The waiting game begins in earnest now that the Oregon Supreme Court has
heard arguments on the Moro case, the lawsuit filed by
The waiting game begins in
earnest now that the Oregon Supreme Court has heard arguments in the Moro case, the lawsuit filed by Oregon AFSCME and the
PERS Coalition to overturn retirement system changes enacted by the 2013 Oregon
The Oregon high court heard
from PERS Coalition attorney Greg Hartman and others during oral arguments on
Oct. 14. There are two primary issues to Moro: a change to retirees' cost-of-living adjustments
(COLAs) from a guaranteed 2 percent to a rolling, lesser figure based on annual
retirement benefits, and ceasing to pay a tax offset for out-of-state
As per court protocol, the
petitioners — those who filed the lawsuit — spoke first, led by
Hartman representing the PERS Coalition. The PERS Coalition is a voluntary
association of public employee unions with members in PERS; AFSCME is a
founding member of the coalition. Hartman told the seven assembled justices
that over the past 40 years, the Oregon Supreme Court has engaged in a clear
pattern of decisions as to what constitutes a statutory contractual agreement
— which is what PERS is to its recipients — and what can and cannot
be added or taken away.
"The bill that changed the
COLA for retirees is a full-scale assault on prior case decisions," charged
Hartman. "If this court applies its 'standard analysis' to our case, you will
have to rule in our favor."
Hartman contended that the
COLA statute is clearly contractual in nature, tied to the general concept that
a pension plan is a promise to pay recipients for services rendered. He noted a
1996 decision, the Oregon State Police Officers Association vs. State of
Oregon, which involved sick leave
benefits. The sick leave statute that was the centerpiece of that case is, said
Hartman, structured similarly to the COLA statute involved in Moro.
Hartman walked the court
through the 1971 bill that created PERS as we know it today, which included
enacting the COLA language. The '71 Legislature took great pains, Hartman
pointed out, with some tweaking from the 1973 session, before landing on 2
percent as the annual COLA percentage rate.
"Those legislators were
extremely careful to strike a balance between what was enough, in terms of the
2 percent COLA, and what would have been too much, in terms of PERS' long-term
financial health," said Hartman. "We can't parse out this piece here or that
piece there; this is all part of the PERS retirement package."
Justice Martha Walters noted
that members of the Oregon Public Service Retirement Program (OPSRP), the third
tier of PERS created by the 2003 Legislature, can have some retirement numbers changed, and asked
Hartman why not other PERS members? He responded that the legislation creating
OPSRP specifically reserved that right for future sessions of the Oregon
Legislature to make changes — but there's no language allowing such
leeway for PERS Tier 1 and 2 members in the law.
Attorney George Riemer,
retired counsel for the Oregon State Bar Association, took on the issue of the
out-of-state tax offset. When federal courts decided in the 1980s that states
could not tax federal and in-state public retirees differently, Oregon added a
9.9 percent bump to Oregon PERS members' benefits to offset the federal tax.
The 2013 legislation eliminated that provision from Oregon PERS recipients who
move out-of-state, with the idea that such recipients weren't paying Oregon
income taxes and therefore shouldn't receive an "extra" tax offset. Riemer
argued that the law contains no "expiration date" for out-of-state retirees to
receive that money.
Three attorneys appeared for
the respondents. Keith Cutler represented PERS. He was peppered by questions
from various justices, and his responses continuously revolved back to one
assertion: that while the concept of a retiree COLA was indeed contractual, the
amount was not. The 2 percent figure was a ceiling, said Cutler, but not a
guarantee. Cutler termed the COLA an "add-on" that was not related to benefits
earned by retirees when they were working.
In an unusual situation,
retired Oregon Supreme Court Justice Mick Gillette took a turn at the lectern,
addressing his former colleagues. He pontificated that while the COLA issue may
be a statutory contract, it was still a statute and therefore could be changed.
Longtime Hartman foil Bill
Gary was the respondents' third speaker. Gary has argued the bulk of recent
PERS-related cases against Hartman both in court and in front of legislative
committees; his law firm represents a variety of local government clients. Some
of his points actually contradicted Cutler, but Gary's main contention was that
the COLA amount has always been discretionary and that the burden of proof to
prove otherwise was on the PERS Coalition and the plaintiffs.
During the rebuttal period,
Hartman again reiterated that the COLA benefits were just like any other part
of the PERS statutory contract and cannot be separated. He disagreed with
Cutler that COLA benefits were just an add-on and not related to years of
service. He also noted that Oregon, by virtue of previous court decisions, is a
"unilateral contract state" when it comes to PERS, not a an "accrued benefits
The hearing ended a little
over two hours after it began, with Hartman and associate Aruna Masih
relatively pleased with how things went.
"I've learned over the years
not to put too much stock in the oral arguments and which justice asks what
question," said Hartman. "The questions asked are not always indicative of how
a justice is leaning. That said, I was pleased that each of the justices was
engaged; all seven of them asked at least one question at some point in the
proceeding — that doesn't always happen. But the reality is that the
legal briefs that both sides file in any Supreme Court case carry much more
weight than the oral argument phase."
What happens next? There is
no set timeline for the court to render its verdict. Typically, decisions are
announced between four and six months after oral arguments, which would be
somewhere in the March to May 2015 range. Hartman believes the issues at hand
in Moro are not complicated,
which could possibly lead to a sooner-rather-than-later announcement.
One little "inside baseball"
quirk in the Moro case: Justice
Jack Landau recused himself from the case because his son is an attorney
employed by Gary's legal firm. Therefore, Oregon Court of Appeals Chief Judge
Rick Haselton sat in on the case and will be the seventh vote, along with
Walters, Chief Justice Thomas Balmer and justices Richard Baldwin, David
Brewer, Virginia Linder and Rives Kistler.
This morning the Oregon Supreme Court issued an opinion denying a motion
which would have required all members of the court to
Coalition Lead Attorney
The Oregon Supreme Court
issued an opinion Jan. 16 denying a motion that would have required all members
of the court to withdraw from any further consideration of the Moro case. Moro is the case that challenges Senate Bill 822 from the Oregon
Legislature's 2013 regular session. SB 822 cuts both cost-of-living
increases for members of the system and further reduces benefits for those
retirees living out of state.
This challenge was filed by
the Central Oregon Irrigation District, which is based in Redmond. It mirrors
the issues raised frequently by a certain Bend attorney, but we do not know if
there is any connection between the two. The motion itself was based on the
fact that the members of the Oregon Supreme Court are themselves active members
of the PERS system whose future benefits will also be cut and therefore that
economic interest should disqualify them from any consideration of these
The Supreme Court
acknowledged that generally any judge who has an economic interest in the
outcome of a case should withdraw and allow another judge to handle the
case. However, in this case the court emphasized that the Legislature had made
a specific grant of jurisdiction to the Oregon Supreme Court to decide these
issues. The court also pointed out that all judges in Oregon participate in PERS, and that if
the Supreme Court disqualified themselves from the case, they would have
to appoint other judges to replace them who have the same interest in PERS.
In making their decision,
the Oregon Supreme Court applied the practical "rule of
necessity," which traces its roots back to 15th Century English law.
As the rule moniker suggests, the Supreme Court found that is was
necessary for them to decide the case, as there are no other alternatives
The opinion was not a
surprise, as the Supreme Court has referenced the rule of necessity in
footnotes in previous PERS cases, but this is the first time the court
addressed the issue in a full opinion. With this challenge behind it, the
Oregon Supreme Court can now move forward with the issue of actually deciding
the case itself, which should occur in the next 12-18 months.
The PERS Coalition will formally file its legal challenge to Senate Bill
861 on Dec
The PERS Coalition will
formally file its legal challenge to Senate Bill 861 on Dec. 6. SB 861 is the
legislation passed by the Oregon Legislature during a three-day special session
in early October that drastically scales back cost-of-living adjustments (COLAs)
for PERS retirees.
A clause in the measure
provides for a direct appeal to the Oregon Supreme Court, bypassing the
appellate courts in an effort to speed up the decision. Even so, it will likely
be 18 to 24 months before a decision is rendered.
Earlier, the PERS Coalition
— of which AFSCME is a founding member — filed a challenge to SB
822, a bill passed by the Legislature during its 2013 regular session. SB 822
also cut retirees' COLAs and additionally ended the tax offset for out-of-state
retirees. PERS Coalition attorney Greg Hartman says the Supreme Court will
undoubtedly hear the appeals to both bills together.
"We are just going over our
SB 861 challenge one last time, making sure it's just the way we want it," said
Hartman. "There's no legal advantage to filing early, you're better off to make
sure you've got everything lined up." The clock for filing appeals runs out
Dec. 7, but since that is a Saturday, the working deadline kicks up to the next
business day, which is Monday, Dec. 9.
Hartman is unaware of any
other last-minute challenges that may be filed before the deadline. In addition
to the lawsuits filed by the PERS Coalition, three others are in the queue.
George Riemer of Sun City West, Ariz., recently updated his claim against SB 822
to include SB 861 as well. Two individuals — Michael Reynolds of
Washington state and Wayne Stanley Jones of Utah — filed suits against SB
822. Hartman says the multiple suits in no way muddy the legal waters.
"Everyone has been very
cooperative," said Hartman. "We've spoken to the other plaintiffs. Michael and
Stan Jones live out-of-state, and their focus is really on the portion of SB
822 that takes away the out-of-state tax offset. George Riemer's suit had much
the same emphasis, although he has gone ahead and updated his challenge to
include SB 861 language as well." A former Oregon PERS member, Riemer is
currently the Executive Director of the Arizona Commission on Judicial Conduct.
With the 2013 Oregon Legislature starting to wind down, Republican
lawmakers have finally shown their cards in the session-long
With the 2013 Oregon
Legislature starting to wind down, Republican lawmakers have finally shown
their cards in the session-long battle over PERS "reform." Most Republican
legislators made it very well known that they did not believe SB 822, the PERS
reform legislation passed earlier session, went "far enough." Indeed, almost
every GOP senator and representative voted "No" on SB 822 for that very reason.
There have been rumors for
several weeks that something else was in the works, likely tied to some minor
revenue increase to appease Democrats. On May 30, the House and Senate
Republican offices issued a joint release curiously titled "Republicans offer
compromise PERS reform proposal." Objectively, there is little compromise in
the package; rather, it's most of the more draconian ideas bandied about this
session repackaged once again.
Or, as PERS Coalition
attorney Greg Hartman commented succinctly: "This is what they call a
This so-called compromise
PERS reform package encompasses several avenues of change, few that are likely,
says Hartman, to pass constitutional muster. They include:
Decreasing from 8 percent to 4 percent the Money
Match annuity percentage for inactive PERS members.
Placing steeper caps on retiree COLA increases
than did SB 822.
Making the employer pickup optional, and
assuming contracts would end up with a 3-3 percent split.
"Redirecting" 1 percent of member IAP
Discontinuing the use of accrued sick leave and
overtime in final average salary calculations.
It's important to note that
at this time, these proposals are not part of a particular bill, though that
could easily happen soon. Common thought at the capitol is that Republicans
might well be able to peel a couple of Democrats off in the Senate, where the
margin is a slim 16-14, but would have a more difficult time in the House,
where the margin is 34-26.
The political theater that is Senate Bill 822 moved to the full Senate
floor April 11
The political theater that
is Senate Bill 822 moved to the full Senate floor April 11. SB 822 is the
so-called PERS reform bill offered up by Joint Ways and Means Co-Chairs Sen. Richard
Devlin (D-Tualatin) and Rep. Peter Buckley (D-Ashland). The two big negative
factors are a change in retirees' cost-of-living adjustment (COLA) calculations
and elimination of the out-of-state tax payment offset.
Members of Oregon's upper
chamber spent over an hour debating the bill. As Sen. Tim Knopp (R-Bend)
correctly noted during his remarks, "This is going to be a party line vote."
Which was true, but that didn't stop most senators from rising to get their
comments on the record for constituents at home.
The conundrum is that AFSCME
and the entire PERS Coalition unanimously opposed SB 822. When the words
finally ended, the vote was 16-13 in favor. All 16 Senate Democrats voted for
the bill. The 13 Republican senators present voted no. Sen. Larry George
(R-Hillsboro) was home ill but certainly would have been against the bill. So
technically the Democrats voted "wrong" and the Republicans voted "right"
— but it's not anywhere near that simple.
"There wasn't a single
Republican senator that voted 'No' because they supported us," says longtime
AFSCME PERS lobbyist Mary Botkin. "They all voiced opposition to SB 822 because
in their view, it didn't go far enough. Devlin and Buckley have pledged this
will be the only 'PERS reform' bill to move this session, so the Republicans
are opposed because they want to do us more harm."
Botkin did note that the
floor debate was "respectful and civil." Again, every senator on the floor and
most observers in the Senate gallery knew exactly what the final vote count
would be. The measure now moves on to the House, where it is expected to have
enough muster to get to the House floor as well. That's where things could get
"I don't think we'll see a
party line vote in the House," says Botkin. "There will be Democrats that
oppose the bill for the 'right' reasons. There will be Republicans that oppose
the bill as did their Senate counterparts — they want more reforms. But
there will also be House Republicans that are with us and will vote 'No' for
the right reasons. So that is going to be a very interesting day."
The vote counts will also
cause havoc when AFSCME tallies its end-of-session report card. Essentially,
all 29 senators voted against the unions today, even though the floor letter
from the PERS Coalition asked for a "No" vote and that's how the GOP members
voted. Then there is the impending House vote that likely will include
Republicans voting "No" for entirely different reasons.
"We're going to have to be a
little creative when we reach the vote count stage," says Council 75 Political
Director Joe Baessler. "We'll know why people voted the way they did. We'll
figure it out."
In the meantime, before
Devlin and Buckley debuted SB 822, 59 other PERS-related measures had been
dropped, and a handful of others have been introduced since then. Will those
60-plus bills all die a quiet death?
"That's what Devlin and
Buckley intend," said Botkin. "That's their selling point to us, even though we
disagree — that SB 822 will be the PERS bill this session. We still believe the COLA change, in
particular, is unconstitutional, so we'll cross that bridge when we come to
Indeed, PERS Coalition
attorney Greg Hartman says his staff is already busy on preliminary research to
challenge SB 822 should it pass the House and gain the governor's signature.
"We're not unaware of what's
playing out in Salem," says Hartman. "We'll be ready if need be."
In the space of barely 48 hours, "PERS reform" went from a brewing topic
of concern to an all out fire drill this week when Joi
In the space of barely 48
hours, "PERS reform" went from a brewing topic of concern to an all out fire
drill this week when Joint Ways and Means Co-Chairs Sen. Richard Devlin
(D-Tualatin) and Rep. Peter Buckley (D-Ashland) unleashed their own reform bill,
SB 822. They announced SB 822 on Monday (March 25), and a fast-track hearing
saw a joint session of the Senate and House Rules Committees hearing the bill
That chain of events left
AFSCME and other unions scrambling to line up testimony from impacted members.
The entire scenario surrounding SB 822 became a complete brouhaha, with the
unions yelling foul while many Republican legislators chastised Devlin and
Buckley for not going far enough — and, indeed, the GOP tried to push amendments
the next day to make SB 822 considerably worse.
Here's what's in SB 822 as
proposed by Devlin and Buckley. The measure would save roughly $400 million
this biennium by applying a new formula to retirees' cost-of-living adjustment
increases. Currently, all retirees receive an annual 2 percent COLA on all of
their benefit. There have been several bills dropped that would cap the COLA to
the first $24,000, the first $30,000, the first $36,000 and so on. HB 822 takes
a different tact. It would have retirees receive the current 2 percent increase
on their first $20,000 of retirement income. At that point, the COLA would then
gradually decrease: retirees would receive 1.5 percent on any retirement income
between $20,001 and $40,000, 1 percent on retirement income from $40,001 to
$60,000 and 0.25 percent on all retirement income above $60,000. So depending
on a retirees' income amount, their money could be adjusted as many as four
Here's an example. For a
retiree making $36,000 a year in their PERS benefit, the current system gives
them a 2 percent COLA on that entire amount, which works out to $720. Under SB
822, that same retiree would get 2 percent on their first $20,000 ($400) and
then 1.5 percent on their remaining $16,000 ($240) for a total COLA of $640. So
that retiree would lose $80 in the first year, and the loss would compound over
In order to give the PERS
agency enough time to implement this new formula, for the first year of the
coming biennium the COLA rate would drop from 2 percent to 1.5 percent for all
retirement income. SB 822 also eliminates the tax reimbursement for retirees
living out of Oregon for an additional $55 million in savings. The co-chairs'
budget also calls for "collaring" 1.9 percent of employer rate increases to
achieve an additional $350 million in resources in the 2013-15 biennium; AFSCME
and the other PERS Coalition unions are OK with a collaring concept, which is
essentially the same as the unions' call to reamortize the 2008 PERS stock
Two current AFSCME members
and the head of the union's retiree chapter all trekked to Salem for the March
27 public hearing, as did PERS Coalition attorney Greg Hartman. Hartman was
allotted about 15 minutes to rebut the long-winded presentation by state Sen.
Tim Knopp (R-Bend), who pushed hard for further reforms (see below). Hartman
outlined the history of the 2003 reforms, what the state courts decided and
indicated why he believes the concepts embodied by SB 822 will not pass
Shortly after Hartman came
AFSCME three representatives:
Rob Martineau is a City of Portland Water Bureau
employee and member of Local 189. He told the committee about the
"promise" he was made regarding retirement when he went to work for the
city. "Basically I'm a ditch digger," said Martineau. "I perform a
physically demanding job that takes a toll on my body. I went to work with
the understanding that after 30 years, I could retire. Now I'm basically
being told I've got 13 years down and 25 to go. No one can do this work
that long. You called a special session just to give Nike a special tax
break, which I was OK with on the surface, but now you're saying you have
to cut into our retirement because you have a budget shortfall. That's not
Tina Turner-Morfitt, a Corrections Counselor and
member of Local 2376, walked the committee through her years of service
with the DOC, constantly struggling to do more with less money. "In our
job, our word is our bond [with the inmates]," she said. "Your word needs to
be a bond between us."
Chuck Moffit is a retired City of Portland
accountant and President of the AFSCME Retirees Chapter 75 in Oregon.
Moffit pulled no punches in describing HB 822 as "illegal, immoral, wrong
and unfair at every level."
WHAT HAPPENED NEXT? SB 822 is not moving like a "normal" bill. As
mentioned earlier in this article, the hurry-up public hearing was held March
27 before a joint session of both chambers' Rules committees. The following
morning, March 28, Senate Rules alone took further testimony. Ultimately, that
five-person committee passed the measure out; it's next stop will be a Ways and
Means Subcommittee, likely next week.
But the bill's passage was
not clean. The two Republican members of Senate Rules, Sen. Ted Ferrioli
(R-John Day) and Sen. Bruce Starr (R-Hillsboro), pushed to adopt Knopp's
aforementioned amendments. Those amendments would have pushed the COLA
thresholds higher, lowered final average salary calculation by omitting sick
leave and overtime accrual, eliminated the 6 percent pickup, put the 6 percent
back into the general PERS fund and more.
In other words, Knopp's
amendments attempted to turn SB 822 into another version of SB 754, the Oregon
School Boards Association's more draconian PERS measure that was detailed in
the March 8 e-lert.
Senate Rules Committee Chair
Diane Rosenbaum (D-Portland) and members Sen. Lee Beyer (D-Springfield) and
Sen. Ginny Burdick (D-Portland) banded together to defeat the proposed
amendments. SB 822, sans amendments, then passed the committee 3-2 with
Ferrioli and Starr voting no because the bill "didn't go far enough."
"It's a conundrum," says
longtime Oregon AFSCME PERS lobbyist Mary Botkin. "On the one hand, Sens.
Rosenbaum, Beyer and Burdick voted SB 822 out of committee, and we oppose that
measure vehemently. By the same token, they did protect us from the far worse
amendments offered by the Republicans.
"The bottom line is that the
PERS fights are just getting started now."
Botkin and Council 75
Political Director Joe Baessler thanked and praised the many members who
responded to an "emergency e-lert"
and took time to call and e-mail legislators on SB 822.
While the Oregon Legislature continues to wrangle over how to best
"reform" PERS, Oregon Treasurer Ted Wheeler has just release
While the Oregon Legislature
continues to wrangle over how to best "reform" PERS, Oregon Treasurer Ted
Wheeler has just released a report showing that the Oregon Public Employees
Retirement System posted the best investment returns over the past decade of any similar-sized public retirement system fund
in the nation.
The analysis compares gross
investment returns as of Dec. 31, 2012, and found that the performance of
Oregon PERS was the highest among public funds with assets of more than $1
billion for the past one-, three- and 10-year periods.
"It's yet more evidence that
PERS is structurally sound, and that any current 'problems' are directly
attributable to the 2008 stock market crash," says longtime Oregon AFSCME PERS
lobbyist Mary Botkin. "This should be proof to current legislators that huge
overhauls of PERS are not necessary. This is not a system on the verge of
collapse, as many have tried to paint it."
Oregon PERS' independent
ranking comes from the Wilshire Trust Universe Comparison Service, a benchmark
of asset positions and performance data for investment funds of different
division has served Oregonians well and we will continue to seek the right
strategies," said Wheeler. "To maintain strong performance on behalf of Oregon,
we will need to stay ahead of the curve, and that includes constantly improving
the investment program to respond to new opportunities and risks."
The annual average return
for the past three years was 9.57 percent, and it was 8.7 percent for the past
decade. The assumed long-term rate-of-return for the PERS fund is 8 percent and
has been since 1989, but Wheeler's office says that figure could be challenging
to maintain given current low interest rates and lower projected returns for
private equity investments. The PERS board is widely expected to lower the
assumed rate for the first time in 24 years later this year; it is anticipated
they will set the rate at either 7.75 or 7.5 percent
The PERS fund relies on
investment returns to pay roughly 70 percent of the benefits negotiated for
public sector retirees.
The Oregon Investment
Council, which oversees state investment policy, is asking the 2013 Legislature
to approve the Investment Modernization and Cost Reduction Act. That proposal
will increase the capacity to manage the PERS portfolio by converting the
Investment Council to a public corporation. By increasing internal
capacity, the investment division also would be able to limit outsourcing the
management of parts of the portfolio, allowing the fund to potentially save
millions of dollars in fees annually.
I wanted to let you know that we have reached a settlement agreement
covering both the White and the Murray cases
Ironically, with the media
and legislative newsletters full of reports about possible PERS reforms at the
2013 Oregon legislative session, agreements have been reached to settle the
final two lawsuits related to the 2003 Legislature.
PERS Coalition attorney Greg
Hartman says agreements have been reached covering both the White and the Murray cases.
There is a long and complex
history to both cases. White
contested the settlement of the City of Eugene case as entered into by the PERS Board of Directors.
As a result of the City of Eugene
settlement, the PERS Board effectively reallocated retirement system dollars of
over $1 billion, which in effect lowered potential member benefits. In doing
so, the White case charged that
the PERS Board had violated its fiduciary responsibility to PERS members.
But the trial court rejected
the unions' arguments in White
that the settlement was inconsistent with PERS' fiduciary obligation, though it
also held that it was improper for the trial court to dismiss the unions' challenge
to the transfer of $61 million from the contingency reserve to the City
of Eugene employers.
"While we were pleased that
the court had adopted our view on that particular issue, in reality our
interest in the contingency reserve and transfers from that reserve have
changed substantially since we initiated this case back in 2004," said
Hartman. "At that time the allocation of earnings and transfers within the
fund impacted individual member accounts and drove the Money Match benefit,
which was, at that time, the basis for virtually all retirements.
"Nine years later," Hartman
continued, "the system has changed substantially as it moves toward a Full
Formula system. While many Tier 1 members continue to retire on Money Match, it
is extremely unlikely that they will see any additions to their accounts prior
to retirement other than the amount of guaranteed earnings. As such, additional
litigation would be expensive with no prospect of achieving a positive result
With that in mind, Hartman
and the PERS Coalition embarked on a "somewhat non-traditional" approach in
trying to reach a settlement which achieves some benefits for members. In the
end, White has been settled with
a repayment by the City of Eugene
employers in the amount of $2 million to be returned to the contingency
reserve, the amount of $2 million will be distributed to Tier 2 accounts,
and PERS will pay up to $100,000 to reimburse attorney fees incurred in the White case.
Hartman's firm also took a
bargaining table approach on the Murray case. In Murray, the
unions challenged the PERS Board's decision to charge a portion of
administrative expenses to the variable account even in years where there were
no earnings. The Court of Appeals ruled in the unions' favor, but rather than
applying the Court of Appeals' decision unilaterally — all such cases are
technically filed on behalf of one of more plaintiffs — the board decided
to return $77 to specific plaintiff Murray and declare that they had fully
satisfied their obligations.
This action resulted in
another challenge, which was pending in the Court of Appeals. Hartman
says that case has been resolved for a payment of $1.9 million (the amount
improperly charged to the accounts initially), to be paid to current participants
in the variable account.
"This will not provide a
dollar-for-dollar payment to those members who were adversely affected, but
will accomplish substantial justice by protecting those members who are still
in the variable account," explains Hartman.
Hartman says all of these
transfers and reconciliations will take place in March 2013 when PERS does its
usual distribution of 2012 income.
One of the most difficult things to explain to those who are not
familiar with PERS or with pension plans in general is the re
It was an ill-kept secret
that the PERS Board would announce an increase in 2013 employer rates at its
most recent meeting. That indeed happened, along with the expected subsequent
calls for a decrease in the system's assumed earnings rate, which has been 8
percent for two decades. Incidentally, this rate has been incorrectly —
but frequently — referred to as "the 8 percent guarantee" for Tier 1
members, simply because the rate has been 8 percent for so long. In fact, Tier
1 members are guaranteed whatever the assumed rate is, but the PERS Board does
have the authority to drop (or raise) that figure.
This is going to be a topic
of discussion over the coming months, particularly once the 2013 Oregon
Legislature convenes early next year. One of the most difficult things to
explain to those who are not familiar with PERS, or with pension plans in
general, is the relationship between the assumed earnings rate and the employer
contribution rate. When discussing this relationship it is often useful to
first explain how a more traditional, defined benefit pension plan works, and
then that PERS fundamentally works the same way, although "Money Match" and
"Pension Plus" annuity benefits create a unique layer of complexity.
In a traditional, defined
benefit pension plan, which bases benefits on years of service and final
average salary (like "Full Formula" and the PERS Tier 3 OPSRP plan), this
relationship is relatively clear. The sole purpose of an assumption about
earnings is to estimate how much an employer needs to pay into the system to
make sure there are sufficient funds to pay for the benefits owed to employees
when they retire. This is the case because the only sources of funding for
employee benefits are:
Employer contributions; and
Earnings made by investing those contributions.
Therefore, if an actuary
assumes earnings made by investing contributions will earn less in the future
(i.e., lowers the assumed earnings rate), then current employer contribution
rates have to be increased to cover the funding shortfall to pay the
benefits owed to employees. Conversely, if the actuary assumes the earnings on
investing contributions will be higher in the future (i.e., increases the
assumed earnings rate), then current employer contribution rates can be lowered
because the earnings on investments are assumed to cover a greater share of the
cost of the benefits owed to employees.
As in so many other
instances, in PERS there is an added layer of complexity. In PERS, the assumed
earnings rate also affects the calculation of both "Money Match" and the
annuity portion of "Pension Plus" annuity benefits. These benefits are tied to
this assumption because the guaranteed rate sets the rate that Tier 1 member
accounts are credited with earnings in an amount no less than the earnings
assumption. Lowering the earnings assumption means, therefore, that fewer
dollars will be credited to Tier 1 member accounts, and members will ultimately
have less in their accounts at retirement.
In addition, lowering the
earnings assumption affects the calculation of the "Money Match" and annuity
portion of the "Pension Plus" benefit, because once again lowering the
assumption also lowers the amount by which the employee account which funds the
benefit will grow during retirement. Hence, the amount of the benefit that will
be paid goes down. However, these reductions only impact about 10-15 percent of
the current active members of the system. For the vast majority of PERS
members, the lowering of the earnings assumption has no impact on their
Accordingly, the long-term
savings on benefits for Tier 1 members eligible for "Money Match" or "Pension
Plus" annuity benefits is overwhelmed by the immediate financial impact of a
new earnings assumption. A reduction in the earnings assumption means that the
approximately $50 billion which has been contributed to fund PERS benefits (for
both current and future retirees) is predicted to generate lower earnings in
the future. This shortfall in assumed investment earnings will necessarily
require increasing employer contribution rates.
In other words, the
public outcry to lower the assumed earnings rate in light of the 2013 employer
rate increase is contradictory — doing so would have the opposite effect
and raise employer rates even higher.
Oregon AFSCME members can
rest assured that you have a lobbying team that understands this situation,
including Mary Botkin, who is the senior PERS lobbyist at the capitol.
(Editor's note: The PERS
Coalition, of which AFSCME is a founding member, is a voluntary association of
Oregon public employee unions with members in the Oregon Public Employee
Retirement System. Greg Hartman is the longtime lead attorney for the
Two articles about Oregon PERS published June 19 reveal the stark
differences in reporting on the state's Public Employee Retir
by DON LOVING
75 Communications Director
Two articles about Oregon
PERS published June 19 reveal the stark differences in reporting on the state's
Public Employee Retirement System as practiced by the Oregonian and the Salem Statesman Journal.
The genesis for both
articles was the release of the latest Pew Center report on public pension plans nationwide. The link in that last sentence takes you
to the Pew Center website and a summary and highlights of the report; if you
want to read the report in its entirety, it is attached to this article in PDF
format. But here are the report's three key findings:
Oregon currently ranks eighth in the nation in
terms of the funded status of its pension plan, up three spots from No. 11
Pension experts say a funded status greater than
80 percent is a sign of a healthy pension plan.
Oregon PERS' current funded status stands at 87
"This is something that
Oregon policymakers certainly need to keep an eye on, but they are not facing
the same challenges or showing the same level of irresponsibility as places
like Illinois," said Pew researcher David Draine. The Illinois system is only
funded at 45 percent today.
The bottom line is that a
national study group issued an objective report that says, "Hey, Oregon is well
over the 80 percent threshold, and while you need to be watchful, all things
considered, Oregon PERS is doing well."
One quick "inside journalism"
aside: reporters do not write the headlines for their stories, copy editors do.
Sometimes that leads to stories sporting headlines that do not match the
intention or intended tenor of the writer. But that was not the case on June 19; both headlines suited their
respective stories perfectly.
In the Oregonian article, Sickinger spends several hundred words
outlining problems specific to the Forest Grove School District, then launches
into an analysis of why the statewide numbers are worse than they appear.
Finally, in paragraph No. 23, Sickinger alludes to the Pew report, noting
"Oregon's pension fund is actually in better shape than many." But he
specifically leaves out the fact that pension experts consider 80 percent
funding healthy and that Oregon's funding rate is 87 percent.
In contrast, Thompson's Statesman
Journal article notes in the lead
paragraph that Oregon PERS "continues to rank among the best-funded public
pension plans in the U.S."
Why the disparity between
the two articles?
"It's my belief that Ted
Sickinger has little to no credibility left on the subject of PERS," says PERS
Coalition attorney Greg Hartman, a Sickinger interviewee many times over recent
years. "He has long ago left any objectivity behind, instead choosing to trumpet
the newspaper's editorial page party line within his news articles. This most
recent example just further demonstrates that."
Things aren't likely to
change anytime soon. Longtime Oregonian editorial page editor Bob Caldwell, who generally speaking was fairly
moderate, died in March. The paper recently announced Caldwell's replacement is
Eric Lukens, until this month the editorial page editor of the Bend Bulletin. Under Lukens' direction, the Bulletin's editorial page frequently targeted PERS and public
"I just think it's
unfortunate that the Oregonian is
not making a distinction between its news articles and its editorial position
when it comes to PERS," says Hartman.
After years of haggling, the Grim Reaper is coming for PERS "window"
The Oregon PERS Board of
Directors has approved a 2 percent benefit reduction plan as the method of
recouping just over $156 million in overpayments from those workers who retired
in the "window period" of April 2000 through April 2004. A final court order
allowing PERS to proceed with the repayment plan was issued on March 14; the
decision impacts about 28,000 retirees.
The overpayments occurred in
March-April 2000. The PERS Board routinely credits the previous year's earnings
at its March meeting of any given year, with that credit hitting retirees'
April checks. In March 2000, the board credited retiree accounts with 20
percent earnings. Lawsuits initiated by employers claimed that figure was too
high, and four years later courts set the figure retroactively at 11.33
percent. PERS members who continued working through that period had their
accounts adjusted accordingly, but those who retired in the April 2000-2004 window
had the excess funds factored into their retirement benefits.
PERS says the average
overpayment is $6,650 and that the typical window retiree will pay back the
difference in six to seven years. Retirees may opt to pay back the amount in
one payment if they so desire, or they can choose to have more than 2 percent
deducted so as to pay back the money owed more quickly.
Of the 28,000 window
retirees, some 20,000 receive monthly benefit checks. The other 8,000 took some
form of lump sum payment, so they are essentially out of the PERS system now.
Those retirees will be required to set up a repayment plan through the Oregon
Department of Revenue that mirrors the other retirees' 2 percent minimum
PERS Coalition attorney Greg
Hartman told the board it must offer clear communication to the retirees. Even
though there have been rumblings and even half-hearted attempts over the years
regarding repayment, most retirees have simply been waiting out the legal
"This is going to come out
of the blue for many people," said Hartman.
PERS staff assured the board
at its March 22 meeting that a three-step communication plan would be
implemented before actual repayments begin, likely later this year. That plan
Posting an FAQ (frequently asked questions)
document on the agency's website regarding the repayment process as soon
Sending a letter soon to all window retirees
that outlines the situation and the repayment plan; and
Sending a second later sometime this summer with
information to each retiree as to the exact amount they owe and how long
it will take for them to complete the repayment under the 2 percent
In May, PERS will approach
the Legislature's Emergency Board with a $2 million request for additional,
temporary staff to help the agency wade through the repayment process. PERS
Deputy Director Steve Rodeman estimates it will eventually cost PERS about $4
million to collect the $156.3 million in overpayments.
Hartman emphasizes that
legal challenges have been exhausted, and repayment is not optional. When PERS
first broached the subject several years ago, the agency was lenient about
those who essentially ignored the issue while the matter was litigated.
"Those who took lump sum
payments, in particular, should look at the option PERS is offering to set up
repayment along the lines of the 2 percent the monthly benefit retirees are
taking," said Hartman. "If you don't, and you're out of state, PERS' only
option is to go the collection agency route as the Oregon Department of Revenue
has no authority outside the state.
"We're disappointed with the
outcome, but it's done, and people do have to make the repayment."
he pension benefits of retired individual public employees in Oregon
will no longer be kept secret under a legal settlement tha
employee retirees are dismayed at the recent news that their names, salaries,
career details, retirement benefits and other information will soon be released
to the public.
Under a deal
brokered by Oregon Attorney General John Kroger with the Oregonian and Salem Statesman Journal in response to public information
requests from the two newspapers, the Oregon Public Employees Retirement System
(PERS) will issue two reports. The first, coming in November 2011, will list
all 110,000 current PERS retirees by name only, along with their monthly
benefits. A second report, scheduled for release in March 2012, is much more
onerous for the retirees. It will list each retiree's final salary, years of
service, retirement date and method used to calculate retirement.
concerned that it will be used to again inflame the public against people who
do jobs nobody else wants to do," said Mary Botkin, AFSCME's longtime PERS
lobbyist. "We see it as an invasion of privacy. Personally, I don't think this
information belongs to the public any more than Ford employees' retirement
information belongs to me because I drive a Ford. But legal precedent is not in
Hartman, lead attorney for the PERS Coalition, says his firm is looking at all
legal options. But Kroger's action is directed at PERS the agency, not the
retirees per se, and Hartman said it appears PERS has little legal ground to
disagree, but legally PERS has limited options with which to fight this order,"
employee salaries are already part of public records law in Oregon. Other
states — California, New York and Washington, in particular — with
similar laws do
release such retiree information. Oregon PERS, in fact, generally used to
release such information when it was requested. But beginning around 2002,
leading up to the contentious retirement system reforms passed by the 2003
Oregon Legislature, PERS began denying media requests for benefit information
for all but particularly prominent public workers. The agency argued pension
records contained personal information and were conditionally exempt from
disclosure unless petitioners showed a clear public interest — a position
backed up by then-Attorney General Hardy Myers.
elected in 2008 to succeed Myers, ran on a platform of increased government
transparency. His order effectively settles the two cases brought by the
newspapers, cases which were consolidated into one Marion County Circuit Court
understand that our retirees are very wary about this," says Botkin. "I just
don't know that we have any options to stop it."
Legislature does meet in February 2012 for a 35-day mini-session. The PERS
Coalition could, in theory, attempt to move a bill during that session that blocks
the March information release. Whether either the votes or the political will
are there to take such action has yet to be determined.
coalition — a voluntary group of mostly unions that represent public
employees — meets again later this month.
"You can be
sure this topic will be our primary focus," said Botkin.
Most AFSCME out-of-state retirees will see ZERO impact from this bill
Discussion over the issue of taxing out-of-state PERS retirees lasted
the entire 2011 Oregon legislative session, culminating w
Discussion over the issue of
taxing out-of-state PERS retirees lasted the entire 2011 Oregon legislative
session, culminating when lawmakers passed HB 2456 in the session's closing
days. However, despite media reports to the contrary, HB 2456 will actually
impact very few out-of-state retirees.
Some background information
is essential to place this discussion in context. A federal court ruled in 1989
that Oregon could not continue to tax federal government retirees and exempt
state and local government retirees from Oregon income tax. Rather than take
the loss that would have resulted from also exempting the federal retirees,
lawmakers back then decided to tax the local government retirees as well. But,
in sort of a "wink-wink" fashion, they also crafted (eventually) two pieces of
legislation devised to give an "extra" PERS benefit to state and local
government retirees that would offset the amount of the tax — in essence,
state and local government retirees were held harmless from being taxed.
Fast-forward to 2011 and the
constant hullabaloo about PERS. The reality is that there has always been a
small percentage of PERS retirees who don't live in Oregon when they retire,
and they receive the so-called extra benefit to offset Oregon income taxes that
they don't pay. (Some live in states that do tax their Oregon retirement benefits, others live in
states that do not — but that is irrelevant the Oregon PERS-specific
discussion.) Many lawmakers jumped on this issue, seeing it as an opportunity
to "do something about PERS."
So what exactly does HB 2456
do, and why is there confusion? Note above in the second paragraph where it
says Oregon lawmakers eventually crafted two pieces of legislation
revolving around this issue of an "extra" benefit. HB 2456 only takes away
one of those two benefit calculations — and the one it eliminates is the
one that very few current PERS members depend on anymore. You get the better of the two calculations; HB 2456
takes away what was, for most people, the lesser of the two. Ergo, there is no
This is the point that the
media missed entirely. When HB 2456 passed, there was a flurry of news stories
talking about the impact to "out-of-state retirees" that implied the bill
impacted all out-of-state retirees when, in fact, it impacts very few.
It is a credit to the AFSCME
lobbying team, in conjunction with the entire PERS Coalition, that when HB 2456
eventually passed it had as little impact as it does. Details are more fully
explained in the accompanying PDF attachment, but here are the bottom-line
If you started your PERS career after
1991, HB 2456 has no impact on you whatsoever — period. You were not
eligible for the second calculation, the one that is going away.
If you started your PERS career before
1991 but after 1980, HB 2456 will not impact you. Again, you are
losing one of two calculations — but it's the calculation that was
going to give you a lesser benefit. The better calculation for you is
If you started your PERS career before 1980 and
you are still working, you could see a minimal impact from HB 2456. The
key word is minimal, because
once all the numbers were crunched, you may have ended up 1 percent better
before HB 2456. HB 2456 is not an all or nothing bill where you're
losing everything, just a
percentage point or two.
Finally, this bears
repeating because many people get caught up in all things PERS and panic,
frankly — again, this entire discussion only applies to people who
will retire and live out-of-state beginning on Jan. 1, 2012. If you plan to retire in Oregon, this is all
irrelevant to you. If you have already retired and live out-of-state, HB 2456
is not retroactive.
Again, there are more
details in the accompanying PDF.
The Oregon Supreme Court heard oral arguments on two PERS-related cases
of special interest to AFSCME retirees on Jan
The Oregon Supreme Court
heard oral arguments on two PERS-related cases of special interest to AFSCME
retirees on Jan. 6.
Both the Arken and Robinson cases relate to the so-called "window retirees" — people who
retired from PERS between April 2000 and April 2004. Those who retired within
this time window had 20 percent credited to their 1999 PERS earnings, an amount
that was retroactively reduced to 11.33 percent by Marion County Circuit Court
Judge Paul Lipscomb. PERS has said those retirees must re-pay the overage,
though other than a series of letters demanding payment, the agency has not
been overly aggressive in pursuing the matter while awaiting final legal
In the Arken case, the PERS Coalition — the group of unions
of which AFSCME is a founding member — takes the position that the window
retirees are entitled to keep the original allocation because, in essence, the
2003 Legislature said they could. In Robinson the argument is that the Legislature limited the
ability of PERS to recover from these retirees and that what PERS has done is
inconsistent with these restrictions.
Only five of the Supreme
Court's seven justices were on hand to hear the two cases: Chief Justice Paul
De Muniz and Justices Thomas Balmer, Robert Durham, Rives Kistler and Virginia
Linder. Justice Martha Lee Walters was absent; De Muniz gave no explanation for
her whereabouts but said she would be weighing in on the decision. The other
absent justice was Jack Landau, who was sworn into office on Jan. 5. Landau did
not sit in on the case not because he's brand new, but recused himself because
his son, Aaron, is an attorney with the Eugene law firm that's leading the
Arken was the first case on the docket. Longtime PERS
Coalition attorney Greg Hartman told the court that throughout the 2003 reform
legislation debate in Salem, the "core principle" that lawmakers operated under
was that no person who had already retired should lose any benefits. Noting
that Lipscomb's decision on the 20 percent vs. 11.33 percent account crediting
had not been finalized by higher courts yet when the Legislature took action in
2003, lawmakers in effect let stand the 20 percent and intended that to be the
baseline for the window retirees.
"The record clearly
indicates that the Legislature was upset with PERS and the PERS Board, and in
essence they said they were not going to wait for all of the litigation to
settle out, that this is what we'll do," said Hartman. "Both the legislative
record and your court's decision in the Strunk case make clear that 20 percent was the amount for
the window retirees."
Opposition attorney Bill
Gary argued that the Legislature's intent was to codify 11.33 percent as the
proper number; during rebuttal Hartman reiterated that could not be the case
because the litigation surrounding the 20 percent vs. 11.33 percent debate, City
of Eugene, had not been concluded at
Robinson is not a PERS Coalition case proper, but closely
related. In a nutshell, Robinson
ignores the argument regarding 20 percent vs. 11.33 percent and focuses on
PERS' ability to reach into retirees' accounts and take money back. Opposition
attorney Jim Malkin argued that if Tier 1 retirees (and virtually all of the
window retirees were Tier 1) were held harmless for the overpayments, Tier 2
retirees were improperly hit by having to pay back the money indirectly by
virtue of PERS making up the difference through "administrative expenses"
— money that otherwise could be credited to member accounts.
"It's a classic case of
robbing Peter to pay Paul," said Malkin.
Jim Coon, lead attorney for
the Robinson case, countered that
the Legislature understood what it was doing.
"They faced a difficult
choice," said Coon. "The money had to come from somewhere, and the Legislature
chose to hold harmless those already retired. Remember, this was 2003 —
some of them had been retired three years already, decisions based on the
'promise' made to them by PERS when they left their jobs."
The wheels of justice turn
slowly at the Supreme Court level, and it will likely be the end of this
calendar year, at the earliest, before decisions are rendered on the cases.
Because the two cases are in many ways intertwined, Hartman expects the Arken and Robinson decisions to be released in a very close time frame, though likely not
"I've learned from the
previous court cases not to try and read the tea leaves too much based on the
oral arguments," said Michael Arken, a former Local 189 (City of Portland)
member, current Oregon AFSCME Retirees President and the lead plaintiff in his
namesake case. "I thought the justices asked a lot of interesting questions in
both cases, and I just hope we get a relatively quick decision."
You've asked me to provide some review and analysis of the proposal to
lower the pension benefits for those retirees who are no
The PERS issue that is not
the 6 percent pickup that's also drawing a lot of attention currently involves
the possibility of reducing the benefit for retirees who move, or have already
moved, out of state. And as always seems to be the case with PERS, it's a
This issue originates with a
1989 U.S. Supreme Court decision, Davis v. Michigan, where the U.S. high court essentially ruled that
states could not tax federal retirees if they exempted their own state and
local retirees from state income taxes. Oregon was one of many states that did
just that: taxed federal retirees but exempted its own retirees from state
The state did not want to
lose the tax money generated by federal retirees, so the 1991 Oregon
Legislature passed companion bills to address the issue. One bill took away the
tax exemption for PERS retirees, meaning Oregon PERS members would have to
begin paying state taxes on their benefits. However, the second bill provided
an increase in benefits designed to offset the additional taxes — but
importantly, the bill did not outright say so in its legalese. So while not
every PERS retiree saw an exact match in the numbers, together the two bills
were clearly meant to offset the impact of the imposition of the state tax while
allowing Oregon to continue to tax federal retirees.
A monkey wrench was thrown
into the mix the next year when the Oregon Supreme Court ruled in the Hughes case that imposing a state income tax on benefits
earned before October 1991, even with the offset of the added benefits, was a
breach of the PERS contract. Therefore, said the court, members were entitled
to a remedy for that breach of contract. However, the court allowed the
Legislature time to fashion a resolution to the breach, which it ultimately did
in 1995 with legislation that specifically gave PERS members a bump that would offset any taxes owed for benefits
earned prior to October 1991.
This is an
oversimplification of the events, which were followed by legal challenges to
the deal by federal retirees. What is important to current discussions,
according to PERS Coalition attorney Greg Hartman, is that there were two
distinct actions taken — one in 1991, the other in 1995 — and that
the 1991 action was unrelated to the edict of the Hughes case (logically enough, given the Hughes decision wasn't rendered until 1992).
"There are those who argue that since these
extra payments were specifically designed to offset Oregon taxes —
overtly so in 1995 as a response to the Hughes case — those who choose to live outside of
Oregon upon retiring shouldn't receive them," says Hartman. "But it's not that
simple. These were two separate and distinct additional PERS payments and they
must be analyzed separately."
Hartman again emphasizes
that the 1991 legislation, SB 656 of that session, was not specifically
conditioned by the '91 Legislature as an additional payment for taxes, even
though it was widely understood that was the case. Therefore, Hartman says the
SB 656 increase became contractual in nature and cannot be withdrawn,
regardless of the fact that out-of-state retirees are not paying any state
"In contrast, when the
Legislature passed HB 3349 in 1995, they included language retaining the
ability to amend or withdraw that additional benefit without breaching any
contractual rights of members," said Hartman, who believes that left the door
open for future lawmakers to potentially withdraw that increase for all or a
portion of PERS retirees. In this scenario, the "portion" would be those who
live out of state.
"While those out-of-state
retirees could file class litigation to protect their interests, they would be
seeking a damage remedy for the imposition of state taxes," said Hartman.
"However, none of them would, by definition, be paying state taxes." Ergo, the
out-of-state retirees would seem to have a big hole in their legal argument
vis-ˆ-vis the 1995 increase.
Hartman also notes that the
amount of money saved would be the proverbial peanuts relative to the $3.5
billion state budget hole. Additionally, PERS, he said, has not differentiated
between the 1991 and the 1995 increases in any of the fiscal analyses it has
published to date, making it impossible to determine an exact amount of
Regardless, it is widely expected
that the issue of out-of-state benefits will be taken up by some legislators
when the 2011 Oregon Legislature meets in earnest next month. It remains to be
seen what form such challenges may take.
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