is also eligible for credit under ORS 238.145, and the person is subject to the limitation imposed by ORS 238.145 (4), the total years of credit that the person may acquire under this section and under the provisions of ORS 238.145 may not exceed five years.

(6) A person becomes a member of the Public Employees Retirement System before January 1, 2000, for the purposes of this section if:

(a) The person is a member of the system on January 1, 2000; or

CONVERSION TO OPTIONAL

SERVICE RETIREMENT CALCULATION

SECTION 68. ORS 238.305 is amended to read:

238.305. (1) [At any time after establishing membership, but within] Not later than 60 days after the date [of] the first benefit payment is issued to a retired member of the system, [a person who is a] the member [of the system] may elect to convert the allowance described by ORS 238.300 as payable after retirement into a service retirement annuity of equivalent actuarial value of one of the optional forms named below. The election of Option 2, 2A, 3 or 3A shall be effective immediately upon the member's retirement.

Option 1. (a) A life annuity (nonrefund) payable during the member's life only, which shall be the actuarial equivalent of accumulated contributions by the member and interest thereon credited at the time of retirement (if death occurs before the first payment is due, the member account shall be treated as though death had occurred before retirement); (b) a life pension (nonrefund) provided by the contributions of employers as provided in ORS 238.300 (2); (c) an additional nonrefund pension for prior service credit, including military service, credited to the member at the time of first becoming a member of the system, as elsewhere provided in this chapter, which pension shall be provided by the [prior service] contributions of the employer [or, in case the member is an employee of a school district, by a uniform rate of contribution by all school districts]; or

Option 2A. A reduced service retirement allowance payable during the member's life which, unless modified under subsection (5) of this section, continues after death for the life of the beneficiary the member nominates by written designation duly acknowledged and filed with the board at the time of election, should the beneficiary survive the member; or

Option 3A. A reduced service retirement allowance payable during the member's life which, unless modified under subsection (5) of this section, continues after death at one-half the rate paid to the member and is paid for the life of the beneficiary the member nominates by written designation duly acknowledged and filed with the board at the time of election, should the beneficiary survive the member; or

Option 4. A reduced service retirement allowance payable during the member's life, with the provisions that if the member dies before a total of 180 monthly payments is made, the remainder of the 180 monthly payments shall be paid monthly to the beneficiary the member nominates by written designation duly acknowledged and filed with the board at any time before the member's death; and that if the member designates no beneficiary to receive the monthly payments or no such beneficiary is able to receive the monthly payments, an amount equal to the actuarial value, on the date of the member's death, of the total of the monthly payments not made to the member shall be paid according to ORS 238.390 for disposal of an amount credited to the member account of a member at the time of death; and that if the beneficiary receiving monthly payments dies before the total number of monthly payments to which the beneficiary is entitled is made, an amount equal to the actuarial value, on the date of the beneficiary's death, of the total of the monthly payments not made to the member and beneficiary shall be paid according to ORS 238.390 for disposal of an amount credited to the member account of a member at the time of death and as if the beneficiary had been a member.

(2) [At any time after establishing membership, but within] Not later than 60 days after the date [of] the first benefit payment is issued to a retired member of the system, [a person who is a] the member [of the system] may elect, in lieu of the allowance described by ORS 238.300 as payable after retirement, a service retirement benefit consisting of:

(a) A refund of accumulated contributions by the member and interest thereon credited at the time of refund; and

(b) A life pension (nonrefund) provided by the contributions of employers as provided in ORS 237.147 (2) (1979 Replacement Part), and an additional life pension (nonrefund) for prior service credit as provided in ORS 238.300 (3). At the same time as making the election under this subsection, the member may elect to convert the pensions described by this paragraph into a service retirement annuity of equivalent actuarial value of one of the optional forms named as Option 2, 2A, 3 or 3A under subsection (1) of this section.

(3) If the member elects to receive the service retirement benefit described in subsection (2) of this section, the member shall elect at the same time to receive the refund described in subsection (2)(a) of this section in one lump sum payment or in more than one but not more than five installment payments. If the member elects installment payments:

(a) The installment payments shall be paid once each year for the number of consecutive years equal to the number of installment payments elected.

(b) The amount of each installment payment shall be designated by the member at the time of making the election, but the last installment payment shall be the unrefunded balance remaining in the [individual] member account of the member in the Public Employees Retirement Fund.

(c) The [individual] member account of the member in the fund shall be maintained until the last installment payment is paid. The board shall establish procedures for computing and crediting interest annually on the unrefunded balance of the member account.

(d) A yearly installment payment shall be paid on the anniversary of the date of the first installment payment.

(e) The member is considered to have elected to transfer any balance in the variable account of the member [in the Variable Annuity Account] to the [individual] regular account of the member [in the fund].

(f) If the member dies before payment of all installment payments, the unrefunded balance in the [individual] member account of the member [in the fund] plus interest to date of disbursement is payable as provided in ORS 238.390 (5).

(4) The designation of a beneficiary, the election of an option or any other election or designation under subsection (1), (2) or (3) of this section may be changed by the member within 60 days after the date of the first benefit payment, except that the designation of a beneficiary under Option 4 may be changed by the member at any time before the member's death.

(5) If a retired member has elected to receive a service retirement allowance under Option 2A or Option 3A as provided in subsection (1) of this section, and if the beneficiary under that option dies after the expiration of the time within which the member could change the election of an option or if the beneficiary is the spouse of the member and the marriage relationship is terminated as provided by law after the expiration of the time within which the member could change the election of an option, the member may elect to receive, in lieu of the optional form of allowance previously elected, the allowance that the member would have received on the effective date of retirement under Option 1 as provided in subsection (1) of this section and adjusted by the actual amount of any cost of living or other post-retirement adjustments made to the original allowance since the effective date of retirement. Notice of election under this subsection shall be in a form approved by the board. Payment under Option 1 shall be effective for months beginning on or after the date the board receives the election.

(6) Notwithstanding any other provision of this section, any member of the system who retired before October 3, 1989, and elected to receive a service retirement allowance under either Option 2 or 3 as provided in subsection (1) of this section shall be entitled to receive a service retirement allowance equal to that which the member would have received on the effective date of retirement under Option 1 as provided in subsection (1) of this section and adjusted by the actual amount of any cost of living or other post-retirement adjustments made to the original allowance since the effective date of retirement if:

(a) The member has attained 80 years of age;

(b) The person designated by the member as the member's beneficiary has predeceased the member; and

(7) Notwithstanding any other provision of this section, any member of the system who retired before October 3, 1989, who elected to receive a refund of accumulated employee contributions and a life pension or pensions under subsection (2) of this section, and who elected to convert the life pension or pensions provided for in subsection (2) of this section into a service retirement annuity under Option 2 or 3 under subsection (1) of this section, shall be entitled to receive a life pension or pensions equal to that which the member would have received on the effective date of retirement under subsection (2) of this section and adjusted by the actual amount of any cost of living or other post-retirement adjustments made to the original life pension or pensions since the effective date of retirement if:

(a) The member has attained 80 years of age;

(b) The person designated by the member as the member's beneficiary has predeceased the member; and

(8) The service retirement allowance provided in subsection (6) or (7) of this section shall be applicable to the first full month after the death of the member's beneficiary, or the first full month after the member attains 80 years of age, whichever is later.

(9) The board may deny an election to convert a service retirement allowance under this section, a change of beneficiary under this section or a change in benefit options under this section if that denial is required to maintain the status of the system and the Public Employees Retirement Fund as a qualified governmental retirement plan and trust under the Internal Revenue Code and under regulations adopted pursuant to the Internal Revenue Code.

DELETION OF OBSOLETE PROVISIONS

SECTION 69. ORS 238.365 is amended to read:

238.365. [(1) In addition to any increase under ORS 238.360, first effective for the month of August 1981, payable September 1, 1981, the monthly retirement allowance payable to or on account of any person who has retired as a member of the Public Employees Retirement System shall be increased by a percentage based on the calendar year in which the person retired, as set forth in the following table:]

[____________________________________________________________________________]

[Calendar Year Percentage

of Retirement Increase

1980 4.00

1979 4.32

1978 4.76

1977 4.44

1976 4.72

1975 4.92

1974 5.28

1973 5.92

1972 6.20

1971 6.36

1970 6.60

1969 6.88

1968 7.20

1967 7.36

1966 7.56

1965 7.88

1964 8.12

1963 8.32

1962 8.56

1961 8.64

1960 8.76

1959 8.96

1958 9.08

1957 9.28

1956 9.68

1955 10.00

1954 10.04

1953 10.16

1952 10.56

1951 10.64

1950 or any previous year 11.40]

[____________________________________________________________________________]

[(2) In addition to any increase under ORS 238.360 and subsection (1) of this section, first effective for the month of July 1982, payable August 1, 1982, the monthly retirement allowance payable to or on account of any person who has retired as a member of the Public Employees Retirement System shall be increased by a percentage based on the calendar year in which the person retired. The percentage shall be four percent in respect to a person who retired in the calendar year 1981. The percentage in respect to a person who retired in a calendar year previous to the calendar year 1981 shall be the applicable percentage in the table set forth in subsection (1) of this section.]

[(3) In addition to any increase under ORS 238.360, first effective for the month of July 1985, payable August 1, 1985, the monthly retirement allowance payable to or on account of any person who has retired as a member of the Public Employees Retirement System shall be increased by a percentage based on the calendar year in which the person retired, as set forth in the following table:]

[____________________________________________________________________________]

[Calendar Year Percentage

of Retirement Increase

1983 3.00

1982 3.01

1981 3.09

1980 3.24

1979 3.48

1978 3.80

1977 3.57

1976 3.77

1975 3.92

1974 4.17

1973 4.63

1972 4.82

1971 4.93

1970 5.09

1969 5.28

1968 5.49

1967 5.60

1966 5.73

1965 5.94

1964 6.09

1963 6.22

1962 6.37

1961 6.42

1960 6.50

1959 6.62

1958 6.70

1957 6.82

1956 7.06

1955 7.25

1954 or any previous year 7.28]

[____________________________________________________________________________]

[(4) In addition to any increase under ORS 238.360 and subsection (3) of this section, first effective for the month of July 1986, payable August 1, 1986, the monthly retirement allowance payable to or on account of any person who has retired as a member of the Public Employees Retirement System shall be increased by a percentage based on the calendar year in which the person retired. The percentage shall be three percent in respect to a person who retired in the calendar year 1984. The percentage in respect to a person who retired in a calendar year previous to the calendar year 1984 shall be the applicable percentage in the table set forth in subsection (3) of this section.]

[(5) In addition to any increase under ORS 238.360, first effective for the month of July 1989, payable August 1, 1989, the monthly retirement allowance payable to or on account of any person who has retired as a member of the Public Employees Retirement System shall be increased by a percentage based on the calendar year in which the person retired, as set forth in the following table:]

[____________________________________________________________________________]

[Calendar Year Percentage

of Retirement Increase

1988 0

1987 0

1986 0

1985 0

1984 0

1983 0

1982 0

1981 0

1980 3

1979 11

1978 16

1977 3

1976 7

1975 15

1974 25

1973 14

1972 15

1971 0

1970 0

1969 4

1968 7

1967 0

1966 0

1965 0

1964 0

1963 1

1962 1

1961 2

1960 3

1959 3

1958 5

1957 9

1956 9

1955 7

1954 8

1953 8

1952 10

1951 19

1950 or any previous year 18]

[____________________________________________________________________________]

[(6)] (1) In addition to any increase under ORS 238.360, first effective for the month of December 1990, payable January 1, 1991, the monthly retirement allowance payable to or on account of any person who has retired as a member of the Public Employees Retirement System shall be increased by the following percentages:

(a) If the member was serving as other than a police officer or firefighter at the time of retirement, the percentage increase shall be:

(A) For a member with a combined total of 10 or more years of creditable service in the system and prior service credit [under ORS 238.225] but less than a combined total of 20 years, one percent.

(B) For a member with a combined total of 20 or more years of creditable service in the system and prior service credit [under ORS 238.225] but less than a combined total of 25 years, two percent.

(D) For a member with a combined total of 30 or more years of creditable service in the system and prior service credit [under ORS 238.225], four percent.

(b) If the member was serving as a police officer or firefighter at the time of retirement, the percentage increase shall be:

(A) For a member with a combined total of 10 or more years of creditable service in the system and prior service credit [under ORS 238.225] but less than a combined total of 20 years, one percent.

(C) For a member with a combined total of 25 or more years of creditable service in the system and prior service credit [under ORS 238.225], four percent.

(c) The monthly retirement allowance payable to or on account of a member with less than a combined total of 10 years of creditable service in the system and prior service credit [under ORS 238.225] at the time of retirement shall not be increased under the provisions of this subsection.

[(7)] (2) In addition to any increase under ORS 238.360, first effective for the month of December 1990, payable January 1, 1991, the monthly retirement allowance payable to or on account of any person who has retired as a member of the Public Employees Retirement System shall be increased by a percentage equal to the percentage calculated under ORS 238.380 (4), less any increase provided to the retired member under subsection [(6)] (1) of this section.

[(8)] (3) The increased allowance provided in subsections [(6) and (7)] (1) and (2) of this section shall be funded by employer contributions.

SECTION 70. ORS 238.375 is amended to read:

238.375. (1) Notwithstanding any other provision of sections 3 to 10, chapter 569, Oregon Laws 1995, the increased benefits payable under ORS 238.365 [(7)] (2) and 238.380, including all increased benefits payable to judge members by reason of the application of ORS 238.365 [(7)] (2) and 238.380 to judge members, and under section 10, chapter 569, Oregon Laws 1995:

(a) Shall not be paid in any tax year in which retirement benefits that are payable under the Public Employees Retirement System and that are attributable to service rendered by the member before September 29, 1991, are wholly exempt from Oregon personal income taxation under Oregon law.

(b) Shall be reduced proportionately for any tax year in which retirement benefits that are payable under the Public Employees Retirement System and that are attributable to service rendered by the member before September 29, 1991, are partially exempt from Oregon personal income taxation under Oregon law.

(2) An overpayment of benefits that results from the operation of subsection (1) of this section is not recoverable from the recipient of the benefits, but the Public Employees Retirement Board shall ensure that no additional overpayments are made.

(3) No member of the system or beneficiary of a member of the system shall acquire a right, contractual or otherwise, to the increased benefits provided by sections 3 to 10, chapter 569, Oregon Laws 1995.

(4)(a) Notwithstanding any other provision of law, a class action may not be commenced on or after July 14, 1995, based on a claim for damages arising out of the subjecting of benefits paid under this chapter to Oregon personal income taxation by act of the Legislative Assembly.

(b) Notwithstanding any other provision of law, any court in which there is pending on May 30, 1997, a class action that was commenced before July 14, 1995, based on a claim for damages arising out of the subjecting of benefits paid under this chapter to Oregon personal income taxation, may at any time after May 30, 1997, reopen that class action if by act of the Legislative Assembly there is a decrease in the benefit payable under ORS 238.365 [(7)] (2) or 238.380, or in the benefits payable to judge members by reason of the application of ORS 238.365 [(7)] (2) or 238.380 to judge members, or in the benefits payable to any member, judge member or beneficiary under section 10, chapter 569, Oregon Laws 1995, without an equivalent decrease in the personal income tax imposed under Oregon law on benefits paid under the system that are attributable to service rendered before September 29, 1991. Upon reopening the class action, the court may change the membership of the classes and may grant such further relief as may be warranted, including the entry of a judgment for damages or a judgment for supplemental relief under ORS 28.080.

SECTION 71. ORS 238.575 is amended to read:

238.575. (1) Every monthly retirement allowance or pension payable to a judge member or surviving spouse of a judge member under ORS 238.500 to 238.585 shall be adjusted annually to reflect the percentage increase or decrease in the cost of living as provided in ORS 238.360.

(2) ORS 238.365 [(4) to (8) apply in respect to a judge member who retired in the calendar year 1984 or any calendar year thereafter as provided in ORS 238.365 (4) to (8)] applies to judge members, and for that purpose the monthly retirement allowance referred to in ORS 238.365 [(4) to (8)] shall be the monthly retirement allowance payable to a judge member or the monthly pension payable to the surviving spouse of a judge member under ORS 238.565 (3)(a).

SECTION 72. The amendments to ORS 238.365 and 238.575 by sections 69 and 71 of this 2001 Act and the repeal of ORS 238.150 and 238.370 by section 73 of this 2001 Act do not affect any right accrued or obligation incurred under those statutes before the effective date of this 2001 Act and do not affect any increase in retirement benefits made under the provisions of those laws before the effective date of this 2001 Act.

SECTION 73. ORS 238.150 and 238.370 are repealed.

PRIOR SERVICE CREDIT

SECTION 74. Section 75 of this 2001 Act is added to and made a part of ORS chapter 238.

SECTION 75. (1) Subject to the rules of the Public Employees Retirement Board, upon commencing participation in the system a public employer that is not a school district may elect to provide prior service credit for employees of the employer who are employees of the employer on the date on which the employer commences participation. Prior service credit may be provided only for employees who are members of the system. Prior service credit under this section may be provided for continuous service by the employee to the public employer before the public employer commenced participation in the system and for any accumulated seasonal employment by an employee before the public employer commenced participation in the system. The public employer and the board shall enter into an agreement that will specify the number of years of prior service credit that employees of the employer will receive. Prior service credit under this section shall be equal to $4 for each year of prior service or major fraction of a year.

(2) If a public employer elects to provide prior service credit under this section, the board shall issue a certificate to each employee entitled to receive prior service credit. The certificate shall show the amount of prior service credit that the employee is entitled to receive under the agreement between the board and the public employer. The certificate shall be final unless the board, upon the motion of the member or upon the board's own motion, modifies the certificate for cause.

(3) Prior service credit under this section shall be funded by employer contributions in the manner provided by ORS 238.225.

SECTION 75a. If House Bill 2459 becomes law, section 3, chapter 874, Oregon Laws 2001 (Enrolled House Bill 2459) (amending ORS 238.225), is repealed and section 75 of this 2001 Act is amended to read:

Sec. 75. (1) Subject to the rules of the Public Employees Retirement Board, upon commencing participation in the system a public employer that is not a school district may elect to provide prior service credit for employees of the employer who are employees of the employer on the date on which the employer commences participation. Prior service credit may be provided only for employees who are members of the system. Prior service credit under this section may be provided for continuous service by the employee to the public employer before the public employer commenced participation in the system and for any accumulated seasonal employment by an employee before the public employer commenced participation in the system. The public employer and the board shall enter into an agreement that will specify the number of years of prior service credit that employees of the employer will receive. Prior service credit under this section shall be equal to $4 for each year of prior service or major fraction of a year.

(3) Prior service credit under this section shall be funded by employer contributions in the manner provided by ORS 238.225.

(4) A public employer who agrees to provide prior service credit under this section may elect to treat any year, or part of a year, for which prior service credit is granted as a year in which the employee has made contributions to the Public Employees Retirement Fund for the purposes of ORS 238.265 (3) and 238.425. An election under this subsection must be made at the time the public employer enters into the agreement providing for prior service credit.

SECTION 76. ORS 237.620 is amended to read:

237.620. (1) On or before July 1, 1973, all public employers of police officers and firefighters who are not participants in the Public Employees Retirement System shall become participants in the system with respect to the police officers and firefighters employed by them.

(2) All police officers and firefighters in the employ of the public employer on the date the public employer becomes a participant in the system under subsection (1) of this section shall establish membership under the six-month service requirement of ORS 238.015.

(3) The participation of the public employer in the system under this section shall apply to services of its employee police officers and firefighters on and after the effective date of the public employer's participation in the system. The public employer also shall provide a prior service pension for its police officers and firefighters, within the limitations of ORS 238.225 (2) (1999 Edition), for continuous service to the public employer for a period not exceeding 20 years before the effective date of the public employer's participation in the system.

(4) Notwithstanding subsections (1) and (2) of this section, if a public employer provides retirement benefits to its police officers and firefighters which are equal to or better than the benefits which would be provided to them under the system, as determined at the expense of the public employer by the Public Employees Retirement Board, the public employer shall not be required to participate in the system with respect to its police officers and firefighters. This exemption shall continue to apply for only as long as the coverage remains substantially unchanged under ORS chapter 238 but must be reexamined whenever substantial changes are made therein.

SECTION 77. Section 2, chapter 575, Oregon Laws 1995, is amended to read:

Sec. 2. (1) Notwithstanding section 3, chapter 575, Oregon Laws 1995 [of this 1995 Act], or any provision of ORS [237.007 to 237.315] chapter 238, a member of the Public Employees Retirement System described in subsection (2) of this section whose position was transferred to the private, not-for-profit corporation known as Oregon Public Broadcasting under the provisions of section 5, chapter 208, Oregon Laws 1993, may receive imputed retirement credit in the manner provided by this section for all continuous service performed for Oregon Public Broadcasting on and after July 1, 1995, and before July 1, 2005. In no event may a member acquire imputed retirement credit under the provisions of this section if that acquisition would provide the member with more than a combined total of 30 years of creditable service in the system and prior service credit [under ORS 237.081].

(2)(a) The provisions of this section apply only to members of the system who have a combined total of 20 years or more of creditable service in the system and prior service credit [under ORS 237.081] on June 30, 1995.

(b) The provisions of this section apply only to continuous service by a member on or after July 1, 1995. If a member terminates service with Oregon Public Broadcasting, the member is not entitled to any imputed retirement credit under the provisions of this section after that termination even if the member is subsequently reemployed by Oregon Public Broadcasting.

(3) For purposes of computing benefits attributable to the imputed retirement credit provided under the provisions of this section, the Public Employees Retirement Board shall use an imputed salary for the member based on the salary paid to the member by Oregon Public Broadcasting during the period for which retirement credit is received.

(4) Oregon Public Broadcasting shall pay to the Oregon Department of Administrative Services on or before March 1 of each calendar year the actuarially determined present value of the benefits determined by the board to be payable under the provisions of this section that are attributable to service performed for Oregon Public Broadcasting in the previous calendar year. No imputed retirement credit shall be provided by the board under the provisions of this section for service performed in a calendar year if the payment required by this subsection is not made. Upon receipt of the funds from Oregon Public Broadcasting under this subsection, the Oregon Department of Administrative Services shall transfer the funds to the Public Employees Retirement Board pursuant to the appropriation made under subsection (5) of this section.

(5) All funds payable to the Oregon Department of Administrative Services under subsection (4) of this section are continuously appropriated to the Public Employees Retirement Board for the purpose of paying the benefits to members that are attributable to the imputed retirement credit authorized under the provisions of this section.

(6) Oregon Public Broadcasting may elect not to provide the imputed retirement credit provided for in this section at any time after [the effective date of this 1995 Act] July 14, 1995. An election is only effective for those years for which payment has not already been made under subsection (4) of this section. The election must be in writing, and is irrevocable. Upon receipt of the election, the board shall provide no further imputed retirement credit beyond that already funded under the provisions of subsection (4) of this section.

SECTION 78. ORS 238.280 is amended to read:

238.280. (1) A police officer or firefighter who is a member of the system and attains the age of 50 or any other employee who is a member of the system and attains the age of 55 shall be retired upon written application by the member to the board on a reduced service retirement allowance which shall be the actuarial equivalent of the service retirement allowance provided for in ORS 238.300 at the normal retirement age.

(2) Notwithstanding subsection (1) of this section and ORS 238.215 (2)(b)(B):

(a) A police officer or firefighter who is a member of the system, attains the age of 50 and has a combined total of 25 years or more of creditable service in the system and prior service credit [under ORS 238.225] shall be retired upon written application by the member to the board on a service retirement allowance including, without actuarial reduction, the same current service pension and prior service pension provided for in ORS 238.300 at the normal retirement age.

(b) An employee who is a member of the system, has a combined total of 30 years or more of creditable service in the system and prior service credit [under ORS 238.225], and is not eligible to retire under paragraph (a) of this subsection shall be retired upon written application by the member to the board on a service retirement allowance including, without actuarial reduction, the same current service pension and prior service pension provided for in ORS 238.300 at the normal retirement age.

SECTION 79. ORS 238.360 is amended to read:

238.360. (1) As soon as practicable after January 1 each year, the Public Employees Retirement Board shall determine the percentage increase or decrease in the cost of living for the previous calendar year, based on the Consumer Price Index (Portland area–all items) as published by the Bureau of Labor Statistics of the U.S. Department of Labor for the Portland, Oregon area. Prior to July 1 each year the allowance which the member or the member's beneficiary is receiving or is entitled to receive on August 1 for the month of July shall be multiplied by the percentage figure determined, and the allowance for the next 12 months beginning July 1 adjusted to the resultant amount.

(2) Such increase or decrease shall not exceed two percent of any monthly retirement allowance in any year and no allowance shall be adjusted to an amount less than the amount to which the recipient would be entitled if no cost of living adjustment were authorized.

(3) The amount of any cost of living increase or decrease in any year in excess of the maximum annual retirement allowance adjustment of two percent shall be accumulated from year to year and included in the computation of increases or decreases in succeeding years.

(4) Any increase in the allowance shall be paid from [current service] contributions of the public employer under ORS 238.225. Any decrease in the allowance shall be returned to the employer in the form of a credit against [current service] contributions of the employer under ORS 238.225.

SECTION 80. ORS 238.415 is amended to read:

238.415. (1)(a) As used in this section, “eligible retired state employee” means:

(A) A retired member of the Public Employees Retirement System who was a state employee at the time of retirement, is retired for service or disability, is receiving a retirement allowance or benefit under the system, had eight years or more of qualifying service in the system at the time of retirement or is receiving a disability retirement allowance including a pension computed as if the member had eight years or more of creditable service in the system at the time of retirement, and has attained earliest service retirement age but is not eligible for federal Medicare coverage; or

(B) A person who is a surviving spouse or dependent of a deceased eligible retired state employee as provided in subparagraph (A) of this paragraph at the time of death, who:

(i) Is receiving a retirement allowance or benefit under the system; or

(ii) Was covered at the time of the eligible retired state employee's death by the retired employee's health insurance contracted for under ORS 238.410, and the employee retired on or after September 29, 1991.

(b) For purposes of this section, “qualifying service” means creditable service in the system and any periods of employment with an employer participating in the system required of the employee before becoming a member of the system.

(2) Of the monthly cost of coverage for an eligible retired state employee under a health care insurance contract entered into under ORS 238.410, an amount as determined under subsection (3) of this section shall be paid from the Retiree Health Insurance Premium Account established by subsection (4) of this section, and any monthly cost in excess of the amount so determined shall be paid by the eligible retired state employee in the manner provided in ORS 238.410 (4). Any amount paid under this subsection shall be exempt from all state, county and municipal taxes imposed on the eligible retired member.

(3) On or before January 1 of each year, the Public Employees Retirement Board shall calculate the average difference between the health insurance premiums paid by retired state employees under contracts entered into by the board under ORS 238.410 and the health insurance premiums paid by state employees who are not retired under contracts entered into by the Public Employees' Benefit Board. For the purposes of subsection (2) of this section, an eligible retired state employee shall be entitled to receive toward the monthly cost of coverage under a health insurance contract entered into under ORS 238.410:

(a) For an eligible retired state employee with eight years or more of qualifying service in the system, but less than 10 years of qualifying service in the system, 50 percent of the amount calculated by the board under this subsection.

(b) For an eligible retired state employee with 10 years or more of qualifying service in the system, but less than 15 years of qualifying service in the system, 60 percent of the amount calculated by the board under this subsection.

(c) For an eligible retired state employee with 15 years or more of qualifying service in the system, but less than 20 years of qualifying service in the system, 70 percent of the amount calculated by the board under this subsection.

(d) For an eligible retired state employee with 20 years or more of qualifying service in the system, but less than 25 years of qualifying service in the system, 80 percent of the amount calculated by the board under this subsection.

(e) For an eligible retired state employee with 25 years or more of qualifying service in the system, but less than 30 years of qualifying service in the system, 90 percent of the amount calculated by the board under this subsection.

(f) For an eligible retired state employee with 30 years or more of qualifying service in the system, 100 percent of the amount calculated by the board under this subsection.

(4) The Retiree Health Insurance Premium Account is established within the Public Employees Retirement Fund, separate and distinct from the General Fund. Interest earned by the account shall be credited to the account. All moneys in the account are continuously appropriated to the Public Employees Retirement Board and may be used only to pay costs of health care insurance contract coverage under subsection (2) of this section, paying the administrative costs incurred by the board under this section and investment of moneys in the account under any law of this state specifically authorizing that investment.

(5) The Retiree Health Insurance Premium Account shall be funded by employer contributions. The state shall transmit to the board those amounts [as] the board determines to be actuarially necessary to fund the liabilities of the account. The level of employer contributions shall be established by the board using the same actuarial assumptions it uses to determine employer contribution rates to the Public Employees Retirement Fund. The amounts shall be transmitted at the same time and in the same manner as contributions for pension benefits are transmitted under ORS 238.225 [(1)].

(6) The Public Employees Retirement Board shall, by rule, establish a procedure for calculating the average difference between the health insurance premiums paid by retired state employees under contracts entered into by the board under ORS 238.410 and the health insurance premiums paid by state employees who are not retired under contracts entered into by the Public Employees' Benefit Board.

(7) As provided in section 401(h)(5) of the Internal Revenue Code of 1986, upon satisfaction of all liabilities for providing benefits described in subsection (2) of this section, any amount remaining in the Retiree Health Insurance Premium Account shall be returned to the state.

(8) No member of the system shall have an interest in the Retiree Health Insurance Premium Account or in the benefits provided under this section.

(9) For the purposes of this section:

(a) “Board” means the Public Employees Retirement Board.

(b) “System” means the Public Employees Retirement System.

SECTION 81. ORS 238.685 is amended to read:

238.685. (1) The school district, which is or expects to become a party to a contract of integration described in ORS 238.680 (3), may provide for payment of all or any part of its unfunded obligation for [prior] previous service costs with respect to the association by any one or a combination of the following methods:

(a) By agreeing to pay such portion of the obligation to the Public Employees Retirement System over a period of not to exceed [30] 40 years, together with an appropriate rate of interest as determined by the Public Employees Retirement Board and the board of directors of the school district.

(b) By issuing one or more series of general obligation bonds for the estimated amount of such portion of the obligation and paying it from the proceeds or interest thereon. Except as provided in subsection (2) of this section, the initial authorization for the original issue of such bonds shall require approval of the electors of the district and shall otherwise conform to all requirements of law governing the issuance, sale, redemption, refunding and refinancing of bonds by the school district, the retention, segregation and use of bond proceeds and the levy of taxes for their payment.

(c) By issuing other notes, contracts or evidences of indebtedness for the estimated amount of such portion of the obligation and paying it therewith or from the proceeds or interest thereon. The interest rate on such notes, contracts or evidences of indebtedness shall be such as the board of directors of the school district finds is reasonably competitive with interest rates on bonds which could be issued pursuant to paragraph (b) of this subsection.

(d) By contracting with an insurance company authorized to write annuity contracts in this state to assume and pay the pensions of retired, active or former members of the association.

(2) Such agreement, bonds, notes, contracts or evidences of indebtedness, or any part of them, may be issued or entered into without an election, but in such case:

(a) To the extent the principal and interest on such agreement, bonds, notes, contracts or evidences of indebtedness are paid from operating taxes within the district's permanent tax rate limit, the school district shall each year divide its operating taxes into two portions, both within the district's permanent tax rate limit, and one of such portions shall be the amount used to pay the principal and interest on such agreement, bonds, notes, contracts or evidences of indebtedness for such year and the proceeds of such portion shall not be used for other purposes; and

(b) To the extent the principal and interest on such agreement, bonds, notes, contracts or evidences of indebtedness are paid from revenues other than operating tax proceeds, the school district need not divide its levy as provided in paragraph (a) of this subsection and the principal and interest may be paid out of such other revenues.

(3) Part or all of the agreement, bonds, notes, contracts or evidences of indebtedness authorized by this section may be issued prior to or after the execution of the contract of integration. The validity or enforceability thereof shall not be affected by the terms of the contract of integration or by whether operating taxes are properly apportioned as provided in subsection (2)(a) of this section.

CHANGE OF BENEFICIARY AFTER DIVORCE

SECTION 82. ORS 238.465 is amended to read:

238.465. (1) Notwithstanding ORS 238.445 or any other provision of law, payments under this chapter of any pension, annuity, retirement allowance, disability benefit, death benefit, refund benefit or other benefit that would otherwise be made to a person entitled thereto under this chapter shall be paid, in whole or in part, by the Public Employees Retirement Board to an alternate payee if and to the extent expressly provided for in the terms of any court decree of annulment or dissolution of marriage or of separation, or the terms of any court order or court-approved property settlement agreement incident to any court decree of annulment or dissolution of marriage or of separation. Notwithstanding any other provisions of this section, the total value of benefits payable to a member and to an alternate payee under this section may not be greater than the value of the benefits the member would otherwise be eligible to receive. Any payment under this subsection to an alternate payee bars recovery by any other person.

(2) A decree, order or settlement providing for payment to an alternate payee under subsection (1) of this section may also provide:

(a) That payments to the alternate payee may commence, at the election of the alternate payee, at any time after the earlier of:

(A) The earliest date the member would be eligible to receive retirement benefits if the member separates from service; or

(B) The date the member actually separates from service due to death, disability, retirement or termination of employment.

(b) That the alternate payee may elect to receive payment in any form of pension, annuity, retirement allowance, disability benefit, death benefit, refund benefit or other benefit, except a benefit in the form of a joint and survivor annuity, that would be available to the member under this chapter, or that would be available to the member if the member retired or separated from service at the time of election by the alternate payee, without regard to the form of benefit elected by the member.

(c) That the alternate payee's life is the measuring life for the purpose of measuring payments to the alternate payee under the form of benefit selected by the alternate payee and for the purpose of determining necessary employer reserves.

(d) Except as provided in ORS 238.305 (9) and 238.325 (7), that any person designated by the member as a beneficiary under ORS 238.300, 238.305 or 238.325 be changed, even though the member has retired and has begun receiving a retirement allowance. If a change of beneficiary is ordered under this paragraph, the board shall adjust the anticipated benefits that would be payable to the member and the beneficiary to ensure that the cost to the system of providing benefits to the member and the new beneficiary does not exceed the cost that the system would have incurred to provide benefits to the member and the original beneficiary. The decree, order or settlement may not provide for any change to the option selected by the retired member under ORS 238.300, 238.305, 238.320 or 238.325 as to the form of the retirement benefit.

(3) The board shall adopt rules that provide for:

(a) The creation of a separate account in the name of the alternate payee reflecting the decree's, order's or agreement's distribution of the member's benefits under this chapter;

(b) The establishing of criteria to determine whether domestic relations decrees, orders and agreements comply with this section; and

(4) If a decree, order or agreement awards an interest to an alternate payee, and if the alternate payee predeceases the member before the alternate payee has commenced receiving benefits, the alternate payee shall be considered a member of the system who died before retiring for the purposes of the death benefits provided in ORS 238.390 and 238.395, but for purposes of the death benefits provided in ORS 238.395, the alternate payee shall be considered a member of the system who died before retiring only if the member would have been eligible for death benefits under ORS 238.395 had the member died at the same time as the alternate payee. Payment of the death benefits to the beneficiaries, estate or other persons entitled to receive the benefits under ORS 238.390 and 238.395 shall constitute payment in full of the alternate payee's interest under the decree, order or agreement.

(5) Any increase in the retirement allowance provided to the member shall increase the amounts paid to the spouse or former spouse of the member in the same proportion, except that an alternate payee is not entitled to receive cost of living adjustments under ORS 238.360 or any other retirement allowance increase until benefits are first paid from the system on behalf of the member.

(6) An alternate payee under this section is not eligible to receive the benefits provided under ORS 238.410, 238.415, 238.420 and 238.440 by reason of the provisions of this section.

(7) An alternate payee who elects to begin receiving payments under subsection (1) of this section before the member's effective date of retirement is not eligible to receive any additional payment by reason of credit in the system acquired by the member after the alternate payee begins to receive payments.

(8) Subsection (1) of this section applies only to payments made by the board after the date of receipt by the board of written notice of the decree, order or agreement and such additional information and documentation as the board may prescribe.

(9) Whenever the board is required to make payment to an alternate payee under the provisions of this section, the board shall charge and collect out of the benefits payable to the member and the alternate payee actual and reasonable administrative expenses and related costs incurred by the board in obtaining data and making calculations that are necessary by reason of the provisions of this section. The board may not charge more than $300 for total administrative expenses and related costs incurred in obtaining data or making calculations that are necessary by reason of the provisions of this section. The board shall allocate expenses and costs charged under the provisions of this subsection between the member and the alternate payee based on the fraction of the benefit received by the member or alternate payee.

(10) As used in this section, “court” means any court of appropriate jurisdiction of this or any other state or of the District of Columbia.

SECTION 83. The amendments to ORS 238.465 by section 82 of this 2001 Act apply only to decrees, orders or settlements entered on or after the effective date of this 2001 Act. Any decree, order or settlement entered on or after the effective date of this 2001 Act may provide for a change of beneficiary under ORS 238.465, as amended by section 82 of this 2001 Act, without regard to whether the member of the Public Employees Retirement System retired before, on or after the effective date of this 2001 Act.

LUMP SUM PAYMENT IN LIEU

OF MONTHLY PAYMENTS

SECTION 84. ORS 238.315 is amended to read:

238.315. A member of the system who has separated from the service of all participating employers, who retires for service and whose total service retirement allowance on the effective date of retirement, as computed by the board in accordance with the nonrefund plan, is less than [$30] $200 per month, shall receive, in lieu of any and all retirement allowance or other benefits under the system, a retirement benefit in the form of a lump sum amount equal to the actuarial value, on the effective date of retirement, of the retirement allowance computed by the board in accordance with the nonrefund plan. A member who receives a retirement benefit as provided in this section is eligible to participate in insurance coverage under ORS 238.410, and the board shall determine the manner in which the cost of that coverage payable by the member shall be paid.

SECTION 85. ORS 238.310 is amended to read:

238.310. (1) Notwithstanding any other provision of this chapter, the service retirement allowance[, including any increase pursuant to ORS 238.370,] of a member who has 15 or more years of creditable service[,] shall be not less than $100 a month, computed under the nonrefund plan:

[(1)] (a) For a member who retires and begins receiving a service retirement allowance before or on reaching the age of 65 years, on the basis of retirement at the age of 65 years.

[(2)] (b) For a member who retires and begins receiving a service retirement allowance after reaching the age of 65 years, on the basis of age reached at retirement.

(2) Any member who receives a service retirement allowance calculated under the provisions of this section shall receive the retirement benefit in the form of a lump sum amount as provided in ORS 238.315.

SECTION 86. The amendments to ORS 238.310 and 238.315 by sections 84 and 85 of this 2001 Act apply only to members of the Public Employees Retirement System whose effective date of retirement is on or after the effective date of this 2001 Act.

CONFORMING AMENDMENTS

SECTION 87. Section 10, chapter 569, Oregon Laws 1995, as amended by section 7, chapter 175, Oregon Laws 1997, is amended to read:

Sec. 10. (1)(a) On or before January 1, 1996, or as soon as possible thereafter, the Public Employees Retirement Board shall recalculate the benefits payable to a member of the Public Employees Retirement System, or to the beneficiary of that member, under the provisions of ORS 238.380 if the member retired or died on or after January 1, 1991, and before the date on which the first payment is made under the provisions of this subsection. If the member or beneficiary of a member is entitled to receive an increase in a retirement allowance or other monthly payment, the board shall begin paying that increase in all monthly payments made after the recalculation required by this subsection is completed. The increased amount payable under this section shall be calculated as though ORS 238.380 had been in effect from January 1, 1991, and shall include all increases that would have accrued under ORS 238.360 if ORS 238.380 had been in effect from January 1, 1991.

(b) On or before January 1, 1996, or as soon as possible thereafter, the Public Employees Retirement Board shall recalculate the benefits payable to a retired member of the Public Employees Retirement System who retired or died before January 1, 1991, or to the beneficiary of that member, as required by the amendments to ORS 238.365, 238.575 and 238.580 and section 14, chapter 796, Oregon Laws 1991, by sections 5, 6, 7 and 8, chapter 569, Oregon Laws 1995. The recalculated retirement allowance or other monthly payment shall include all increases that would have accrued under ORS 238.360 if the increased benefits required by the amendments to ORS 238.365, 238.575 and 238.580 and section 14, chapter 796, Oregon Laws 1991, by sections 5, 6, 7 and 8, chapter 569, Oregon Laws 1995, had been in effect from January 1, 1991.

(2)(a) If the effective date of retirement or death of a member is on or after January 1, 1991, and the member or a beneficiary of a member is entitled to an increase under ORS 238.380 for any month or payment before the date on which the first increased monthly payment is made under subsection (1) of this section, the board shall calculate the increase owing for all months and payments made before the date on which the first increased payment is made under subsection (1) of this section, and shall mail a check payable to the member or beneficiary of the member for the additional amount as soon as possible after [the effective date of this 1997 Act] May 30, 1997.

(b) If a member withdrew the amount credited to the employee's account in the fund under the provisions of ORS 238.265, or the account of the member was returned to the employee after the membership of the employee was terminated under the provisions of ORS 238.095, and the withdrawal or termination occurred on or after January 1, 1991, and before [the effective date of this 1997 Act] May 30, 1997, the board shall calculate an additional amount equal to the amount that would have been paid to the member had ORS 238.380 (3)(b) been in effect on the date of the withdrawal or termination, and shall mail a check payable to the member or beneficiary of the member for the additional amount as soon as possible after [the effective date of this 1997 Act] May 30, 1997. No additional payment shall be made under the provisions of this paragraph if the amount withdrawn by the member is repaid under the provisions of ORS 238.105 before [the effective date of this 1997 Act] May 30, 1997.

(c) Any additional amounts paid to a member or beneficiary of a member under the provisions of this subsection must be reduced by the amount of any benefit paid to the member or beneficiary of a member under the provisions of chapter 796, Oregon Laws 1991.

(3)(a) As soon as possible after [the effective date of this 1997 Act] May 30, 1997, the board shall calculate the additional amount that a member of the Public Employees Retirement System who retired or died before January 1, 1991, or the beneficiary of that member, is entitled to receive by reason of the amendments to ORS 238.365, 238.575 and 238.580 and section 14, chapter 796, Oregon Laws 1991, by sections 5, 6, 7 and 8, chapter 569, Oregon Laws 1995. The board shall mail checks in payment of the additional amounts calculated under this section as soon as possible after [the effective date of this 1997 Act] May 30, 1997.

(b) Any additional amounts paid to a member or beneficiary of a member under the provisions of this subsection must be reduced by the amount of any benefit paid to the member or beneficiary of a member under the provisions of chapter 796, Oregon Laws 1991.

(4) In addition to the amounts payable to a member or a beneficiary of a member under subsections (2) and (3) of this section, the board shall calculate and pay to the member or beneficiary of the member any additional amounts that would have been paid to the member or beneficiary of the member under the provisions of ORS 238.360 if the additional payments provided for in subsections (2) and (3) of this section had been made as though ORS 238.380 and the amendments to ORS 238.365, 238.575 and 238.580 and section 14, chapter 796, Oregon Laws 1991, by sections 5, 6, 7 and 8, chapter 569, Oregon Laws 1995, had been in effect on January 1, 1991, and thereafter.

(5) In addition to the amounts calculated under subsections (2), (3) and (4) of this section, the board shall calculate and pay interest on all amounts payable under subsections (2), (3) and (4) of this section at the rate of nine percent per annum, beginning from the date the payments would have been made if ORS 238.380 and the amendments to ORS 238.365, 238.575 and 238.580 and section 14, chapter 796, Oregon Laws 1991, by sections 5, 6, 7 and 8, chapter 569, Oregon Laws 1995, had been in effect on January 1, 1991, and thereafter, and ending with the date on which the checks required by this section are mailed. If the member or beneficiary is deceased, interest shall cease to accrue on the date a check is issued to the person entitled to the payment under the law, or 90 days after [the effective date of this 1997 Act] May 30, 1997, whichever is first. No additional interest for periods of time after the date that the check is mailed shall be calculated or paid if a subsequent check is issued for any returned or uncashed check. Interest under this subsection is simple interest.

(6) For the purposes of chapter 569, Oregon Laws 1995, any judge who retires or dies after August 1, 1991, and whose retirement pay or pension would have been paid from the Judges' Retirement Fund except for the provisions of chapter 815, Oregon Laws 1991, shall be considered to have received an increase in the benefits payable to the judge or surviving spouse of the judge under the provisions of ORS 238.385, and shall not be considered to have received an increase in benefits under the provisions of section 7, chapter 796, Oregon Laws 1991, or section 26, chapter 815, Oregon Laws 1991. The benefit being paid to the judge or the surviving spouse of the judge shall be recalculated in the same manner as provided in this section for the retirement allowances of other members of the system.

(7)(a) The amounts payable to a member or a beneficiary of a member under subsections (2) and (3) of this section shall be calculated based on the benefit payments actually made to the member before the date on which the payment is made under subsection (2) or (3) of this section, and shall not be calculated based on the amount of the benefits that were payable or owing to the member at any given time.

(b) For the purpose of calculating the amounts payable to a member or a beneficiary of a member under subsections (2) and (3) of this section, the board shall reduce any benefit payment that entitled a member or a beneficiary to an increase under chapter 796, Oregon Laws 1991, by an amount calculated by dividing the payment amount by a factor calculated by adding one and the decimal that represents the percentage increase applicable to the member or beneficiary under the provisions of chapter 796, Oregon Laws 1991. The increased benefits provided for in subsections (2) and (3) of this section shall be based on the amount calculated under this paragraph. The recalculation provided for in this paragraph does not apply to:

(A) Any benefit payment that entitled a member or a beneficiary of a member to an increase under chapter 796, Oregon Laws 1991, but that did not include the increase required by those laws at the time the payment was made; or

(B) A payment made before [the effective date of this 1997 Act] May 30, 1997, as a retroactive adjustment of a retirement allowance that was required by reason of an error in calculating the value of the annuity portion of the retirement allowance under the provisions of chapter 761, Oregon Laws 1981.

(c) Notwithstanding ORS 238.380 (1)(c), the amounts payable to a member or a beneficiary of a member under subsections (2) and (3) of this section shall be calculated based on the full payment made to the member or beneficiary, including all interest paid on amounts that were paid as retroactive corrections or adjustments of the amount payable to the member or beneficiary.

(d) No increase shall be paid under subsection (2) or (3) of this section for:

(A) Any amount that has been determined to be an overpayment or improperly made payment; or

(B) A payment made under the provisions of section 13, chapter 796, Oregon Laws 1991.

(8) The increased benefits and interest required by this section shall be funded by employer contributions. Notwithstanding ORS 238.225, participating public employers shall transmit to the board those amounts actuarially computed to be necessary to amortize within not more than [30] 40 years all liabilities estimated by the actuary to accrue to the system by reason of the increased benefits and interest required to be paid under this section.

(9) If a member or a beneficiary of a member dies on or after January 1, 1991, but before payments are made under the provisions of this section, and the member or beneficiary would have been entitled to receive a payment under the provisions of this section, the payment required by this section, including all interest, shall be made as follows:

(a) The payment shall be made by the board to the estate of the decedent if probate proceedings are pending.

(b) If a small estate affidavit has been filed under ORS 114.505 to 114.560, the board shall make payment to the person who filed the affidavit.

(c) If payment cannot be made under paragraph (a) or (b) of this subsection, the board shall take all reasonable steps necessary to locate the decedent's surviving next of kin. If surviving next of kin can be located by the board, the board shall give written notice to the surviving next of kin that the board is holding the payment for the person entitled to the payment under the law. The board shall issue a new check at any time thereafter that the decedent's surviving next of kin or any other person establishes a legal right to the payment.

SECTION 88. ORS 238.420 is amended to read:

238.420. (1) As used in this section, “eligible retired member” means:

(a) A retired member of the Public Employees Retirement System who is retired for service or disability, is receiving a retirement allowance or benefit under the system, had eight years or more of qualifying service in the system at the time of retirement or is receiving a disability retirement allowance including a pension computed as if the member had eight years or more of creditable service in the system at the time of retirement, and is eligible for federal Medicare coverage; or

(b) A person who is a surviving spouse or dependent of a deceased eligible retired member as provided in paragraph (a) of this subsection at the time of death, who is eligible for federal Medicare coverage and who:

(A) Is receiving a retirement allowance or benefit under the system; or

(B) Was covered at the time of the retired member's death by the retired member's health insurance contracted for under ORS 238.410, and the member retired before May 1, 1991.

(2) For purposes of subsection (1)(a) of this section, “qualifying service” means creditable service in the system and any periods of employment with an employer participating in the system required of the employee before becoming a member of the system.

(3) Of the monthly cost of coverage for an eligible retired member under a health care insurance contract that provides coverage supplemental to federal Medicare coverage entered into under ORS 238.410, an amount equal to $60 or the total monthly cost of that coverage, whichever is less, shall be paid from the Retirement Health Insurance Account established by subsection (4) of this section, and any monthly cost in excess of $60 shall be paid by the eligible retired member in the manner provided in ORS 238.410 (4). Any amount paid under this subsection shall be exempt from all state, county and municipal taxes imposed on the eligible retired member.

(4) The Retirement Health Insurance Account is established within the Public Employees Retirement Fund, separate and distinct from the General Fund. Interest earned by the account shall be credited to the account. All moneys in the account are continuously appropriated to the Public Employees Retirement Board and may be used only to pay costs of health care insurance contract coverage under subsection (3) of this section, paying the administrative costs incurred by the board under this section and investment of moneys in the account under any law of this state specifically authorizing that investment.

(5) The Retirement Health Insurance Account shall be funded by employer contributions. Each public employer that is a member of the system shall transmit to the board such amounts as the board determines to be actuarially necessary to fund the liabilities of the account. The level of employer contributions shall be established by the board using the same actuarial assumptions it uses to determine employer contribution rates to the Public Employees Retirement Fund. The amounts shall be transmitted at the same time and in the same manner as contributions for pension benefits are transmitted under ORS 238.225 [(1)].

(6) As provided in section 401(h)(5) of the Internal Revenue Code of 1986, upon satisfaction of all liabilities for providing benefits described in subsection (1) of this section, any amount remaining in the Retirement Health Insurance Account shall be returned to the employers participating in the retirement system on an equitable basis as determined by the board.

(7) No member of the system shall have an interest in the Retirement Health Insurance Account.

SECTION 89. ORS 238.465, as amended by section 82 of this 2001 Act, is amended to read:

238.465. (1) Notwithstanding ORS 238.445 or any other provision of law, payments under this chapter of any pension, annuity, retirement allowance, disability benefit, death benefit, refund benefit or other benefit that would otherwise be made to a person entitled thereto under this chapter shall be paid, in whole or in part, by the Public Employees Retirement Board to an alternate payee if and to the extent expressly provided for in the terms of any court decree of annulment or dissolution of marriage or of separation, or the terms of any court order or court-approved property settlement agreement incident to any court decree of annulment or dissolution of marriage or of separation. Notwithstanding any other provisions of this section, the total value of benefits payable to a member and to an alternate payee under this section may not be greater than the value of the benefits the member would otherwise be eligible to receive. Any payment under this subsection to an alternate payee bars recovery by any other person.

(2) A decree, order or settlement providing for payment to an alternate payee under subsection (1) of this section may also provide:

(a) That payments to the alternate payee may commence, at the election of the alternate payee, at any time after the earlier of:

(A) The earliest date the member would be eligible to receive retirement benefits if the member separates from service; or

(B) The date the member actually separates from service due to death, disability, retirement or termination of employment.

(d) Except as provided in ORS 238.305 [(9)] (10) and 238.325 (7), that any person designated by the member as a beneficiary under ORS 238.300, 238.305 or 238.325 be changed, even though the member has retired and has begun receiving a retirement allowance. If a change of beneficiary is ordered under this paragraph, the board shall adjust the anticipated benefits that would be payable to the member and the beneficiary to ensure that the cost to the system of providing benefits to the member and the new beneficiary does not exceed the cost that the system would have incurred to provide benefits to the member and the original beneficiary. The decree, order or settlement may not provide for any change to the option selected by the retired member under ORS 238.300, 238.305, 238.320 or 238.325 as to the form of the retirement benefit.

(3) The board shall adopt rules that provide for:

(a) The creation of a separate account in the name of the alternate payee reflecting the decree's, order's or agreement's distribution of the member's benefits under this chapter;

(b) The establishing of criteria to determine whether domestic relations decrees, orders and agreements comply with this section; and

(6) An alternate payee under this section is not eligible to receive the benefits provided under ORS 238.410, 238.415, 238.420 and 238.440 by reason of the provisions of this section.

(10) As used in this section, “court” means any court of appropriate jurisdiction of this or any other state or of the District of Columbia.

SECTION 90. The amendments to ORS 238.465 by section 89 of this 2001 Act become operative on January 1, 2003.

UNIT CAPTIONS

SECTION 91. The unit captions used in this 2001 Act are provided only for the convenience of the reader and do not become part of the statutory law of this state or express any legislative intent in the enactment of this 2001 Act.

EMERGENCY CLAUSE

SECTION 92. This 2001 Act being necessary for the immediate preservation of the public peace, health and safety, an emergency is declared to exist, and this 2001 Act takes effect on its passage.

Approved by the Governor August 9, 2001

Filed in the office of Secretary of State August 9, 2001

Effective date August 9, 2001

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