February 24, 2006 Outlook & Review (38k )

Public employers hoped that the Oregon Supreme Court decision last August would conclude PERS litigation. But it appears public employee unions are preparing for another round.

The first set of cases (White I and II) challenge an earlier circuit court decision and subsequent settlement agreement with eight public employers.

In 1999, the PERS fund earned more than 22 percent. The PERS board (PERB) at that time credited 20 percent to Tier 1 member regular accounts, even though its policy limited Tier 1 members’ regular accounts to 11.33 percent based on 1999 earnings. Eight public employers sued, contending that by crediting the 20 percent PERB had exceeded its authority. The court ordered PERB to redistribute 1999 earnings to Tier 1 member regular accounts in the amount of 11.33 percent, which required recalculating member accounts since1999. Unions appealed this decision.

When the legislature convened in 2003, it sent that appeal to the Oregon Supreme Court; it also replaced the existing PERB with a new five-member board. That new board reviewed the circuit court litigation and entered into a settlement agreement with the eight original plaintiffs. When the Oregon Supreme Court ruled recently that the appeal of the decision and the unions’ challenge to the settlement agreement were moot, PERS began implementing the settlement agreement.

In the current White cases, the unions contend that by implementing the circuit court decision and settlement agreement between PERB and the eight original plaintiffs, PERB and the employers breached PERS members’ “contracts” and PERB breached its fiduciary duty to members. The unions also contend that PERB violated its fiduciary duty to Tier 1 active members when it placed excess 2002 and 2003 earnings beyond the eight percent into reserve accounts, which now contain $2 billion. The unions argue that some of these funds belong to and should be distributed to Tier 1 active-member accounts.

Arken v. City of Portland, filed in Multnomah County, involves a potential class-action lawsuit. Public employee unions have filed notices with several public employers and PERB that they intend to bring a class-action lawsuit against them on behalf of retired Tier 1 PERS members whose accounts will be adjusted downward according to the settlement agreement in the circuit court case. At least three school districts and one community college have been named as potential defendants: Forest Grove School District, Portland Public Schools, Central School District and Portland Community College.

There are discussions among public employer groups regarding actual and potential PERS litigation, but final decisions have not been made and no coalition has yet been formed to defend against the lawsuits.

OSBA recommends that you contact your liability insurance carrier and request that the carrier provide legal defense if your district is served in a lawsuit. If you must provide your own legal counsel, you can use your own attorney or contact the Harrang Long law firm, (541) 485-0020.

Note: Consider joining OSBA’s Legal Assistance Trust if you are not yet a member. Your membership helps OSBA in defending PERS reforms and saves Oregon government employers billions of dollars. It also provides a means for school districts to use their collective strength in the legal arena.

OSBA will keep you informed regarding PERS litigation and public employers’ response. If you have questions contact Jim Green at (800) 578-6722.