Just as public sector union leaders predicted two years ago, the Oregon Supreme Court struck down parts of two laws that would have cut public employee retiree benefits more than $4 billion. The court ruled April 30 that it was unconstitutional to reduce cost-of-living (COLA) increases to public employee retirement benefits — once those benefits were already earned. In a unanimous 87-page legal decision, the court said the COLA cuts passed in 2013 violate the Oregon Constitution’s ban on laws that impair the obligation of contracts.
“Those [COLA] provisions have remained largely unchanged for 40 years,” wrote Chief Justice Tom Balmer. “They were part of the compensation that public employees—many of whom are now retired—were promised in exchange for the work that they already have performed.”
The decision affects more than 332,000 current and former public employees in Oregon’s Public Employees Retirement System (PERS) — including teachers, firefighters and other state, county and local public workers.
[pullquote]The Legislature continues to see public employee retirees as a revenue stream. That’s just unconscionable that you give a great big tax break to Intel and Nike and then you come to us to make up the windfall.” — retiree Michael Arken[/pullquote]The PERS COLA was cut twice in 2013 — first in the regular legislative session, and again even more in a special session called by then-Governor John Kitzhaber. The second law limited the COLA to 1.25 percent a year on the first $60,000 of the retirement benefit and 0.15 percent on benefits above that. Under the Supreme Court ruling, the Legislature may reduce the COLAs applied to benefits earned AFTER the laws were passed — just not to benefits that were promised before then. The Court also upheld the part of the legislation which eliminated income tax offset payments to retirees who live out of state.
Still, the biggest financial impact was from the cuts to already-earned benefits.
Retired Oregon School Employees Association (OSEA) member Everice Moro was the lead plaintiff in the lawsuit. In the 30 years she worked as an educational assistant at Estacada School District, Moro contributed 6 percent of her salary to PERS. Now she receives a PERS pension of less than $19,000 a year.
“I never feel like I should apologize to anyone for receiving that money, because I earned it,” Moro said. “We took wage cuts and cuts in hours, and I never got more than a 2 percent (annual) raise in 30 years.”
The COLA cuts would have cost Moro almost $69,000 over her projected lifespan.
“This isn’t just about me or about public employees; it’s about keeping the promises we make,” Moro said.
Plaintiffs attorney Hartman called the COLA-cut reversal a vindication.
“When you win $4 billion, I’d call that a pretty substantial victory,” Hartman said.
Retired Portland Water Bureau warehouse worker Michael Arken said he’s pleased with the Court’s decision, but he’s still sore at lawmakers for the COLA cuts on future benefits. A former union steward with AFSCME Local 189, Arken is president of the Oregon AFSCME retirees chapter, and one of 13 PERS participants who were named as plaintiffs in the lawsuit.
“The Legislature continues to see public employee retirees as a revenue stream,” Arken said. “That’s just unconscionable that you give a great big tax break to Intel and Nike and then you come to us to make up the windfall.”
Ever since its founding in 1945, PERS has been pre-funded based on employer and worker contributions, which are invested. When the system got into trouble a few years ago, it wasn’t because of a sudden surge in benefit levels. The median benefit was $1,891 a month as of 2013. Rather, the crisis was caused by losses in the financial market crisis. The PERS system was 98 percent funded in December 2007. A year later, it was 71 percent funded.
The 2013 cuts have so far cost retired public employees over $200 million, said Greg Hartman, lead attorney for the plaintiffs. That money will now have to be paid back to retirees. [The $4 billion figure is the present value of benefits that were to be cut over the next 20 years. Most of the cut was to come in the later years, because COLAs, like the inflation they’re meant to combat, are compounded.]
The ruling will have no immediate impact on state or local budgets, because PERS contribution rates have already been set for the 2015-17 biennium. But the decision means public employers will have to increase pension contributions after that period.
