SALEM, Ore. (AP) — The Oregon Supreme Court on Thursday upheld the reductions in public employee pension benefits that state lawmakers passed last year to help address the state’s pension funding deficit and rein in the escalating pension costs.
The Oregonian/OregonLive reports that nine public employees filed suit last August seeking to overturn two benefit reductions the Legislature made: requiring employees to share a small portion of the cost of their pension benefits, and putting a $195,000 limit on the final salary used in some benefit calculations.
Their lawyers argued that the changes constituted an impairment of contract under the state and federal constitutions, a “taking without just compensation” and a breach of public employees’ PERS contract rights.
In a unanimous decision, the court rejected those arguments, sticking with the principle it established in its 2015 decision on the last round of legal wrangling over PERS: the Legislature is entitled to change employee retirement benefits prospectively, for future service, but benefits earned on service already rendered are sacrosanct.
“The court recognized that we had taken fair and reasonable steps to reduce rising PERS costs,” said Jim Green, executive director of the Oregon School Boards Association. “It’s a victory for students by allowing Oregon schools to invest more in the classroom.”
The impact of Senate Bill 1049 falls mostly on longer-term employees, as well as those at the very top of the state’s pay scale.
The law redirected a portion of the required retirement contributions that employees make to an individual, 401(k)-like account that supplements their pension benefits to support the pension fund.
Employees making more than $30,000 a year and hired on or before Aug. 28, 2003 are now required to send 2.5% of their salary to support the pension. The remainder of their required retirement contributions – another 3.5% of salary – will still flow to the individual account.
Employees hired after Aug. 28, 2003 who make more than $30,000 a year will be sending 0.75% of salary to support the pension fund, with the remaining 5.25% of salary still flowing to individual accounts.
If the pension fund regains a funded status of 90% or more, the employee pension payments will be suspended and the full 6% of salary will go back into the individual account program. The funded status of the system stood at 72% at the end of 2019, though the way it is calculated for the purposes of the bill, including employers’ side accounts with PERS, the funded status was 79 percent.