Public employee pension cuts deemed unconstitutional

The Oregon Supreme Court decided Thursday that some of the state’s PERS cuts were unconstitutional.

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The Oregon Supreme Court decided Thursday that some of the PERS cuts for state employees were unconstitutional.

From the Statesman Journal:

The decision means that schools, cities, state agencies and other public employers likely will face steep increases in the rates they pay toward the pension fund. Two bills passed by the Legislature, SB 822 and SB 861, reduced the cost-of-living adjustment for retirees in the Public Employees Retirement System. SB 822 also ended a payment meant to compensate out-of-state retirees paying Oregon income taxes. Retirees appealed, saying the changes violated the contractual agreement between the state and workers.

The court consolidated several lawsuits challenging the cuts. All argued that PERS benefits are a contract between the state and its employees and cannot be changed retroactively. In its opinion issued Thursday, the court denied the challenge related to the income tax offset, and said the legislature can change the COLA as benefits being offered to current and future PERS members.

The decision brings forth uncertainty on how the state will move forward.

Gov. Kate Brown announced her intentions to review “the ruling and assessing next steps, including the short and long term fiscal needs of PERS. And I will be working with the PERS Board to determine what next steps they will take.”

The Portland Tribune reports:

“We conclude that petitioners have a contractual right to receive the pre-amendment COLA for benefits that they earned before the effective date of the amendments,” Chief Justice Thomas Balmer wrote for the court.

The system has about 128,000 retirees. Five justices joined the decision. Justice Jack Landau recused himself and did not take part. The court rejected arguments by the state and lawyers for local governments that a more compelling “public purpose” justified breaching the contract. expands on the coverage:

The court also determined that out-of-state retirees had no right to extra benefits to cover state taxes they don’t pay.

The court’s decision will eliminate part of the $5.3 billion liability reduction that came from the PERS changes, which translated to more than $800 million in contribution savings for public employees during the current two year budget cycle. That means higher contribution rates for public employers, likely starting in 2017. It’s also an administrative nightmare for the retirement system, which will have to make catch up payments to current retirees and administer a much more complicated cost of living formula for its members. 


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