Oregon Supreme Court receives first challenge to lawmakers' proposed PERS changes


The challenge came from George Riemer, a 25-year employee of the Oregon State Bar who retired in 2006 and now lives in Sun City West, Ariz.

Other parties expect to file their own suits by the court's Monday deadline, said Greg Hartman, a lawyer for a group of 10 public employees who challenged a predecessor pension bill.

The Legislature passed Senate Bill 861 in its special session this fall after a full court press by Gov. John Kitzhaber to get a deal done that put a significant dent in the pension system's unfunded liability.

Effective August 2014, the new law limits cost of living adjustments to 1.25 percent on the first $60,000 of a retiree's annual benefit payment and 0.15 percent on amounts above $60,000. That's a reduction from the old indexed COLA that generally delivered a 2 percent benefit increase each year.

This fall's legislation was lawmakers' second bite at the PERS apple. Earlier in the year, they passed Senate Bill 822, which also reduced cost of living increases and eliminated a tax benefit for out-of-state retirees.

For Riemer, that's significant. He'd be hit by both the COLA and out-of- state tax changes. He receives an annual PERS benefit of about $82,000 a year, some 62 percent of his final salary of $133,000. The COLA reductions would reduce the annual adjustment to his benefit by about 40 percent next year.

Riemer said Wednesday that he hadn't calculated the exact impact on his income, but since the changes compound, the reductions would be significant over time.

The changes are significant for PERS, too. The two bills, coupled with changes in actuarial assumptions approved by the pension system's board, will reduce the system's unfunded liability by about $5 billion and reduce employers' contributions to the pension fund by about 4.3 percent of payroll in the current two-year budget cycle. That's the equivalent of some $790 million dollars. The savings are ongoing. The system's actuary recently estimated the PERS unfunded liability at $11 billion, after the Legislature's changes.

Legal challenges to the controversial changes were inevitable, so the Legislature referred them directly to the Oregon Supreme Court and directed the court to prioritize the case. The court has appointed a special master to hear testimony, establish a factual record and make recommendations – essentially a trial record that can then be argued before the Supreme Court.

If the court strikes down reductions in retirees' annual cost of living adjustments, it would blow a major hole in the budgets of public employers around the state, which are already making lower pension contributions based on the assumption the changes are lawful. Other states have made similar changes to their public pension funds, though the courts decision here will be based on Oregon statutes and precedent.

"We worked tremendously hard to find the legal pathway to adjust the COLAs and stabilize the system," said Rep. Peter Buckley, D-Ashland and budget co-chair. "If the court upholds it, we're on a sustainable path now."

If it doesn't, options are far more limited, Buckley said. The state would probably look to reduce or eliminate employees' 6 percent pension contributions, he said, most of which are paid by employers. But that would be subject to collective bargaining, and the savings would be uncertain.

Riemer's suit alleges that the Legislature's changes violate the contracts clause of the Oregon and U.S. constitutions, and that they amount to a taking without just compensation. He made the same case in a challenge to SB 822, though that also sought to overturn the Legislature's elimination of tax benefits for out-of-state retirees.

Hartman said none of the fundamental issues have changed, just the numbers involved. He contends the benefit changes are either a breach or an impairment of employees' contract with the state.

There is no statutory deadline for a decision on the bills. Lawmakers had  hoped to have a decision on their original law before the 2015 Legislative session, but the passage of SB 861 this fall likely sets that schedule back.

-- Ted Sickinger