By CHARLES E. BEGGS
Of The Associated Press

SALEM - A measure to limit annual returns paid on public employee pension accounts sailed through the Oregon House on Wednesday, in the first step toward paring the retirement plan's big deficit.

The bill passed 55-0 and now goes to the Senate.

Rep. Tim Knopp, R-Bend, said a cap on annual returns would save the state general fund an estimated $50 million a year.

PERS officials estimate the change would save school districts and counties $140 million. The savings could shave a proposed 37 percent boost in employer pension rates that the PERS board intends to put into effect later this year as it tries to reduce a projected long-term deficit of $15 billion.

Most state and local government employees in PERS are guaranteed at least an 8 percent return on their basic accounts. The bill, HB2001, would prohibit paying more than the guaranteed return until the system's reserves no longer have a deficit.

The measure was agreed to by government employers and major public employee unions.

Veteran public employees saw account gains topping 20 percent, because of PERS board decisions, in the stock boom of the 1990s. With the market slump, the fund hasn't made enough to pay the 8 percent guarantee, causing the shortfall to rise.

The guaranteed return doesn't apply to workers who joined the pension plan after 1995 or to portions of the accounts that employees choose to invest in stocks.

The pension system covers 294,000 retired, past and current employees.

Passage of the cap on pension account earnings is "an important message to send to Oregonians the day after they voted not to send us more money," said Knopp, referring to rejection of an income tax increase in Tuesday's election.

Knopp heads the House PERS Committee, which is considering other proposals that Gov. Ted Kulongoski has said he wants to see passed quickly.

The major one would immediately update the system's life expectancy tables. The board tentatively plans to use updated tables starting next January.

The tables in use were adopted in 1978 and have resulted in taxpayers subsidizing worker pensions. Employees on average now live five years longer than in 1978, but their pension checks aren't adjusted to last that long, so taxpayers make up the difference.