March 11, 2005 Legislative Highlights (66k )

The Oregon Supreme Court this week released the much-anticipated decision regarding the 2003 legislative reforms to the Public Employees Retirement System (PERS). The court upheld several reforms and invalidated others by a 4 to 3 majority.

“All parties – public employee unions, public employers and taxpayers – declare this decision to be a victory, which may be very confusing to the average citizen,” said OSBA Senior Legislative Advocate Jim Green. “The court split its decision on whether the 2003 reforms were valid, so there’s something in the decision for both sides to declare victory.”

Specifically, the court tossed out two pieces of the reforms. First, the court decided that the legislature could not statutorily capture the cost-of-living adjustment (COLA) for employees who retired between April 2001 and April 2004. This was an attempt by the legislature to recapture some of the alleged over-crediting from prior years to member accounts. Second, the court tossed out the provision that eliminated the annual assumed earnings rate guarantee to Tier 1 members (commonly referred to as the 8-percent guarantee). The legislature modified this annual guarantee to instead guarantee that a Tier 1 member would average the assumed earnings rate (currently 8 percent) over the member’s working career.

The court upheld several reforms that will control some costs:

• The requirement that PERS use updated mortality tables to calculate retirement benefits.
• The requirement that member contributions (6 percent of salary) now go into the newly created Individual Account Program (a 401K-style account), rather than into their regular accounts.
• Finally, the court validated the modification that prohibited additional contributions by members into the variable account program.

Commenting on the court’s decision, House Speaker Karen Minnis (R-Wood Village) said, “The court’s ruling today largely upholds the important reforms enacted by the legislature in 2003. Those reforms put PERS on the track to fiscal stability, saving taxpayers billions of dollars, while being fair to both public employees and taxpayers.”

This decision should not impact the legislature’s ability to build a responsible budget of $12.393 billion as legislative leaders agreed to last week for the 2005-07 biennium, she added.

PERS is working to estimate the financial impact of the court’s decision on members, public employers and the overall system. As for now, PERS is indicating that employer contribution rates will not need to be adjusted for the 2005-07 biennium. Those rates were recently set by the PERS Board. [New employer contribution rates]

Excerpt from guest opinion on the PERS decision – Submitted to the Salem Statesman Journal by Kevin McCann, OSBA Executive Director:

“The court empowered the legislative and executive branches of government to manage PERS to avoid a repeat of the problems that the reform legislation corrected.

“Today’s PERS Board is a creature of those reforms. Once dominated by public employees who benefited from the system, business professionals – with no personal vested stake in the system – now dominate the board. The board has taken steps to correct its predecessors’ errors by creating and funding contingency reserve accounts.

“As representatives of public employers, we cannot dust our hands and say, ‘whew, we’re done with that.’ It will require ongoing care and attention to ensure that we never return PERS to the brink of bankruptcy. We must be vigilant to ensure that hard-earned corrections to the system remain in place and that we can achieve our goal of having a fair, affordable and sustainable public employee retirement system.”