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Oregon Supreme Court Upholds Certain Public Pension Benefit Reductions
The Oregon Supreme Court on August 6 upheld certain reductions in public employee pension benefits that state lawmakers passed in 2019.
Oregon Supreme Court Upholds Certain Public Pension Benefit Reductions
The Oregon Supreme Court on August 6 upheld certain reductions in public employee pension benefits that state lawmakers passed in 2019. As a result of the decision, employees will shoulder increased costs for pension benefits, and a $195,000 limit on the final salary will be applied in some benefit calculations.
An Oregon Public Employee Retirement System (PERS) coalition had asked the court to strike down parts of the state's pension reform law on grounds that the changes breached the PERS contract with workers and impacted benefits that workers had already earned.
The court concluded that the legislative actions—first, to divert a portion of employees' contributions to a new account designed to lower employer costs, and second, to institute a permanent cap on the salary against which benefits are calculated—only impacted future benefits and that the statutes at issue did not contain a promise that was “irrevocable.” The court did, however, reaffirm that benefits for service already provided are fully protected and cannot be changed.
The decision raises issues of generational equity, recruitment and retention, and what is morally right, said Aruna Basih, a partner with the Portland, Ore., law firm of Bennett Hartman, who represented PERS coalition members.
Starting July 1, 2020, people earning more than $2,500 a month lost a portion of the 6% of salary that previously went into individual account programs. Instead, the funds are being diverted into a new account to lower employer costs. The amount diverted would be either 0.75% or 2.5% depending on the employee's tier level. The diversion will stay in effect until the PERS fund is 90% funded, and it provides no benefit to members.
The salary cap change affects benefits after January 1, 2020, and the diversion affects benefits after July 1, 2020. Benefits earned prior to that remain protected.
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