On Thursday, Aug. 6, the Oregon Supreme Court upheld reductions made to public employee pension benefits that were previously passed by the Oregon Legislature in 2019. The reductions were made to help with the state’s growing pension funding deficit and increasing pension costs, which have been causing budget problems for public employers across the state.
This past August, nine public employees filed a lawsuit against two benefit reductions the Legislature voted on in Senate Bill (SB) 1049. The two reductions included requiring employees to share a portion of the cost of their pension benefits and placing a $195,000 limit on the final salary in some calculations.
The public employees’ lawyers argued that the reductions were an “impairment of contract under the state and federal constitutions, a ‘taking without compensation,’ and a breach of public employees’ PERS [Public Employee Retirement System] contract rights,” as reported by The Oregonian.
The court rejected the arguments unanimously, using a principle set in 2015 to argue for the reductions. The principle essentially established the Legislature’s right to change employee retirement benefits for the future, but kept benefits already earned as inviolable.
SB 1049 will have the most effect on longer-term employees and public employees earning the most in the state. The law also will redirect some of the required retirement contributions to an individual account, similar to a 401(k) that adds their benefits to help the pension fund.
Employees who make more than $30,000 a year and who were hired on or before Aug. 28, 2003 will now be required to contribute 2.5 percent of their salary to support the pension fund. Another 3.5 percent of salary will go to individual accounts.
Other employees who make $30,000 a year but were hired after Aug. 28, 2003 will contribute 0.75 percent of their salary to support the pension fund, with the other 5.25 percent of salary going to individual accounts.
If the pension fund is able to regain a 90 percent or more funding status, the employee pension payments will be suspended and the 6 percent of employees’ salaries will go back to the individual account program. At the end of 2019, the status of the pension fund was at 72 percent, but with calculations input for the bill, it stood at 79 percent.
The Oregonian reported, “The employee cost-sharing is expected to offset about $300 million in employer contributions statewide during the next two-year budget cycle. It is expected to reduce a 30-year employee’s overall retirement benefits by about 1 percent to 2 percent due to the reduction in ending balances in their individual account.”
However, the reduction regarding the $195,000 limit on final salary will affect fewer public employees. Those most impacted will be those who retire under the full formula retirement method. Oregon has fewer than 100 employees who made more than that amount in 2019.
The most important part of SB 1049 was an “accounting gimmick that decreased employers’ required contributions to PERS by extending the repayment period for its $24.5 billion deficit,” The Oregonian reported.
Many public employees were angered by SB 1049, including Jennifer James, a school secretary in Molalla who is the lead plaintiff in the lawsuit against the bill.
In a statement to The Oregonian on Thursday, James said, “We want to send a very strong message to the governor and the state legislature: enough is enough. With SB 1049 you impacted the people who work on the front lines during pandemics, natural disasters and states of emergencies to keep our communities safe and healthy…Workers are paying the price for the legislature’s unwillingness to keep their promises.”