By PETER PRENGAMAN
The Associated Press

SALEM — The Oregon Legislature finished work Tuesday on a retirement plan for future state workers, teachers, firefighters and policemen.

After passing both chambers, House Bill 2020 now goes to Gov. Ted Kulongoski, who is expected to sign it. The new law will be effective immediately for future hires.

Under the law, future public employees will earn a pension that is 45 percent of their final salary after 30 years of service.

Pension members are currently guaranteed 50 percent of final salary, but have a matching funds option that often makes their retirement more lucrative.

On top of the 45 percent, future pension members will get a separate 401(k)-style account. The money for that will come from the 6 percent employee contribution, often paid by employers through collective bargaining agreements.

The new plan raises the retirement age to 65 for general workers and 60 for police and firemen. That's up from 60 and 55, respectively.

"I think it's a fair plan," said Sen. Tony Corcoran, D-Cottage Grove, who led pension reform efforts in the Senate. "It's built in such a way that it won't be dependent on the stock market."

The pension system is heavily vested in the stock market.

Pension reform was one of the largest issues this legislative session because the system faced a $17 billion long-term deficit, made worse in recent years by drops in the stock market.

In May, the Legislature passed two laws that sharply scaled back pension benefits of many of the 215,000 active people in the system by slowing the growth of retirement accounts and freezing the cost-of-living adjustments for some retirees.

Taken together, the reforms cut about $9 billion off the $17 million long-term deficit.

A cheaper plan for future hires was seen as the final piece of pension reform, but for months the Republican-controlled House and the split Senate were at odds over what it should look like.

The House wanted a benefit plan similar to a 401(k), where employees' retirement was based largely on their own stock market investment choices.

The Senate, along with Democratic Gov. Ted Kulongoski, said that plan was too stingy and didn't insure that workers in the Public Employees Retirement System would have enough to retire on.

Instead, the Senate pushed for plan that combined a guaranteed retirement benefit and a separate 401(k) account.

The plan passed by both chambers Tuesday was essentially the Senate blueprint.

Rep. Tim Knopp, a Bend Republican who led reform efforts in the House, said Tuesday it was time to compromise.

"This is what we can do today with a 15-15 Senate and a governor who won't sign" the House version, Knopp said.

The new plan will save state employers — agencies, community colleges, school districts and others — $134 million over the next four years.

The plan also reduces benefits legislators earn while in the pension system. Instead of the more generous benefits offered to police and firefighters, which lawmakers currently earn, they will get the same rate as other public employees.