Oregon Supreme Court overturns PERS rollbacks

For the most part, public employee unions are reacting favorably to an Oregon Supreme Court ruling March 8 overturning two provisions of a sweeping package of changes to the Public Employees Retirement System.

The court ruled that PERS reforms — under House Bills 2004 and 2005 — violated the Constitution in two ways. First, the judges ruled that it was an illegal violation of contract rights for the Legislature to suspend cost-of-living-adjustments for members who retired between March 2000 and March 2004.

Second, the court ruled that the Legislature illegally redefined the Assumed Rate Guarantee. This, according to union officials, was a huge victory because it means that PERS will have to return to crediting Tier 1 accounts (workers who joined PERS before 1996) with a minimum of 8 percent per year, rather than an average of 8 percent over their lifetimes.

That change alone will significantly increase retirement benefits for many public employees.

“The 8 percent guarantee piece is roughly half of the overall cost of the PERS reforms, to the tune of about $4.5 billion,” said labor lawyer Greg Hartman, who represented Oregonians for Retirement Security, a coalition of public employees who sued the state after the changes were implemented. “ The COLA piece is another $400 million plus, which means we got back about $5 billion. That’s a huge win, no matter what the other side may be saying.”

Hartman said the decision upholds the promise public employers made to their employees — “and that was the right thing to do. The court didn’t rule with employees in all cases, but they did say a deal is a deal.”

In 4-3 decisions, the court upheld the Legislature’s plan to update actuarial tables on life expectancy, and to steer future employee contributions into newly-established 401(k)-like individual retirement accounts. The court also found that eliminating members’ contributions to the PERS variable account program was constitutional.

PERS has about 308,000 active and retired enrollees, including 185,000 represented by the Oregonians for Retirement Security Coalition. That coalition includes school teachers, some police, firefighters, nurses, corrections officers and many other classifications.

Richard Strunk, a 54-year-old high school English teacher in the North Douglas School District, whose projected retirement would be reduced by $462 a month because of the changes, was the lead plaintiff in the lawsuit.

Public employees presented their lawsuit as “an issue of fairness.” They had made life decisions based on what they calculated in their pension benefits, and many stayed in public service based on those promises.

“PERS might not be perfect, but the Legislature and governor went too far (with the changes). It just wasn’t right for the Legislature to be so careless with the promise I built my life on,” said Larry Blumenstein, a PERS participant and member of Fire Fighters Local 314 with the City of Salem, at a press conference in Southeast Portland following the court ruling.

Linda Johnson, a library technician at Oregon Health & Science University and a member of AFSCME Local 328, was another person impacted by the rollbacks to PERS. “A year and a half ago the Legislature cut my retirement benefits by over $400 a month. If I can’t depend on my retirement, what’s going to happen to me? I don’t know what they were thinking when they made these cuts, but I’m so grateful that somebody has stepped in and said it wasn’t fair,” she said.

Hartman said by passing the laws, the 2003 Legislature went against the advice of its own legislative counsel and state attorney general — both of whom predicted the laws would be struck down as a breach of contract.

Strunk is only the first of several Oregon lawsuits dealing with the 2003 PERS reforms. In the next few months a Supreme court decision is expected on the City of Eugene case, also known as the “Lipscomb” decision. The case shares many points of law with Strunk, union officials said, and it’s possible public employees could see additional relief from the case — part of which targets how PERS credits interest on the variable accounts.

At the time they filed Strunk, Oregonians for Retirement Security Coalition also filed a parallel case (Robertson) in the U.S. Ninth District. State and federal pension law is similar, but there are enough differences to warrant filing the dual cases, said Don Loving, communications director for AFSCME Council 75.

Hartman told the PERS coalition last Friday that after reviewing Strunk in detail, he believes he can “frame a compelling case” on the 6 percent issue for the federal court.

“Through companion legislation, Strunk was fast-tracked directly to the Oregon Supreme Court,” Loving said. “The Robertson case continues to wind through the much slower federal system.

Other lawsuits also are in the pipeline, including the Lundgren case, which takes aim at the 2003 Legislature’s HB 2020, that involves the “break-in-service” issues. That bill has severely impacted displaced custodians at Portland Public Schools.

More than 300 union custodians were laid off between July 8 and Aug. 23, 2002, after the School Board voted to contract-out the work. Many of the custodians were Tier 1 PERS participants. Some found jobs with other public agencies, but they were out of the retirement system longer than six months, so they were hired as Tier 2 participants.

By itself, the Strunk decision could potentially impact PERS and the state budget in 2007, Hartman said. However, good returns in the stock market in 2005 and 2006 could mitigate those numbers substantially.