Oregon Supreme Court denies challenge to legislative changes to PERS benefits
On August 6, 2020, the Oregon Supreme Court denied the challenge brought forward by public employee unions regarding pension benefit reductions which passed during the 2019 Legislative Session through Senate Bill 1049. The lawsuit alleged that SB 1049 was unconstitutional and sought to overturn provisions of the law.
Here is a look back at the process of SB 1049 from its inception to the Supreme Court’s ruling.
PERS reform plan
During the 2019 Legislative Session, legislators responded to mounting pressure to address the rising cost of the PERS pension system through Senate Bill 1049.
The plan to tackle PERS costs was unveiled by Speaker Tina Kotek (D-Portland) and Senate President Peter Courtney (D-Salem). Under their plan, Tier 1 and Tier 2 members – those who entered the PERS system before 2004 – faced a 2.5 percent diversion from their individual account contributions to pay down the system’s pension debt. Tier 3 and Tier 4 members (those hired in 2004 or later) faced a lower diversion of 0.75 percent under their plan. Public employees earning less than $30,000 a year would be exempted.
Governor Kate Brown also presented her own plan to curb PERS pension debt, which ultimately did not survive.
Senate Bill 1049 passes the legislature
SB 1049 cleared its first hurdle in the Senate by passing with a bare 16-vote majority. Many legislators cited the difficulty of the vote, feeling torn between promises made to public employees and the need to address growing PERS costs. In a tense vote that followed on the House floor, Speaker Kotek was able to marshal the votes needed to pass the bill, but only after standing “at ease” for nearly 30 minutes while she lobbied members of her caucus. In the end, two representatives changed their “nay” vote to an “aye”, giving the bill the needed 31 vote minimum to pass.
The bill went to the Governor’s desk and was signed into law on June 11, 2019.
Lawsuit alleges Senate Bill 1049 unconstitutional
In response to the passage of SB 1049, public employee unions filed a lawsuit to challenge and overturn the new law in August 2019. Nine public employee union members filed the lawsuit – James vs. State of Oregon – with the Oregon Supreme Court, stating that the law unconstitutionally reduced pension benefits.
The lawsuit sought to overturn provisions of the law, including the diversion of a percentage of employee Individual Account Program (IAP) contributions to go towards paying down the PERS pension debt, as well as the Final Average Salary cap at $195,000. The lawsuit cited that these provisions were a breach of contract.
OPRI member survey shows support of lawsuit
OPRI members were asked in a survey if they favored of opposed OPRI joining with public employee unions to challenge and overturn SB 1049 at the Oregon Supreme Court. The survey revealed that 62 percent of members were in support of this action. OPRI joined in the court case challenging the new PERS law.
Oregon Supreme Court rules in favor of Senate Bill 1049
In a unanimous decision, the Supreme Court ruled that the changes resulting from SB 1049 were not a breech of contract because they did not retrospectively decrease retirement benefits. You can read the full decision from the Supreme Court here.
It is important to note that the passage of Senate Bill 1049 does not affect current retiree benefits. Changes to benefits only impact current public employees and future retirees.