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 really interesting.

"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 it."

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 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 Wednesday afternoon.

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 different ways.

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 time.

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 market losses.

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 constitutional muster.

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 fair."

• 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.

"We'll need you again soon," said Botkin.

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 sizes.

"Oregon's investment 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.

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 for members."

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.

By GREG HARTMAN

PERS Coalition Attorney

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 benefits.

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 coalition.)

Analysis by DON LOVING

Council 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 last year.

• 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 percent.

"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."

Jump now to the two newspaper articles. You need only to read the respective stories' headlines to know where each article is going (though we encourage you to use the links and decide for yourself). The missive by Oregonian reporter Ted Sickinger is titled "PERS: Unfunded liability of pension funds tightens its grip around Oregon." The Statesman Journal article, authored by state government reporter Dennis Thompson, comes with the headline "Oregon PERS among nation's healthiest pension plans."

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 employee unions.

"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.

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 payback requirement.

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 process.

"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 includes:

• Posting an FAQ (frequently asked questions) document on the agency's website regarding the repayment process as soon as possible;

• 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 reduction plan.

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."

Many public 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.

"We are 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 our favor."

Greg 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 stand on.

"We may disagree, but legally PERS has limited options with which to fight this order," he said.

Public 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.

Kroger, 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 proceeding.

"I understand that our retirees are very wary about this," says Botkin. "I just don't know that we have any options to stop it."

The Oregon 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.

The 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.

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 impact.

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 triggers:

• 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 still intact.

• 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. 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 decisions.

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 other side.

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 the time.

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 simultaneously.

"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."

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 complicated matter.

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 income tax.

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 income tax.

"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 potential savings.

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.