PERS reforms upheld, protecting lowered pension rates for schools
Thursday, August 6, 2020
Public employers, including schools, won Thursday in the latest challenge to Public Employees Retirement System reforms.
The Oregon Supreme Court ruled that public employers could redirect part of employees’ Individual Account Program contributions to pay down PERS’ unfunded liability, reducing employees’ eventual retirement benefits. For schools, that means rates will be lower.
“The court recognized that we had taken fair and reasonable steps to reduce rising PERS costs,” said Jim Green, OSBA’s executive director. “It’s a victory for students by allowing Oregon schools to invest more in the classroom.”
With the ruling, average school district PERS rates will fall 4.05 percentage points to 24.88% for 2021-23. Individual employer rates will be presented Oct. 2.
Senate Bill 1049, passed in 2019, aimed to rein in soaring PERS costs. School district costs this biennium were more than double 2015-17. The bill found most of its savings in refinancing some of PERS’ debt over a longer period, but a slice of savings came from the redirect.
Public employees contribute 6% of their pay to personal accounts that are similar to 401(k)s. SB 1049 said 2.5 percentage points of those contributions for Tier 1 and 2 employees and 0.75 percentage points for Oregon Public Service Retirement Plan members would go to pay down PERS’ unfunded liability, currently about $24.6 billion.
Nine public employees sued in James v. State, calling it an unconstitutional taking of retirement benefits. The justices disagreed.
In the 2015 Moro challenge to a PERS reform, the Supreme Court said the Legislature couldn’t change benefits already earned but indicated the court would allow changes to benefits going forward, including the employee contribution.
The key factor in the latest case is that everything in SB 1049 applies going forward, said Bill Gary, OSBA’s lead appellate counsel in the litigation.
Gary, of Harrang Long Gary Rudnick PC, compared it to salary agreements. An employer can’t tell you in August it is taking away July salary you already earned, but it can tell you it plans to pay you less in September.
“They can tell you when you come in on Aug. 1 that we can only afford to pay you half of what we’ve been paying you and then you can decide whether you want to accept that by working,” Gary said.
Jennifer James, the case’s lead plaintiff, is a secretary at Molalla River School District. Mt. Hood Community College was also among the employers sued, but the ruling applies to all public employers.
The court also upheld a cap on salaries used to calculate retirement benefits, but Milliman, the state’s actuary, said the cap would not significantly affect system rates.