Here's how the retirement system operates.

Byline: Randi Bjornstad The Register-Guard

About 95 percent of state and local government employees in Oregon belong to the Public Employees Retirement System.

According to PERS, those actively working now include more than 66,000 school employees, 43,000 state employees and 55,000 other government workers. The system pays benefits to 83,000 retirees or beneficiaries.

PERS-covered employees fall into two categories:

Tier One - workers hired before Jan. 1, 1996. They may retire with full benefits at 58 or at any age if they have worked within the PERS system 30 years or more.

Tier Two - employees who entered PERS-covered jobs Jan. 1, 1996, or later. They must work to age 60 or 30 years of service.

But police officers and firefighters covered by PERS - because their life expectancies and the dangers of their jobs differ from other employees - may retire with full benefits at 55, between ages 50 and 55 with 25 years of PERS-covered experience or at any age with 30 years of service.

The two types of employees differ also in the way PERS calculates their retirement benefits.

Under Tier One provisions, retiring employees currently have a guarantee of 8 percent on their investment fund, regardless of market conditions. They may use the value of unused vacation to boost their final average salary figures for determining retirement pay.

In their cases, disability retirement benefits may not be reduced by workers compensation awards.

Employees in Tier Two have no guaranteed return on their retirement fund investments, and they can't use unused vacation in their final average salary calculation.

Their workers compensation benefits may be offset by disability retirement payments.

PERS employers pay a percentage of their employees' salaries into the retirement fund at a rate intended to maintain an adequate balance to pay retirement benefits.

Members also pay 6 percent of their wages into the system, but under many collective bargaining agreements, employers currently pay this amount.

The PERS board invests the employer and member contributions, with management of the fund provided by the six-member Oregon Investment Council, which includes the state treasurer, the PERS executive director and four members appointed by the governor.

Although Tier Two employees make up 40 percent of the PERS system's total workers, their assets in the investment fund amount to only about 3 percent of the balance. The discrepancy comes from the long-term membership of many Tier One employees as well as their guaranteed return on investment.

In 2001, Tier One employees had $8.7 billion in assets compared with $267 million for those in Tier Two.

A board of trustees makes many decisions about the operation of the PERS system, but under Oregon law the Legislature retains the right to establish conditions of membership, set benefits and establish requirements for funding the system.