Oregon High Court Issues Mixed Ruling on PERS Reforms

March 8, 2005 (PLANSPONSOR.com) - The state of Oregon's high court has thrown out two legislative pension reform measures, including a minimum earnings guarantee for veteran government employees and the halting of certain cost of living adjustments (COLA).

The high court’s 92-page ruling Tuesday represents the latest chapter in a long-running saga in which Oregon officials have struggled to fix the state’s Public Employee Retirement System (PERS). The court consolidated six originally separate challenges to the pension reforms enacted by the 2003 Legislative Assembly (See  Oregon Lawmakers OK Reformed Public Pension Plan ).

With both the minimum earnings guarantee and cost of living issues, justices ruled that lawmakers’ changes interfere with workers’ proper contract rights. Declared the court, however: “In all other respects, we conclude that petitioners’ challenges to the 2003 PERS legislation are not well taken.”

The earnings guarantee had assured about 110,000 workers who joined the pension system before 1996 that the portion of their accounts invested in stocks would get annual returns of at least 8% annually, even in a down equity market. Legislators changed the law to ensure that PERS members would get an average 8% earnings on their stock investments over their length of their careers.

The cost of living issue had blocked COLAs for about 22,000 workers who retired between April 1, 2000 and April 1, 2004.

According to media reports Tuesday, the pension system may have to restore money to retirees’ accounts because of the high court’s decision, but the fiscal impact was not immediately known.

Legislative changes upheld by the Supreme Court include one that shifted future employee contributions to their pensions – 6% of their salaries – to separate accounts outside of PERS. The goal was to decrease some workers’ ultimate pensions by reducing the amount the retirement system matches in their PERS accounts when they retire.

The court also said the Legislature had authority to direct PERS to use updated life expectancy tables in determining benefits when a worker retires. Outdated tables that had been used since the 1970s didn’t reflect today’s longer average life expectancies (See  OPERS Life Tables Bill Heads to State Senate ). That meant many employees’ pension accounts didn’t stretch long enough to last until their death and taxpayers had to make up the difference so PERS could pay the added amount.

The 2003 Legislature passed the reforms at the urging of Governor Ted Kulongoski to shave a projected deficit once estimated to be as high as $17 billion. The changes trimmed about $9 billion from the estimate, according to media reports.