Oregon PERS Changes Investment Strategy

Individual account programs will be shifted into target-date funds in 2018.

The Oregon Investment Council has decided to change the investment strategy of the individual account program (IAP) for members of the Oregon Public Employees Retirement System (OPERS).

As of the close of business on Dec. 29, the balance in member IAP accounts will be transferred to a custom IAP target-date fund that corresponds with participants’ birth year, and an approximate retirement age of 65.

The IAP is an account balance-based benefit for all active Oregon PERS members, and is in addition to their pension benefit. Currently, 6% of their salary, whether contributed by the participant or paid by their employer, goes into their IAP.

On Jan. 2, 2018, Oregon PERS members will be invested in the new IAP Target-Date Funds. Oregon PERS said the main objective of the IAP program is to achieve the highest total returns, while incurring an appropriate level of risk, in addition to recognizing that risk levels should vary based on age. The change will be automatic, and no action is required by participants.

Since the inception of the IAP in 2004, the money in each IAP account had been invested the same way for every person, regardless of their age. That meant that people nearing retirement age would have had the same investment risk profile as younger workers.

Money in members’ IAP will be shifted to a target-date fund that is chosen based on their year of birth. For example, a participant born between 1973 and 1977 would be in the IAP 2040 Target-Date Fund. Investments in each fund will adjust over time to reduce investment risk, and potential losses in market downturns. Younger members’ IAPs will be invested in stocks, private equity, real estate, and other alternatives that emphasize earnings and growth potential. As members get closer to retirement, the investments in their funds gradually become more conservative to help protect against market fluctuations.

When a participant retires, he or she can receive his or her IAP account balance as a lump-sum payment, or in installment payments over a five-, 10-, 15-, or 20-year period. Those who choose to receive the entire IAP account balance as a lump-sum payment, may opt for a cash distribution, or roll it into a traditional or Roth IRA, an eligible employer plan, a 457 deferred compensation plan, the Oregon Savings Growth Plan, or another qualified plan.

If a retired member dies before all installment payments are completed, their beneficiary is entitled to receive the remaining installment payments, and may choose to receive the remaining balance in a lump-sum payment.

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