By CHARLES E. BEGGS
The Associated Press

SALEM — The Legislature on Tuesday completed action on a bill to cap returns on public employees' pension accounts, the first step in an effort to cut costs of the deficit-plagued system.

The Senate unanimously approved a House-passed measure that would limit to 8 percent the annual earnings on accounts for members of the Public Employees Retirement System.

The bill, HB2001, goes to Gov. Ted Kulongoski, who supports it. The measure was agreed to by government employers and major public employee unions.

Lawmakers are grappling with a projected $15 billion deficit in the pension plan that covers 294,000 present and past state and local government employees.

Sen. Tony Corcoran, D-Cottage Grove, said the earnings cap is a start at paring the shortfall that's leading to sharp pension rate increases for governments.

The limit on account earnings could be lifted once the system built an adequate reserve fund.

The lack of a lid on earnings has caused problems because most employees are guaranteed a minimum 8 percent return on their accounts.

In the stock boom of the 1990s, PERS directors approved returns topping 20 percent instead of putting the extra earnings into reserve.

In the stock market slump since 2000, the pension system has earned well under 8 percent on its investments but still has had to pay the guaranteed return to employees, causing the shortfall to rise.

Analysts estimate capping the returns will reduce the deficit by $900 million and save state and local governments about $100 million a year.

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

The Senate has agreed to let the House initiate pension reform bills, and more are in the works.

One other measure has passed the House and is pending in the Senate. It would reduce the size of the PERS board from 12 members to five and allow only one board member to be a member of PERS. At least three of the five would have to have experience in pension management or investing.

A House panel also is considering measures to replace outdated life expectancy tables and to create a new pension plan to cover newly hired workers.

Another idea being discussed would stop employees from contributing 6 percent of their salaries to their pension accounts. In many cases, employers are paying the money as part of union contract agreements.

The move would save money by shrinking the size of the accounts that are matched by employers when workers retire.