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by Don Loving
Both current public employees and recently retired public workers were winners on March 8 when the Oregon Supreme Court released its long-awaited decision on the Strunk case — the PERS Coalition’s major lawsuit challenging the retirement system reforms passed by the 2003 Oregon Legislature.
The seven justice high court ""split the baby"" on Strunk, upholding some of the unions'' claims while rejecting other portions of the case. However, the unions
won the two major pieces of Strunk.
The first piece involves the 8 percent guaranteed return for Tier 1 PERS members. The ''03 Legislature tried to change that definition, saying the 8 percent rate
was guaranteed only over the life of a person''s career, not necessarily year-to-year. With that new definition in hand, the PERS Board gave Tier 1 members a 0
percent increase for calendar year 2003 ---- that is, no increase at all.
Can''t do that, said the court, and ordered those accounts to be made whole retroactive to the 2003 date. The PERS Board will actually have to do that at a future
meeting. It also means that Tier 1 members can rest assured they will also be credited with 8 percent for 2004; the PERS Board typically implements the latest
year''s earnings at its March board meeting.
The second win in Strunk impacts PERS members who retired between March 2000 and March 2004. The reform legislation alleged that the PERS Board
distributed ""excess"" credits for the 1999 earnings at its March 2000 meeting. Retirees would have to ""pay back"" that excess money, said the legislation, by
accepting a cost-of-living-adjustment freeze. How long the COLA freeze stayed in effect varied from retiree to retiree, depending on how much the amount of
their ""excess"" 1999 earnings was.
The Supreme Court struck down those provisions as well, ruling clearly that PERS had no right to go back and fix a perceived problem retroactively. Retirees
can expect to see the PERS Board credit their accounts with whatever COLA adjustments they missed.
The unions did not prevail on the issue of PERS updating its mortality/actuarial tables, which hadn''t been changed since 1978. While there were some technical
legal reasons to argue that piece of the legislation, PERS Coalition attorney Greg Hartman consistently said the mortality table issue was ""iffy"" at best, and it
was not a great surprise to lose that piece.
The biggest disappointment in Strunk was when the justices ---- on a 4-3 split decision ---- ruled it was OK for the Legislature and PERS to divert the
employees'' 6 percent contribution into a new, separate Individual Account Program (IAP) as of Jan. 1, 2004. This occurs whether the employees'' 6 percent
is""picked up"" and paid by the employer (which is the case in most AFSCME contracts) or paid directly by the employee.
This provision impacts members who expect to retire under the PERS Money Match program. Under Money Match, PERS (through the employers) must match
the dollar amount of the employee''s account balance. Employees who had a lot of money in the variable account in the stock market heyday of the mid- to
late-1990s saw their employee account balances soar, and when they retire, PERS has to match that amount. During those same years, the employer accounts
were not eligible for the variable funds, and so their piece of the pie did not grow as quickly as the employee accounts. Diverting the employee''s 6 percent into
the IAPs means that their overall employee account will not grow as quickly, which also means that when it comes time for employers to match it under Money
Match, there won''t be as large of a difference in the account balances.
Simply put, employees didn''t lose money per se. They still get their 6 percent, albeit funneled into the IAP. What they lost was potential increases at retirement
under Money Match, but the Supreme Court said that was OK.
Hartman notes that part of Strunk was a close call.
""We lost that piece on a 4-3 vote amongst the justices,"" said Hartman. ""Had we won that, this decision would have been a true grand slam.""
Without naming names, Hartman said he was surprised by who was who on the 4-3 split vote. One of the""swing"" justices Hartman thought he needed to win
this point voted with the unions, but one of the other swing votes ---- and one that Hartman felt comfortable that he had ---- voted the other way.
Technically, the unions lost one other point in Strunk, the issue of placing future contributions into the variable account. However, as Hartman points out, once
the justices ruled that the IAP diversion was legal, the future contributions issue was a moot point. That''s because it''s only the employee contribution that ever
was eligible for the variable account in the first place, and now that it is going into the IAP, it isn''t there to be invested in the variable account anyway.
Still, overall, it''s a win for the unions and their PERS members.
""The 8 percent guarantee piece is roughly half of the overall cost of the PERS reforms,"" said Hartman,""to the tune of about $4.5 billion. The COLA piece is
another $400 million plus, which means we got back about $5 billion. That''s a huge win, no matter what the other side may be saying.""
Hartman notes there is no reason for the PERS Board or the 2005 Oregon Legislature to panic and think they need to ""do something."" The PERS rates are set
on a two-year cycle, and the rates for 2005-06 have already been determined. The Strunk decision, says Hartman, will potentially impact PERS and the state
budget in 2007. However, good returns in the stock market in 2005 and 2006 could mitigate those numbers substantially.
""It''s wait and see time,"" said Hartman. ""There is no immediate crisis.""
The PERS Coalition staged a press conference to outline its reaction to the case. By agreement, each of the participating unions sent one member representative
to the event. AFSCME had a somewhat bigger role, however, in that the press conference was staged in the Southeast Portland front yard of Local 189 (City of
Portland) members Chuck Moffit and Robin Mariani-Moffit.
Linda Johnson of Local 328 (OHSU) was AFSCME''s designated member representative. Johnson, who has worked at the OHSU library since 1980, is 57 and
fighting some health issues. She had hoped to retire soon. The 2003 reforms changed that.
""I''m on my own and will really be dependent on my PERS retirement,"" said Johnson. ""It''s all I have. PERS may not have been perfect, but the 2003 reforms
made it worse. I''m grateful the Supreme Court stepped in and said that at least some of the cuts were not fair. But still, I won''t be able to retire for several more
The Strunk decision is 125 pages long, not including another 37 pages of dissenting opinion on various pieces of the case. Hartman and his staff, as well as
AFSCME staffers, are busy poring over the decision seeking to understand all of its points and nuances. It is important to note that Strunk is based entirely on
Oregon case law; therefore, the Oregon Supreme Court''s ruling is the final say. No part of Strunk can be appealed to the U.S. Supreme Court by either side.
However, when Strunk was filed, the PERS Coalition filed a parallel case (Robertson) in the federal system. That''s because employee pension law, though
similar, isn''t exactly the same under state and federal statutes. Through companion legislation, Strunk was ""fast-tracked"" directly to the Oregon Supreme
Court. The Robertson case continues to wind through the much slower federal system. Soon, Hartman will review Strunk and it''s decision relative to the
Robertson case, in an effort to determine whether it is worth pursuing in Robertson those points the unions lost in Strunk. Right now, says Hartman, it''s too
early to tell.
Finally, Strunk is only the first of several Oregon lawsuits dealing with the 2003 PERS reforms. Within 60 days or so, a Supreme Court decision is expected on
the City of Eugene case, better known as the""Lipscomb"" decision. City of Eugene shares many points of law with Strunk, and it''s possible union members
could see additional relief from the City of Eugene case ---- part of which targets how PERS credits interest on the variable accounts. Other suits are in the
pipeline as well, including the Lundgrencase, which takes aim at the 2003 Legislature''s HB 2020, which involves the ""break-in-service"" issues.