SALEM (AP) - The Oregon Public Employees Retirement System will take $1.6 billion in reserves from the past three years and apply it to pensions, a move expected to save about $1 billion in retirement costs for 2007-09.

Public employers' contributions to the fund had been expected to rise by about 35 percent next year. Now they are expected to drop slightly, with the total payments lowered by about $150 million.

The PERS board voted 3-2 on Friday to take the action.

A possible change in actuarial methods could reduce employer payment rates even more, at least in the short term.

Outside actuaries say new methods can more accurately predict how much the retirement system has on hand and how much in pensions it will owe down the line.

The methods are rarely used by public pension systems, but are common in the private sector, said Bill Hallmark, actuary with Mercer Human Resources Consulting.

Oregon's state and local governments pay 15 percent on top of their employee salaries to the PERS. School districts pay 17 percent.

Those rates are above historic rates of about 10 percent but had been expected to rise more.

Friday's vote saves governments more than $75 million a year that they had been warned they would owe.

The actuarial change, if it happens, would cut rates public employers are charged to about 16 percent for school boards and 13 percent for state and local governments.

At least half the savings would come from more rapidly accounting for the market gains PERS has chalked up the past three years. The other half would come from more accurately capturing the projected costs of future pensions, including the savings from the Oregon Legislature's 2003 public pension reforms.

PERS board members, along with representatives of both unions and employers, generally were upbeat about the potential of the change in actuarial methods and the freeing up of reserve funds, which they said could free money for raises, hiring or other expenses.

But most board members said they don't want all the benefits from the new actuarial methods to go to lowering employers' costs. Some should to toward paying down the unfunded liabilities of the retirement system, estimated to be more than $4 billion, they said.

Two board members and a lobbyist for Oregon school boards cautioned that the reserves may have been lowered too much, given challenges to the cost-saving measures adopted by the Oregon Legislature and the PERS board.

Over three years the board had diverted about $1.85 billion into contingency and capital loss reserve accounts.

Friday's vote moves $1.6 billion of that back into active accounts.

Oregon public employers face some of the highest employee retirement charges in the nation, in large part because of the “Money Match” that allowed public employees whose retirement accounts shot up in the hot markets of the 1990s to claim pensions much larger than had been anticipated.

The average PERS member who worked at least 30 years and retired in 2000, 2001, 2002 or 2003 got a pension slightly larger than his or her final salary.

Courts have ruled that pension promises generally cannot be altered.

Changes by the 2003 Legislature will trim costs and pensions for workers hired after August 2003.