*1 Argued July 30, 2004, Oregon 2003, 67, and chapter 5,6, submitted Laws sections 7, 8, by Oregon and chapter 10, 11, as amended Laws sections and void; Oregon 2003, chapter 67, 10(3), declared final sentence Laws section void; respects, petitioners’ declared in all other claims for relief denied or dismissed 26, 2005 April March reconsideration denied STRUNK,
Richard Larry Reed, Donald Booker, Carol Blumenstein, Lively, Alan Merlene Martin, Smee, William Jacobsen, Denise Rhodes, and Susanna
Petitioners, v.
PUBLIC EMPLOYEES BOARD, RETIREMENT Oregon, Oregon by through State of State of and Higher State Douglas Board of Education, North School County, District, Deschutes Portland District, School City Salem, South Lane District, School Oregon University,
and Health Sciences
Respondents. BURT,
Pamela
Nori Nancy J. McCann-Cross, Frost, Gerald Miller, B.
Bradd A Vicky Swank, Linda Zuckerman, J. Johnson,
Stephen Krohn, D. and Claudia L. Howells,
Petitioners, v.
PUBLIC EMPLOYEES RETIREMENT BOARD, County, Oregon Department Marion of Justice, Oregon Department Transportation, Oregon Department, Oregon, Judicial and State of
Respondents.
Dave DAHLIN,
Petitioner, v. PUBLIC EMPLOYEES RETIREMENT BOARD
(Dawn Morgan, Deringer, Janice Mark Gardiner, Garst, George Jeanne Glenn Harrison, Schwartz, Todd Bjerke),
Russell, Steven Kulongoski, Theodore Oregon, Governor, State of Respondents, OF OREGON CITIES LEAGUE Association, Boards School
Intervenors. EVANS, Daniel Wayne Dykes, Botwinis, French, Jim Charles
Gary Michaud, Harkins, and James
Petitioners, v. PASS,
CITY OF GRANTS County, County, Josephine Multnomah Oregon, City Eugene, and the State of Respondents. SARTAIN,
Martha Petitioner, v. BOARD, RETIREMENT EMPLOYEES
PUBLIC through Oregon, Oregon, and and State of State of Transportation, Department Oregon Respondents, and CITIES OF OREGON LEAGUE Oregon Association, Boards School and
Intervenors. WHITTY,
Michael O. Andersen, Ulsted, and H. Thomas Dennis Petitioners, v. BOARD RETIREMENT EMPLOYEES
PUBLIC Corporation, and SAIF Respondents, CITIES LEAGUE OF OREGON Association, Boards School Intervenors.
(SC (Control); S50647; S50645; S50593 S50685) S50532; S50686; Consolidated)
(Cases
149-b *6 149-c
149-d Gregory & Hartman, Morris Hartman, Bennett, A. argued petitioners Kaplan, Portland, the cause for LLP, Larry Booker, Strunk, Reed, Carol Richard Donald Lively, Smee, Martin, William Blumenstein, Alan Merlene him on the Rhodes. With Jacobsen, Susanna Denise Bennett, Masih, A. and Aruna were Michael J. Morris briefs Kaplan, LLP, Portland. Morris & Hartman, & Alexander, Swanson, Lathen, Alexander J. Michael argued for PC, Salem, the cause and filed briefs McCann, petitioners McCann-Cross, Burt, Nori J. Gerald Pamela Nancy Swank, Zuckerman, Frost, Miller, B. Bradd A Linda Vicky Stephen Johnson, Krohn, D. and Claudia L. Howells. J. Birmingham, Birmingham, Thorson &
Richard J. argued Washington, and filed Barnett, PC, Seattle, the cause petitioner Dahlin. the briefs for Dave Hoag, Eugene, argued petitioners the cause for
John E. Wayne Dykes, Botwinis, French, Jim Evans, Daniel Charles Gary With him on the briefs Harkins, and James Michaud. Daryl Garrettson, was McMinnville. Carney, Higgins Tongue, Dunn, Allen, & Talcott,
Brian R. petitioner argued cause LLP, Portland, A. him were Scott Martha Sartain. With on the briefs Higgins Carney, Allen, Hillas, Dunn Jonsson and James M. Tongue, LLP, Portland. & Whitty, Eugene, argued the cause and filed
Michael O. petitioners Ulsted and H. and for Dennis briefs for himself Thomas Andersen. Herrington Sutcliffe, LLP, & Baker, Orrick,
James P. argued and filed the California, the cause Francisco, San Employees respondent Board. Retirement briefs for Public argued Stephen LLP, Portland, Walters, Rives, Stoel S. Oregon, respondents State of and filed the briefs for the cause County, Oregon Higher Education, Marion Board of State Transportation, Oregon Department Department Justice, *8 149-e
Oregon Department, Kulongoski, Judicial Theodore and Corporation. SAIF himWith on the briefs were Charles F. Jeremy Amy Hinkle, Sacks, D. Andrew M. Altschul, and Edwards, Rives, LLP, Stoel Portland. Gary, Harrang Long Gary
William Rudnick, PC, F. Eugene, argued respondents the cause and filed the briefs for Douglas County, North District, School Deschutes Portland City School District, Salem, South District, Lane School Oregon University, League Oregon Health Sciences Cities, Oregon City Association, School Boards Pass, of Grants Josephine County, County, City Eugene. Multnomah and With him on the Rudnick, Lidz, briefs were Sharon A. Jerome Harrang Long Gary and Karla Alderman, Rudnick, PC, Eugene. Brunet, Portland,
Edward J. filed the brief for amici Oregon Oregon curiae Industries, Associated Business Association, Council, Business and Portland Business Alliance. Ledbury, Portland,
Ron filed the brief for himself amicus curiae. MUNIZ,
DE J. opinion. Balmer, J., concurred and filed an part part, Durham, J., concurred in and dissented in opinion Riggs joined. Kistler, JJ., filed an in which
149-f *9 DE MUNIZ, J.
These six original jurisdiction petitions, which we have review, consolidated for raise contractual and constitu- tional challenges certain amendments that the 2003 Leg- islative Assembly made to the Public Employees Retirement (PERS). System The amendments at issue derive primarily from two separate, related, first, but enactments. The House (HB) Bill (2003), Oregon 2003, Laws 67, is chapter known as the PERS Reform and Stabilization Act of2003 and alters PERS in a variety second, HB respects.
(2003), Oregon 2003, 68, Laws chapter affects the actuarial factors used equivalency retired PERS compute members’ service retirement allowances.1
We have considered both the factual and legal aspects challenges petitions present. Having so, done and for the below, reasons set out we conclude that the provisions Laws 67, as amended chapter by Oregon Laws chapter that eliminate the annual assumed earnings rate credit2 to PERS Tier One members’3 accounts impair contractual of the PERS obligation contract I, violation of Article section of the Oregon Constitution.4 We further conclude that provision *10 1 bills, legislature After the enactment of those made further amendments both, (2003); 2003, 625, to HB 3020 Or Laws ch and later HB amended 2003 even further, (2003); 2003, HB 2020 Or Laws ch 733. With the final form of the substan incorporated Oregon tive enactments now into the 2003 edition ofthe Revised Stat utes, promote there are a of number sources from which to cite. In an effort to clar ity, purpose, and unless to do would so detract from that we shall refer to the statutory provisions laws, designations e.g., “Oregon at their issue the session 2003, 67, 1,” chapter legislation Laws section refer to the as a whole as the legislation.” “2003 PERS 2 earnings The assumed rate is the rate of investment return that the Public Employees years. earnings Retirement Fund is assumed to earn over 50 to 75 That assumption funding necessary sys facilitates the calculation ofthe to maintain the actuarially assumption changed tem on an sound basis. The has from time to time. 1978, through earnings 1979, percent. From 1975 the assumed rate was seven In (PERB) Employees earnings the Public Retirement Board increased assumed 1989, percent. again, to rate seven and one-half PERB the rate this increased eight percent. time to its current level of 3 joined January 1, A Tier One member is PERS member who PERS before 1996. I, 21, Oregon provides, part: Article section of the Constitution * * * impairing obligation passedf.]” “No law of contracts shall ever be 10(3), Oregon chapter that, effect, 2003, 67, section Laws adjustments temporarily suspends cost-of-living annual of certain retired Tier One the service retirement allowances obligation In all members breaches an of PERS contract. respects, petitioners’ challenges other 2003 we conclude that legislation are not well taken.
PERS I. PRELIMINARY CONSIDERATIONS
A. Jurisdiction 17(1),
Oregon chapter 2003, 625, Laws section provides:
“Jurisdiction is conferred the Supreme on Court provided by determine in the manner this section whether implementation of actuarial equivalency factor tables 4, 68, under chapter Oregon section or Laws 2003 (Enrolled 2004), House Bill any breaches contract between Employees System members of the Public Retirement employers, any their or provision, violates constitutional including not impairment rights but limited to of contract members of the Public Employees System Retirement 21, I, under Oregon Constitution, section Article or 1, 10, I, clause section Article of the United States Constitution.”5
Oregon chapter 625, Laws 17a, section contains essen- tially operative wording, except grant identical that the jurisdiction pertains provi- to determinations “whether (Enrolled chapter Oregon sions of Laws 2003 Bill House 2003)” any any breach or contract violate constitu- provision. tional legislation jurisdic-
The 2003 PERS
contains other
quasi-jurisdictional provisions
tional and
as well. We have
jurisdic
This is not the first instance in which the
has conferred
specifically
validity
legislative
tion
on this court to determine the
or constitu
changes
prior instances,
necessity” required
tional
PERS. In
those
the “rule of
adjudicate
the court to
the claims. See
State Police
v. State
Officers’Assn.
356, 361
Oregon,
3, 918
(1996); Hughes
Oregon,
323 Or
n
P2d 765
v. State
314 Or
(1992) (both
doctrine).
discussing
5 n
152 every statutory jurisdictional prerequisite and, considered exceptions explained below, with the three have determined petitioners that each of the in each of these consolidated properly petition pres- cases is before this court and that each justiciable controversy.6 ents a
The first of the three claims that fall short of the jurisdictional justiciability requirements petitioner or Dahlin’s claim for relief under 42 USC section 1983.7With respect petitioner relief, to that claim for Dahlin states that advancing impairment arguments he “is tion no new under Sec [is] utilizing proce 1983, rather, but that section as a dural vehicle to claims raise his United States Constitutional * * * [and] by may as one method which he recover his costs- attorney Respondents assert, fees in this action.” cor rectly petitioner conclude, we Dahlin’s section 1983 legislature’s grant original claim falls outside the limited jurisdiction quoted Contrary peti court, to this above. implicit legislation tioner Dahlin’s multiple assertion that the allows presenting challenges, only “proce avenues for [s]” dural vehicle has authorized for legislation original review of the 2003 PERS in this court as petitions legislation matters are the Those to which that refers. petitions statutory do not include the federal claim provides. petitioner that section 1983 Dahlin’s section 1983 claim. We therefore dismiss problematic petitioner The second claim is Dahlin’s challenge legislation aspect to an that, 2003 PERS effectively, temporarily suspends cost-of-living annual (COLAs) adjustments as to certain Tier mem retired One 10(3), § See ch bers. Or Laws as amended Or parties during pendency and claims has number narrowed these bench, proceedings. perceive public, We of no benefit to the or the bar in explaining the evolution of these cases detail. provides, part: 42 USC section 1983 “Every who, any statute, ordinance, regulation, person under color of cus- tom, Columbia, usage, any Territory subjects, or State or or the District of subjected, any person causes to citizen of the United States or other be within jurisdiction any rights, deprivation privileges, thereof to the or immuni- laws, party injured
ties secured the Constitution and shall be liable to law, equity, proper proceeding redress!.]” at suit in or other an action (so ch providing). applies Laws Section 10 § *12 only members who: “(a) membership [PERS] Established before * * *;
January 1,1996,
“(b) Receive a service retirement allowance calculated 238.300(2)(b)(A); under ORS and “(c) Have an effective date of retirement is that on or 1, 2000, April 1,
after
April
and before
2004.”
10(5).8
2003,
67,
Or
however,
Laws
ch
Dahlin,
Petitioner
is
§
member,
not a retired
and,
as an active Tier One mem
ber,
provisions
that he
challenge
seeks to
respecting
COLA
do not
to him.
suspension
basis,
On that
apply
respon
dents
assert that he
jointly
lacks
to
that
standing
pursue
par
ticular challenge.
See,
We agree.
PSRB,
v.
e.g., Brumnett
(1993) (for
402, 405,
Or
Petitioner Dahlin’s
to avoid the
attempts
foregoing
conclusion are
First,
not well taken.
he argues that he has
his
as a
brought
claims
class action and
that “members of
class have
standing
raise this claim.” Regardless of the
of
legal
assertion,
validity
in the
or
nothing
pleadings
the record supports
the proposition
petitioner
Dahlin
sought maintain
class action. Second, petitioner Dahlin
argues
respondents have waived any objection to his
standing.
however,
Standing,
is an
of
aspect
justiciability,
Forbes,
433,
McIntire v.
426,
322 Or
909 P2d
(1996),
and
waivable,
is not
justiciability
Barcik v.
Or
Kubiaczyk, 321
(1995).
174, 186-87,
The third matter concerns claims that problematic Strunk petitioners Burt, have advanced —and in which Dahlin, and Evans have petitioners joined challenging — 14b(1)(b) 67, Oregon 2003, (2), Laws sections and as chapter 625, Oregon 2003, chapter 13(6), 2003, Laws section amended Laws 10, chapter applicable pay section to make that section as well to “the alternate ees and beneficiaries of members described subsection this section.” by Oregon chapter Laws section
amended provide as follows: which “(1) Board Employees If the Public Retirement [(PERB)] required to correct one or more the erroneous City Eugene et identified
benefit calculation methods 00C-16173, 99C-12794, Oregon, v. Case Nos. al. State of 99C-20235, [PERB] shall recover cost 99C-12838 erroneously paid to retired members as a result of benefits benefit calculations one or both of those erroneous following methods:
“(b) part present treat value may [PERB] all erroneously payable to retired paid of the benefits calculations as members a result of erroneous benefit Employees Retire- expense an administrative Public exclusively from future income of System, paid to be ment Fund, and to be amor- Employees the Public Retirement *13 actuarially period reasonable not to exceed tized over an years.
“(2)
may
cost of erroneous benefit cal-
In no event
City
al. v.
Eugene
in
et
State
culation methods identified
of
liability
charged
to
Oregon
employer
considered an
be
of
through employer contributions.”
employers
petitioners’
arguments
response
chal-
in
to
As one of their
14b(l)(b)
(2),
argue
lenges
respondents
to sections
and
adjudi-
yet ripe
challenges
or not
for
“are either moot
those
agree
the latter contention.
cation.” We
with
justi
long
that,
has
for a claim be
This court
held
controversy
present
“[t]he
as
facts
ciable,
must
involve
dispute
opposed
a
future events of
which is based on
to a
Oregon
hypothetical
Bar, 293
State
Or
issue.” Brown v.
(1982);
Funk,
rel
105 Or
see also State ex
v.
449,
This court best fulfills its
Appeals
laws of this state after a trial court and the Court of
opportunity
an
have had
consider and refine the factual
legal
e.g.,
Helicopter
See,
Western
Services v.
issues.
(“Our
Roger
361, 370,
311 Or
C. The Record appointed Judge The court now-Chief David Brewer Appeals Special Court of to act as Master on proceedings the court’s tiary hearing, behalf these and to hold an eviden- prehearing rule on matters, and make recom- findings Special completed mended fact. The Master assignment in fashion, and commendable his efforts warrant grateful acknowledgment. guided this court’s He these cases through evidentiary hearing, a two-week oversaw crea- prepared comprehensive tion record, of a voluminous report, including findings written extensive recommended report gone unchallenged virtually *14 fact. That has before this specifically adopted court, and, unless noted, we have those findings recommended of fact.
Although parties challenge only Spe- the a few of the specific findings they cial Master’s fact, recommended have freely evidentiary drawn from the record to advance factual Special assertions that were not contained the Master’s (but intervenors) litigation and the not defendants the in that have into a entered agreement provides, among things, settlement that PERB not other that will use remedy specifies the that methods section 14b to the errors the trial court identified. proved by report. appropriate is, As when relevant and —that preponderance inde- of the evidence—this court has made pendent findings response factual assertions. those Compel D. Motions Production preliminary Peti
We address a final consideration. proceedings, twice Dahlin, tioners in two of the Strunk and production Special compel the of docu moved the Master unsuccessfully sought they in dis ments that covery had to obtain respondent Employees Board from Public Retirement (PERB). production PERB had withheld of those documents ground documents, the which related to advice on the given concerning Attorney the that the General had to PERB compute equivalency factors used to retired mem actuarial lawyer-client privileged benefits, communi bers’ constituted production Special compel cations. The Master refused to the documents. petitioners Dahlin have and
Petitioner Strunk Special assigned rulings We the of the Master error. compel uphold Special production Master’s refusal to view, are documents, because, our the documents any proceedings. not claim issue in these relevant to at Having preliminary considerations resolved proceed present, to an overview of PERS these matters we generally parties and and their claims and defenses.
II. BACKGROUND history operation summary of the and A brief legislation changes that the 2003 PERS PERS, as well as argu- provide parties’ system, context made to “[t]he Special report, in his stat- As the Master noted ments. operational utory, administrative, historical, back- legislation against grounds the 2003 which both exceedingly complex.” The have are instant claims arisen heavily Special summary from the Mas- that followsborrows fully developed report. about More discussions ter’s written system particular aspects we set later as are out arguments. parties’ specific address the
157 Legislation10 A. PERS the 2003 Before 1. General Considerations Oregon provided pub- another,
In one form has its employees plan, lic with a retirement as a contractual benefit public employment, Funding system of since 1945. for the (1) employee comes from three sources: member contribu- (2) presently percent salary; employer tions, at set six of con- actuarially tributions, in an amount determined be neces- to sary employee when added to the member contributions projected cover cost of accrued and future service retire- (3) payable ment allowances ment members; to retired and invest- earnings assets, on those contributions. The taken together, Employees constitute the Public Retirement Fund (the fund) pay system: and are used to the costs of the mem- ber service retirement allowances and administrative expenses. Except funds, for variable account which we dis- commingled all below, cuss PERS funds are for investment purposes.
PERB administers PERS and acts as trustee for the through operations fund. PERB conducts its a director and employs, system staff that PERB and PERB administers the 11 actuary. in consultation with the PERS PERB sets employer adopts equivalency rates, contribution actuarial earnings factors and assumed rates, establishes reserve earnings accounts, and allocates annual to accounts and (OIC) reserves. The Investment Council invests the assets the fund.12 reference, present tense, For recognizing ease of we use that the 2003 legislation changed system significantly.
PERS has We have included citations place opinion, to various PERS statutes in before 2003 later this in the course analyzing petitioners’ claims. employs actuary perform statutory PERB the PERS various functions. 238.360(3)(b) (2001) (PERB See, e.g., arrange ORS shall for for actuarial services PERS); PERB). (actuary prepare reports ORS shall 238.605 trust, which, noted, PERB holds the fund assets in OIC Before the invests. legislation, 2003 PERS had OIC five members: three members whom Governor appointed, member; Treasurer; required one of whom was to be a PERB the State (appointed by PERB), nonvoting and the PERS director who was a member. ORS (2001). Treasurer;,the 293.706 OIC now six has members: the State PERS director (still member); nonvoting appoints, and four whom the members Governor none required whom to be a PERB member. ORS 293.706. PERS Funding Membership
2. become Public employees participating employers PERS six months of uninter- upon completing members Every regular has service.13 member rupted account consists of “account” in PERS. member’s earnings system the member’s contributions addition, PERB has credited those contributions. *16 annuity an variable optional the enacted are have their willing account for members who to program fluctuate with the markets. equity contributions and benefits account participates annuity A member who the variable a two member accounts: a account and regular has program contributions to their variable variable account. Members’ and are Annuity accounts are into the Variable Account paid in the Fund.14 solely Oregon Equity invested two of this there are cate- purposes litigation, For public “Tier are gories of PERS members. One” members 1, 1996. Tier joined January who PERS before employees rate of guaranteed are entitled to a minimum One members on the assumed regular on their accounts based return to pay rate. ensure that sufficient assets exist earnings To 238.015(1) provides: ORS system person may is in person a member of the unless that “No become public employer completed uninter- has six months’ service the service of a rupted by during working days the six months’ more than 30 consecutive employer Every employee participating a period. of a shall become member pay period employee system beginning of the follow- the of the first full the at ing period. new shall first be made Contributions for members six months’ performed by employee wages are services for those attributable regard period following period, during pay months’ without first full the six chap- wages purposes this for other under when are considered earned those public employers participating Employees Retirement All in the Public ter. amended, chapter 401, System by as at the Laws established state, partic- chapter, repeal districts ofthe shall of that and all school time ipate of, system, except in, as employees other- their shall be members specificallyprovided law.” wise proportion paying earnings first a on variable accounts PERB allocates expenses crediting the remainder mem and then ate share of administrative from variable account has funded reserve variable accounts. PERB never bers’ earnings. Annuity Historically, employer were not invested in Variable funds account, regular outperformed the To extent that that account Account. required to match those earn- employers additional amounts to contribute were Annuity began participating Account. 2000, employers in the Variable ings. In guaranteed benefits to Tier One at members the assumed earnings “gain-loss rate, PERS maintains a reserve.” In years earnings earnings rate, when fund exceed the assumed deposits portion earnings PERB of those excess into the gain-loss years earnings reserve. In when fund are less than earnings rate, the assumed PERB uses funds from the up reserve to make the difference. joined system
PERS members who on after January Unlike 1, 1996, are known as “Tier Two”members. earnings Tier One members, Tier Two members have no guarantee correspondingly, on their and, accounts do gain-loss not benefit from the fund’s reserve.15 Crediting annually of member accounts occurs year. beginning December 31 of each calender At the of each year, changes calendar PERB reviews value of the beginning previous year. fund since the PERB staff using accounting determines the fund’s value standard growth, methods. Based on the fund’s annual PERB allocates earnings “equal to various accounts within the on fund an crediting” every basis; is, dollar within the fund receives percentage regardless earnings the same share of designated.16 account to which that dollar is *17 actuary adoption The PERS also recommends the of employer contribution in an rates “Actuarial Valuation” that usually years. issues as of December 31 odd-numbered begin Employers paying newly established contribution rates July following year. Employer on 1 the of contribution rates opinion, petitioners part As noted later in this all who remain of these cases PERS, summary are Tier One members of either active retired. The offered primarily aspects below therefore focuses on to of PERS that relate Tier One members. 16 years earnings equal guaranteed In in which the on the fund or exceed the * * * earnings rate, statutorily required part PERB is to “set aside such of advisable, may exceeding percent [PERB] income as deem not and seven one-half income, moneys segregated the combined total of such which so shall remain in 238.670(1). the fund and constitute therein a reserve account.” ORS Before contingency account, statute, PERB funded a reserve set out as but it has not so done since 1979. began investing equity then, PERB the fund in markets. Since fund, earnings overall, substantially earnings actual of the exceeded assumed Historically, earnings rate. PERB credited members’ accounts with earnings earnings excess the assumed when rate fund exceeded that rate. employer’s components: normal cost toward consist two payment allowances and the of members’ service retirement necessary any amortize unfunded actuarial liabil- amount to (UAL). ity component employer of the con- The normal cost actuary’s on best estimate of rate is based the PERS tribution pay to service retirement allowances the amount needed adjustment The current members in the future.
employer UAL or sur- contribution rate either for actuarial employer’s plus an is based on the difference between projected and the future service retirement account balance employee payable If its an actuarial allowances members. employer pays surplus than normal exists, then the less employer UAL, has a then PERB adds an rate. If the cost charge employer’s normal cost additional, amortized rate.17 Formulas
3. Service Retirement Allowance calculating a for There are three formulas available commonly allowance, PERS service retirement member’s Annuity, Formula, and Plus the Full known the Pension Money Annuity, is avail- The Plus which Match. Pension only to PERS before able to members who contributed annuity component August the sum of an 21,1981, consists of annuity component pension component. is The com- and a posed equivalent account of the member’s of the actuarial pension component, funded balances at retirement. The percent employer, equal final to one the member’s (1.35 police salary legislators average percent and fire year. employees) for each service annuity compo- Full also includes an
The Formula equivalent composed of the member’s nent of the actuarial component; pension at retirement and account balances differently pension component is calculated however, the Annuity. Full first Formula under the Pension Plus than retirement allowance a member’s service calculates high period occurred average and the of 11.84 Between ranged normal cost average between 1975 and percent from zero to 1977 and rate at which for to a low of 9.15 employers 1979. 3.24 employers percent *18 ranged percent employer between paid payroll. payroll. amortized contribution rates 7.09 The Between 1975 and three UAL 9.33 highest UAL rates percent during ranged that same payroll, from a
161 average multiplying salary a member’s final factor set the (two percent percent legislators, police officers, at 1.67 resulting firefighters) multiplying figure by and and then the membership. years the That service retirement member’s equivalent using the allowance then is funded actuarial (the annuity the member’s account balances at retirement component) employer up required to contributions make (the pension component). the difference Money Match,
Under the a retire- member’s service by determining is ment allowance calculated the sum of the equivalent actuarial of the member’s account balances at (the annuity component) adding retirement and then a sum equal charged employer, i.e., in an that amount (the pension component). resulting “match” service retirement allowance therefore amounts to the actu- twice equivalent arial of the member’s account balances at retirement. retirement,
At a member a PERS receives service produces retirement allowance based on the formula that highest pension among foregoing amount three alterna- By tive 1980s, formulas.18 the late members who retired with years 30 of creditable service received a service retirement approximately equal percent allowance 63 of their final By average salary. early figure 1990s, had increased percent and, to 66 between 1996 and increased to 85 percent. average PERS retired member with 30 years age service at creditable retired of with a serv- equal percent ice retirement allowance to 106 of the mem- average salary.19 final ber’s
Money Master’s ically fluctuating monly may because, ice retirement ances would be service retirement cations, certain of PERB’s administrative become As the Until are Match had and the variable finding among referred to eligible Special allowances other calculated investment markets of the allowances because of PERB assumed that most member emerged Master noted in his reasons, receive are “replacement Money annuity under under as the any Match became the account not included the Full dominant Social practices concerning ratios,” replace (1) program. Security report, Formula. formula. understate in the late structure of member’s those primary benefits that member’s retirement 1990s and By We service percentages, the extent which serv agree formula for reserves, PERS; preretirement time, retirement early 2000s; with the retired member (2) however, earning the dramat which com calculating income. Special salary, allow allo
Regardless determine a used to of the formula allowance, PERS histor- retirement service retired member’s through ically annual COLAs. increased such allowance has and are Price Index on the Consumer COLAs are based Such capped percent If the member’s allowance. of each at two year, percent for the then two more than index increases may percent be added is “banked” two the increase above years the index in later when COLA to the member’s percent. two less than increases
Finally,
above,
described
to the
in addition
benefits
increase in ben-
receive an
before 1991
who retired
members
remedy
income
retirement
ben-
taxation on
to
unlawful
efits
efits attributable
generally Hughes
1991.See
to service before
(1992) (legisla-
Oregon,
1,
4. Recent following poor invest- the fund The fiscal status together with performances 2000, 2001, ment 2002— in fund liabilities and significant growth employer contribu- leg- tion rates —was the motivator of 2003 PERS primary See Or Laws Those generally (preamble). islation. ch much considerations of the focus of the provided parties’ advocacy before the Master and this court. As context Special cases, for the issues that we resolve in we these set out brief financial following status, discussion fund’s which we take from the Master’s Special report: biennium,
“For the of Oregon’s gen- [S]tate 2001-03 lottery budget eral fund and approximately was billion. $11 Oregon’s governments approximately local will collect year billion in own-source fiscal $17.8 revenues in 2003-04. comparison, In at end of the fund had a total UAL more than [based billion on the fair market $15 value of January 2003, fund assets]. the UAL reached bil- $16.41 During legislative session, lion. the 2003 the UAL exceeded *20 billion, but it declined by July $17 had billion $12.7 2003. 2000,
“Between 1991 and experienced the nation longest period sustained growth history. economic its During time, average investment return on the approximately fund was 15 percent per year. However, over system’s ratio, that same period, the funded which com- pares the value fund projected liabilities, assets to 1991, declined. In the fund’s value equaled amount of projected By its future liabilities. the value of the fund’s equaled percent assets projected its future lia- bilities. tions, on based then-current actuarial assump- actuary projected the PERS that PERS liabilities would approximately increase from billion in 2001 to $45 approximately billion 2007. In the actuary $65 also projected that the funded ratio would remain below 80 per- cent until 2010 and that the probably funded ratio would equal percent early not until 2027. In that ratio percent.” declined to 65.4
(Footnote omitted.)
B. The 2003 Legislation PERS
The following summary only addresses those changes the 2003 PERS system following legislation petitioners litigation.20 have in this challenged provide respecting particular provisions We the session citations to laws opinion. at issue later in the
1. Member Accounts legislation, all PERS noted, the 2003
As before directly contributed, either active PERS members employer pick-up,21 reg- percent to their of their salaries six Earnings also were on those contributions accounts. ular legislation, Under the 2003 PERS those accounts. credited to January are 1, 2004, made after all member contributions placed a new Indi- each member under an “account” for into (IAP) being Program credited to instead of vidual Account IAP held in members’ accounts. The balances annually at not less than credited accounts will hot be subject earnings retirement, will not be and, at rate assumed Money matching employer Match or be under by annual COIAs. enhanced Annuity Program Account in the Variable
2. Investment legislation, as of December 2003 PERS Under the may longer to the variable contribute 31, 2003, members no legislation annuity program. con- does not affect account variable accounts before credited to members’ tributions date.
3. The “Call" required explained has earlier, the
As “gain-loss” account, known as PERB to create a reserve years any fund in which deficit created reserve, to offset earnings By earnings statute, rate. the assumed fell below in a deficit reserve account maintain that PERB could not years. process position nating for elimi- PERB’s for more than five “call.”There to as the deficit has been referred such a five-year account, and, in the reserve deficit never has been implemented accordingly, the call. The 2003 has PERB never *21 respect- statutory provisions legislation the eliminates PERS ing call. the Crediting Earnings Accounts Rate and TheAssumed
4. of legislation, the the 2003 PERS noted, before As guaranteed PERB that all Tier One members PERS statutes 21 salary percent of statute at six are established Member contributions is, up,” by salary paid, “picked that or from the member’s either are withheld public negotiated separately historically between pick-up has been employer. The employees. employers and
165 regular annually earnings would on credit their accounts at a earnings rate no less than the assumed rate. 2003 PERS legislation, prohibits earnings however, allocation of regular any year Tier One members’ accounts in in which a gain-loss deficit in exists or reserve the allocation earn- ings gain-loss would cause a deficit in the reserve.22 The apply amendment does not to members who retired before April 1, 2004. For Tier One members who retire on or after regular date, that in amount their accounts at retirement cannot less be than amount that those accounts would have reflected if PERB had credited those accounts with earnings earnings every year at assumed rate for that the regular accounts existed. If a member’s account balance is respect, required pay deficient then PERS is the dif- gain-loss ference out reserve. Cost-of-LivingAdjustments
5. noted, As retired PERS members are entitled to annual COLAs on their service retirement allowances not to percent year. per legisla- exceed two Under the 2003 PERS tion, must for calculate two alternative service retirement April allowances certain who members retired on or after April 1, 2000, and before 2004—a “revised” service retire- ment allowance and “fixed”service retirement allowance. The “revised” service retirement allowance calculates the amount that the member would have received if PERB had regular percent credited all members’ with accounts 11.33 percent interest PERB that in 1999—instead of interest actually credited to members’ accounts for year.23 The “fixed”service retirement allowance essen- tially July “fixes”each member’s allowance 1, 2003, above, legislation, As noted before enactment the 2003 PERS PERB portion earnings set aside a fund annual to ensure that sufficient assets would be guaranteed years pay earnings available to benefits at the assumed rate. In when amount, earnings guaranteed deposited portion fund exceeded the PERB of those gain-loss According record, funds into the reserve. to the evidence in the it gain-loss projected reasonable to fund the at a level that would reserve fund Tier guaranteed which, earnings period, One using credits for a 30-month the current earnings percent, eight percent assumed rate of set the would reserve balance at of the fund’s value. crediting greater opinion. We discuss the 1999 detail later this At this point, percent figure we note the 11.33 on which the focused actuary performed, fact, derives from a calculation that the PERS after the earnings crediting determine the that would have occurred in 1999 if PERB had *22 (whichever is the later), date the member’s retirement effective subject legis- is an annual COLA. The then not to but provides the that each member in identified lation further “greater” group of the “revised” and “fixed” shall receive the service retirement allowances. Equivalency
6. Factors Actuarial adopted an rule PERB Under administrative that 1996, declared that it and later amended PERB by application equiva- of new actuarial reduce, would not (AEFs),24 lency the service retirement allowances factors joined system PERS laration before 1999. That dec- members who notwithstanding, legislation directs the 2003 PERS July updated beginning implementation 1,2003, AEFs thereby mem- and the AEF calculation for certain modifies system before 1999. Members who bers who entered day the effec- retired or before 2003—one before on June legislation tive service retirement date of new —receive using leg- place AEFs in before the allowances calculated system joined the All other members who islative reforms. July 1, retired will retire on or after before 1999 and who or receive retirement allowances are sub- will service legislation. ject allowances are determined to the new Those using produces greater calculations, oftwo whichever one requires AEFs at mem- first that the in effect benefit. The applied date be to member’s ber’s effective retirement an balance as of The second creates account account balance. only of the member’s contribu- 30, 2003, June tions that consists earnings Based credited as of that date. on and balance, the member’s service account PERB determines using AEFs in effect on June retirement allowance 2003. Their
C. The Parties and Claims parties following an and their overview report: Special primary Master’s contentions, taken from fully contingency gain-loss had also not allowed reserves and funded the year. Annuity employers participate Account for that in the Variable to equivalency opinion, explained “actuarial factors” in this the term As later lump account computational used to convert sum balances refers to tools payment optional monthly change form payment one benefit streams and earnings concerning assumptions future They primarily on another. are based mortality rates. investments “Petitioners are public current and former employees * * * [Tier One] who are members of PERS. Petitioners have [respondents] named as the State of and cer- (the agencies state), [PERB], tain state and various other (the public employers [respondents]). nonstate Petitioners each assert [under law] state the 2003 legislation impairs statutory contract petitioners between and their * * public *, employers breaches the statutory PERS con- tract, and property takes their just compensation without * * *23 petitioners *. Some of the also assert impair- contract takings ment and claims under the United States Consti- tution. Petitioners seek to many have of the provisions of legislation the 2003 declared unconstitutional and enjoin implementation. their Strunk, in Burt, “Petitioners the sources of their and rely, Evans cases claims, on the PERS statutes that existed before the enactment of the legislation and certain PERB administrative rules in effect leg- before the * * * islation’s enactment. Dahlin, Petitioners Sartain, Whitty and rely cases also provisions and, on those addition, assert that the PERS contract consists of other terms, including provisions employee handbooks, oral representations, or documents that PERS officials have provided to years. them over the petitioners’ Those claims allege breaches and impairments of contract and takings based on those purported additional terms. “The state has raised several petitioners’ defenses to (1)
claims. It asserts that the statutory provisions and other materials on which petitioners rely, part are not of the obli- gation (2) any contract they to which parties; are any impairment obligation petitioners’ PERS contracts (3) nonexistent; is insubstantial or tified any impairment jus- (4) important public purposes; petitioners and have no property legislation interest that the 2003 affects. v * * [respondents]
“Nonstate present a somewhat different array state, defenses. Like the they first many assert that of the provisions that petitioners seek to enforce are not statutory contractual promises. They also contend that the legislation did not impair breach or provisions those that constitute statutory promises contractual because it did change not substantially the prom- substance of those and, event, ises in any provisions none of the affected was beyond the legislature’s reach of the power of amendment legislation ‘only has They that the 2003 repeal.
or assert effects.’ prospective addition, assert that PERB [respondents] nonstate “In obligations binding contractual authority
lacked to create respect with to PERS petitioners themselves and between that, if such Further, [they] argue even PERB had benefits. rely petitioners on which authority, the rules and actions statute, contrary petitioners were unauthorized or them. resulting the benefits from right have no to retain has the According [respondents], to nonstate PERS levels. authority to determine benefit exclusive several affir- also have raised [respondents] “Nonstate of contract claims. petitioners’ mative defenses to breach statutes, rules, legislature intended the Assuming that the rely to constitute petitioners which and other materials on contract, perform- that their [they] PERS assert part of the (1) mutually mis- following grounds: ance is excused on PERB would administer the assumptions taken system in accor- provide manner to benefits prudent in a intent; impossibility legislative dance with hardship.” on extreme financial impracticability based omitted.) footnotes original; (Emphasis
III. DISCUSSION
*24
Legal Principles
Case Law and
Summary
A. General
of
of
for some
background
extent that it provides
To the
this court’s
follows, we
summarize
briefly
that
the discussion
760 P2d
306 Or
Oregon,
in Eckles v. State
decisions
Police
1,Or
and
State
(1988),
Oregon
Hughes,
356,
Hughes legislation repealed involved that had a state exemption specifically, leg benefits; income tax for PERS (1) exemption inapplicable islation had personal made that to state (2) repealed corresponding taxation; income and provision plaintiffs, pres in the tax statutes. The who were public employees, legislation challenged ent retired ultimately I, under Article court section and this held that statutory provisions, respectively, unconstitutionally two the impaired obligation
a contractual
and breached the PERS
significant
analysis
contract. 314
atOr
29-33.
our
Most
Hughes
here,
the court
concluded
“PERS
was
intended to be and is a contract between the state and its
employees!.]”
OSPOA involved
to Ballot Measure 8
(1994),
which had amended the
Constitution in three
(1)
ways relating
by mandating
public employ-
to PERS:
percent
public
ees make six
contributions to
retirement
plans,
correspondingly, by precluding pub-
if
covered, and,
so
employers
“picking up”
lic
from
contribution on behalf of
employee
by prohibiting
members;
their
the state from
guaranteeing a rate of return on
contributions;
retirement
(3) by prohibiting any
increase of retirement benefits
plaintiffs brought
based on unused sick leave. The
federal
impairment
challenges
amendments, and,
of contract
applying
principles
underlying
after
state law
to construe the
contract,
this court invalidated the amendments as
impairments
reaching
unconstitutional
of that contract. In
*25
25
noted, however,
plaintiff
sought compen
The court
that the
in Eckles neither
any
produced
damaged by
sation nor
evidence that he had been
the state’s breach
(1988).
Eckles,
380, 402,
contract.
Or
that
provisions per-
provisions
tory
is, the
at issue—that
PERS
employee’s
employer “pick-up”
contribution,
mitting
providing
earnings
for
guaranteeing
rate, and
an assumed
calculations —consti-
leave in benefit
ofunused sick
inclusion
applied even to work
that
PERS contract
terms of the
tuted
yet
performed.
Or at 372-79.
to be
from Eckles
considerations
note some
We
analysis
Hughes
guide
First,
cases.
in these
our
provision of
the contracts
clarified that
Eckles, this court
impairment
prohibited
of a contrac
I,
Article
section
obligation.
As to the determina
Eckles,
newer obligation, statutory preexisting the court contractual a change legislation eliminate would whether focused on By obligation at 399-400. Id. under that contract. the state’s legislation explained that mandated contrast, the court obligation— part a contractual of such on the state’s a breach obligation change not itself—did or eliminate did not but contravene that constitutional although, in accordance with I, section Article ordinarily legislation provision, such resulting damages payment from require would Id. at 400-02. breach. two-step process Hughes, out a this court set impairment under
addressing or breach contract a claim of 21: I, section Article contract exists whether a “First, determined it must be party; asserting impairment person ais an
to which the this a law of whether second, it determined and, must.be obligation impaired General that contract. ah state has inquir- normally govern principles both will law ofcontract party alleged to the con- to be ies, tract at issue.” where the state even analysis, ensuing the court inquiries: Hughes, In its at 14. 314 Or component question three into the first divided (1) (2) terms?; and its so, what are contract?; if is there a state provide? at 17-29 id. obligations See the terms do what inquiries). above, this Further, noted (engaging in those statutory Hughes constituted concluded court in Id. at 25. contract. Obligation Legislatures
B. Successive *26 presented
We
here,
underscore that the claims
part,
implicate
the most
concern contract formation and
what
“significant” proposition
this comethas described as the
that,
legislature may
if certain
met,
circumstances are
“one
bind
succeeding legislature
particular
to a
course of action.” Id. at
proposition
significant,
part,
13. That
in
because
“[o]rdinarily
it is the function of a
to make laws
Campbell
and not contracts.”
et
al.,
al. v. Aldrich et
159 Or
(1938).
208, 213,
when as the individuals, basis ofaction become equally contractsbetweenthem and the state. It is also well Legislature establishedthat the intention ofthe thus to cre- obligations,resulting extinguishment ate contractual governmentalpowers, clearly a certain extent of must unmistakably appear. The intention to surrender or sus- pend legislative public vitally affecting control over matters by implication.” welfare cannot be established mere Id. at 213-14. Analysis
C. Order of
preliminary
petition
aAs final
matter, we note that
arguments
implicate
ers’
arise under and
various sources of
presented
state and federal law. When,
here,
as
we are
with
multiple
disposition,
generally
bases for
this court
considers
hierarchically.
e.g.,
Kennedy,
the issues
See,
State v.
295 Or
(1983) (so stating; addressing
260, 262,
D. Petitioners’ State Law Contractual Claims petitioners
As above, Strunk, Burt, noted and Evans rely solely upon the PERS statutes and certain administra- they legislation tive rules as existed before the 2003 PERS as the bases for their is, contractual claims—that their claims legislation impairs obliga- that the 2003 either or breaches Whitty peti- tions set out in the PERS contract. Dahlin and They argue tioners, however, cast a broader net. that, addition to and administrative rule statutory provisions, PERS documents that PERB has contract includes provided moreover, to them over the also years.26 Whitty petitioners, their they on the handbook that received from rely employee rights. some of their contractual employer establishing the 2003 Finally, Strunk and Burt also assert that petitioners not the PERS contract but legislation only breaches that fol- resolving litigation also the settlement agreement lowed this court’s decision in Hughes.
1. Other Materials as Contract Terms Handbooks and
a. Whitty Petitioners SAIF, are each Whitty petitioners employees named PERB and SAIF as to their they respondents petition asserts, for review. brief Whitty petitioners’ opening part: “In the Strunk [arguments addition to the stated Petitioners, are Whitty petition relying upon [ers] *27 policy concerning written Respondent Corporation’s SAIF retirement, Handbook, Employee in the SAIF as stated * * * employer. part of their contract with their policy employee
“The SAIF also refers the to the Handbook, complete program.’ details of the retirement ‘for v ‡ in its retire- language Corporation
“The used SAIF ‘established,’ statement, ‘secure’ policy ment words such as * * *” language contract. ‘guarantees,’ respondents stipulation effect into a with Petitioner Sartain entered that, rely upon only statutory exception, and administrative with one she would establishing exception “a doc other contract. The was for law sources as the terms [that members] receive as the ‘Noticeof Entitlement’ retired PERS ument known petitioner opening upon Consistently stipulation, Sartain’s retirement.” with sources, following statutory includes the footnote: brief focuses on but also the contractual the PERS staff and PERB further confirms “The conduct of peti- and retirement allowance. At the time
nature of the account balance retirement, her account balance was she was informed that tioner Sartain’s * * * setting $289,633.41. her bal- her a of Entitlement forth PERS sent Notice $5,426.22.” monthly stating benefit would be ance and that her retirement footnote, however, argument authority support that would an no or contains through implicit PERB or its staff issuance that the conduct of assertion part do the PERS contract. We therefore somehow became notice of entitlement concerning challenge materials petitioner in our discussion not include Sartain’s rules) (and applicable in formation ofthe the PERS statutes administrative outside PERS contract. (1) response, respondents argue
In the PERS legislative delegate statutes do not reflect a intent to either to power legislatures; PERB or to SAIF the to bind future (2) legislature purported delegate even if the had power, delegation would be an unconstitutional abdica- (3) legislature’s lawmaking authority; tion of the if even such delegation permissible, were there is no evidence that the delegate authority intended to such to PERB staff opposed/to SAIF, or PERB; at least insofar as the employee promises nothing SAIF manual is concerned, it ability employees participate more than the ofits in PERS employees. like all other state reply, petitioners argue, part, as follows: Whitty
“Respondents argue that
policy
the SAIF
on retirement
and the PERS Handbook
part
are not
of Petitioners’ con
tract because the language of the PERS statutes does not
reflect an intent
delegate
power
to bind
legis
future
latures to an
agency.
administrative
The language of the
PERS statutes also
delegate
does not
Corporation,
to SAIF
any
governmental
other
agency
power
to enter into
any contract
Yet,
with its employees.
this court has held
that a Multnomah County Ordinance is a sufficient basis
* * *
for a retirement
Taylor
benefit contract.
v. Mult[.]
Depth]
B[d.],
Sher[.] Ret[.]
265 Or
“Asto whether the PERS part Handbook is a ofPetition- ers’ contract SAIF, with policy the SAIF on retirement incorporates the benefits conferred that Handbook * * * reference. It did not adopt the ‘legal Handbook as a ref- ”27 erence.’ 27Respondents argument contrary surreply offer additional in their advocacy, however, brief. That appropriate scope falls outside the of matters that properly may surreply. court, be petitioners addressed in Absent leave from this reply have the final Accordingly, word in as to issues in their case-in-chief. we have respondents’ surreply not respect. considered brief in that Petitioner Dahlin
b. asserts, brief part: Petitioner Dahlin’s opening statutes, rules, Dahlin relied on the “Petitioner estimates handbooks, and web site annual statements review of the retirement. Based on his planning his when PERS, Dahlin believed Petitioner communications from retirement greater Money produce that the Match would Petitioner Dahlin’s under- than the Full Formula. benefit would exceed Money Match calculation standing that confirmed benefit was the value of the Full Formula beginning he received from PERS annual statements that in 1998. * * * stated times, the PERS handbooks “At all relevant ‘ rights, you your cannot lose benefit “vesting” means ” working employment.’ in covered you stop even if argu- the same essentially offered
Respondents Whitty did to they Dahlin as response petitioner ments as follows: response their summarizing petitioners, rights his contract Dahlin asserts that “[P]etitioner —to and his from PERS handbooks they exist—arise extent annual statements, PERS statutes and in addition to the There has been no incorrect. This assertion is regulations. legislative allow the that would delegation PER[B] Indeed, such Legislative Assemblies. to bind future agency Moreover, these would be unconstitutional. delegation actually con- Dahlin relies petitioner documents on which legal ref- they are not disclosing the fact language tain statutes or of the PERS complete statements erences or any the statutes rules, of] event conflict [the and that in prevail.” rules shall states: Dahlin reply, petitioner con- the Handbooks that as of2001 respond
“[Respondents] if a conflict exists indicated that tained a disclaimer Handbook, the statute PERS statutes and between * ** will control. however, point missed the response, “[Respondents’] is not Dahlin Petitioner argument. Dahlin’s Petitioner statute, its the PERS that a conflict exists between arguing administrative Rather, Handbook. rules, the PERS *29 arguing Dahlin that the PERS Handbookis Petitioner is Oregon a with Lawand the lack of ‘reservationof consistent rights recognition an clause’is the of and embodimentof * * *” theory pensions. contract
c. Discussion petitioner Whitty peti
To
the extent that
Dahlin
argue
handbooks,
tioners
that
PERS
PERB
communica
employment policies
part
tions, and the
form
of SAIF
of the
contract,
PERS
court
we reiterate that this
has held that
statutory
Hughes,
PERS is a
contract.
agency authority or other subdivision of the state the to predicate question set the terms of the PERS contract, the legislature remains: did intend to do so? respect, petitioners point
In to no stat- indicating permit ute that the intended to PERB any entity general any or other matter set or alter statutory terms of the PERS research revealed contract.28 Nor has our own support any legisla- for the idea permit any governmental ture intended to PERB or other entity through policy handbooks, the issuance of state- — provide binding ments, summaries, account or otherwise —to pronouncements of the retirement benefits that PERS will provide. handbooks, We hold that the PERS communications employment poli- PERB members, from to PERS and SAIF’s cies do not constitute terms PERS contract. noted, respect concerning As with the administrative rules actuarial factors, equivalency petitioners, except Sartain, argue petitioner legis all that the specifically authority delegated adopt
lature to PERB rule at issue. We opinion. address that claim later in this directly separate holding
That
not meet
does
Whitty
legisla-
petitioners
argument
the 2003
separate
impairs
employment
their
con-
tion breaches
analogize
They
with SAIF.
those contracts
ordi-
tracts
nance at issue
Taylor,
analogy
to succeed provides employees policy that SAIF to its would have *30 ment to independent PERS. But that is not the case. SAIF not SAIF of be employees plan, a PERS retirement offers its the hybrid. plan And, as or sort of PERS we retirement some nothing above, in the PERS statutes indicates determined employers legislature public to authorize that the intended of the contract. set the terms PERS petitioner
Accordingly, reject arguments we of Whitty petitioners that the PERS contract Dahlin and includes terms outside the (and applicable statutes rules) argument Whitty petitioners and the of administrative impairs legislation breaches or their that the 2003 PERS employment SAIF. contracts with The Chess Settlement
2. subject to state PERS benefits were not Until (1989). ORS 237.201 or income taxation. local Supreme exempts that, held if a state United States Court pension paid state and local taxation benefits from state intergovernmental governments, principles tax local paid by pension immunity require benefits like treatment Treasury, Michigan Dept. government. Davis v. the federal (1989). At L 2d 891 803, 109 S Ct 103 Ed 489 US Oregon pension ben decision, Davis taxed federal time ofthe personal income. efits as
Responding decisions, the 1991 and other to that chapter Assembly Legislative Laws enacted exemption repealed benefits, for PERS tax 823, which personnel plan enforcement Taylor for sworn law involved retirement 445, 447, 510 Bd., County. Taylor Dept. P2d Sher. Ret. 265 Or v. Mult. Multnomah (1973). thereby equalizing and federal of state the tax treatment opinion, pensions. court in this noted earlier in this As exemption repeal Hughes the tax breached that that held Hughes, court, The how- Or at 33. the PERS contract. appropriate legislature “[t]he is the most ever, concluded among government in first instance to choose branch of the available remedies” Id. at 33 n 36. for that breach. remedy, class to enact a failed When litigation— litigation as the Chess which we refer action —to ultimately approved a settle- trial court in Chess ensued. The covering damages were PERS all PERS retirees who ment for repeal 1991 tax the effective date of the members before 1991). agreement provided (September 29, The settlement provided “[p]laintiffs agree accept the remedies payment legislation] complete [the for all claims as full and legislature adopted class] [the raised in actions.” The them at ORS terms of the Chess settlement and codified 238.375(3) provides: 238.375 to 238.380. ORS system beneficiary of a member of “No member or otherwise, system acquire right, shall contractual provided [ORS to the increased benefits 238.375 238.380].” implementation in an of those settlement terms resulted *31 employer approxi-
annual increase in contribution rates of amounting permanent mately percent, annual 1.4 years. expense that PERB assumed would continue for argue Oregon petitioners that Strunk Burt hy Oregon chapter 2003, 67, Laws 2003, Laws as amended generally, chapters 733, when considered breaches 625 and agreement analysis proceeds Their the settlement Chess. codifying PERB understood that the Chess settle- as follows: employer employer rates; ment increase contribution would result of that rates in fact increased as direct contribution chapter Oregon legislation; preamble 67, 2003, Laws was to address the states that one reason for the enactment employer that rates; some of increase in contribution legislation; and from the Chess settlement increase resulted therefore, “[t]o has lowered the extent that the part, of the benefits, PERS retirement at least because granted by legislation], [the increase repealed then it has in fact [that legislation].”
the benefits of Respondents disagree only reasons, various one Respondents argue, of which we need address. we conclude correctly, agreement by specific that the Chess settlement its petitioners’ rights terms limited legislation to those set out in the 1991 legislation expressly and that that disavowed the any rights. wording creation of contractual of ORS 238.375(3), settlement, which codified the could not be respect. Nothing clearer in that about the context of that wording perceive legislature’s alters what we to be the man- petitioners ifest intent. Because have failed to demonstrate a right chapter contractual Laws by Oregon chapters amended Laws 625 and capable breaching respect with settlement, to the Chess we reject argument. their Statutory
3. Petitioners’ Contract Claims We now turn to the central issues these cases— petitioners’ aspects is, contentions that various legislation unconstitutionally impair statutory 2003 PERS contractual
obligations out in set the PERS contract in viola- alternatively, aspects I, 21, or, tion of Article section legislation statutory obligations the 2003 breach contractual challenged set out in the PERS contract. We discuss each aspect legislation separately. of the 2003
a. Redirectionof Members’Contributionsto the IAP
(1) The Statutes legislation, noted, As before the 2003 PERS required employers contribute, members were contribute on behalf of their or to have
employee percent members, six of members’ salaries to those members’ set out the relevant statutes below. accounts. We 238.200(l)(a) (2001) provided: ORS system “An activemember ofthe shall contribute salary fund and there withheld from ofthe member shall be *32 percent salary.” six ofthat (2001) 238.200(2) provided, part: ORS provided as in sub-
“The contributions each member by employer of this section shall be deducted section by payroll employer from each transmitted [PERB], credited to the mem- which shall cause them to be ber account of the member.” (2001) provided, part:
ORS 238.205 “Notwithstanding any provision chapter, other of this section, subject provisions public and employer to the of this system may in the participating agree, a writ- employment policy agreement ten in effect on or after July 1, 1979, to the full ‘pick-up,’ pay assume or amount of to the all required contributions active members of the fund or less than all
system employed by employer.” however, The 2003 PERS legislation, amended ORS 238.200 to discontinue contributions PERS fund: [PERS], employer
“a member of or a participating acting on 238.205, pursuant behalf of the member mitted or fund for service to ORS is not per required employee to make contributions to the
performed 1, January on or after 2004.
Hi Hi ‡5* as amended 2003, 67, Or ch 1(4), 2003, Laws Or Laws ch § 238.200(4). as ORS 625, 9, Instead, all PERS mem- § codified bers who established in the before membership system 29, 2003, now are August members of the IAP. ORS 238A.305(1). 1, 2004, As of those January per- members’ six cent contributions —which remain into mandatory go —now accounts, their IAP rather than into their regular accounts. as ORS 2003, 733, 32, 34, 35, Or Laws ch §§ codified 238A.330; before, ORS 238A.335. As still employers may agree to the six pick up percent 2003, contributions. Or Laws as ORS ch 733, 34, Each IAP 238A.335. account is § codified credited with on the earnings losses member’s contribu- tions, 733, less administrative Or expenses. Laws ch 238A.350(1). as ORS 37(1), Upon retiring, § codified receive, member will in a payment, sum the full lump account, amount of that IAP Or member’s Laws ch 41(1), 238A.400(1), any ORS addition to § codified retirement benefits for work before performed January 2004, to which the under as it may member be entitled legislation. Alternatively, the 2003 in lieu of
existed before the lump payment, may sum member elect to receive the *33 paid 5, amount in his or her LAPaccount installments over 41(2), years. § 10, 15, Or Laws ch or codified 238A.400(2). ORS opinion, although As noted earlier this PERS members will receive at retirement the balances held in their (1) guaranteed accounts, IAP those balances are not annual (2) crediting earnings rate; at not less than the assumed at (3) subject Money retirement, Match; will not be and at Respon- retirement, will not be enhanced annual COLAs. dent State of characterizes the LAP accounts as 401(k) typical “invested and credited the same fashion as a agree general description. account,” or IRA and we with that Arguments The Parties’ petitioners, except petitioner challenge Sartain, All the discontinuation of PERS members’ regular to their contributions argue
accounts.30Petitioners that the 2001 versions the statutes set out above Act, unquestionably part integral “were of the PERS were Act, unambig- under the were the calculation benefits language excluding uously promissory, [and] contained no gen- future from the contributions attributable to service protection right eral and no reservation of contractual future amendment.” support petitioners note that assertion, of that ORS (2001), provided
238.250 which for the account (as do), virtually that statute continues to has remained unchanged adoption retirement act since the ofthe first state in 1945.
Although petitioners that amounts from each note payable IAP account will be at retirement as member’s employer matching application lump sum without legislation that COLAs, that is not the effect of the annual argue primarily they emphasize. petitioners that, Instead, earlier, challenge legislation petitioners as it As noted all the 2003 summary arguments ensuing parties’ to Tier One members. Our relates focuses, part, analysis Tier members. likewise for the most on One diversion, employ
“[a]s a result of this most mid-career option retiring Money ees will lose the under Match and will find their calculated under the less generous benefits * * * (2001), full formula benefit. Under ORS 238.300 how ever, petitioners promised were calculation oftheir benefits produce highest under the formula which would value. * * * By contributions, diverting their Section 1 of HB 2003 1], effectively [Or Laws ch petitioners denies § 238.300(2) protection the contractual afforded ORS (2001).[31] OSPOA,[32]
“As it did in this this court should find that permanent petitioners’ statutory elimination of right to pension receive a calculated on the full value of their [,] including account future earnings contributions and thereon, impairment constitutes an of their PERS contract [,] minimum, or at a promise breach ofthe contractual all member contributions earnings would be directed to *34 maintained that PERS member account.”
Respondents counter that PERS members’ contri- butions to their regular accounts are an on each obligation part, member’s rather than a contractual right that inures to each member’s benefit. To the any extent such promise exists, continue, respondents there is no in the text support or context of the PERS statutes a legislative for promise members could continue to contribute to their accounts throughout their PERS membership. assert that
Respondents that conclusion is bolstered that, the fact when the the Full For- legislature adopted mula in it reduced the contri- simultaneously statutory of higher compensated butions PERS members from seven (discussed to six ch 1 percent percent. Or Laws § below). reduction, further Such a they argue, is inconsistent with a would legislative understanding that PERS members provides calculating ORS retire 238.300 the various formulas for service allowances, greater ment and we discuss those formulas in detail below. earlier, OSPOA, 374-76, that, explained As this at court concluded 323 Or case, particular statutory pro as at issue in the context of that certain contribution (including optional employer “pick-up”) visions of the PERS constituted terms contract. perpetual right sys-
have a to maintain contributions to the particular legislature Otherwise, tem at a have level. would grandfathered who, those members before were required percent salary pre- to contribute seven so serve the amount of benefits that those members would receive at retirement.
Responding petitioners’ assertion that most mid- effectively option career PERS members will lose the ofretir- ing Money respondents Match, -under the counter that the only require PERS statutes that a receive a member service pro- retirement allowance calculated under the formula that highest pension amount, duces the whichever formula that may they legis- indication, contend, be. There is no that the option lature intended that members would have an to have par- their service retirement allowances calculated under a ticular Money formula, Moreover, Match or otherwise. respondents wording assert that certain in the PERS stat- Money utes indicates that the intended the Match any the floor for and, be service retirement calculation con- sistently proposition, with that either the Full Formula or Annuity provided highest the Pension Plus ment allowance for most members before the mid-1990s.33 They service retire- legislation, that, conclude under the 2003 PERS mem- bers still will have those retirement benefits that derive from their member accounts as
they existed before the 2003 PERS legislation, calculated on the full value of those accounts. As upon petitioners rely, to the other statutes which ORS employer (permitting pick-up) and ORS 238.205 (2001) (requiring provide regular 238.250 PERB to accounts earnings), showing respon- members, contributions and argue legislation dents that the 2003 PERS does not alter the Match, Concerning genesis Money Special Master noted as *35 follows: mid-1950s, Money employer an “In the PERS was a Purchase Plan with 1968, Money
matching repealed, Plan and it was feature. In Purchase was Annuity recog- replaced formula. PERB later with the Pension Plus benefit nized that one or two members who retired in the interim had received lower system they previous under the and that benefits than would have received permissible plan qualified under a retirement that is such a reduction was not (IRC). PERB asked the to enact under the Internal Revenue Code pro- legislation would be corrective so that benefits earned such members and, matching response, legislature reinstated the feature.” tected pick-up provisions and that the directive for PERB to estab- regular nothing more lish PERS accounts for members is obligation imposed “maintain than “a clerical on PERB” to appropriate record-keeping regular on accounts.” member’s respondents petitioners’ only- end,
In the assert that complaint respecting true the redirection of PERS member projected IAP contributions to the is that their future service legislation retirement allowances under the 2003 PERS will high not be as the as those have allowances would been without legislation. although respondents agree And, that such they disagree petitioners’ case, will be the with claims that complaint has either contractual or constitutional consequences.
(3) Discussion begin noting prehminary We some considerations. “accepted proposition First, we are mindful that the background” contractual nature of PERS is an essential inquiry. Hughes, although peti our 314 Or Further, at 22. significant analysis tioners cite a number statutes as to our challenge of their to the redirection of member contributions IAP, we conclude that the service retirement allowance provisions, (2001), formula set out in ORS 238.300 viewed in petitioners context with other statutes that cite, are the most analysis, explained central to our as below.34 petitioners’ analysis noted, As the crux of is that the regular diversion of contributions from PERS members’ accounts to IAP accounts employees means “most mid-career option retiring Money
will lose the
under
Match
34Relatedly,
respondents’
we decline
invitation to construe certain of the stat
utory provisions
particularly,
(2001),
required
at
ORS 238.200
which
mem
issue —
percent
fund,
(2001),
bers to contribute six
of their salaries to the
and ORS 238.250
(and
required
requires)
provide
which
still
PERB account for each
Rather,
contentions,
petitioners’
member —in isolation.
as we address
we must
wording
statutory provisions
view the
of all the
at issue in the context of their col
operation.
Hughes,
(rejecting
argument
imper
lective
See
ORS 238.300 as follows: provided, part, “Upon retiring age from service at normal retirement or thereafter, system of the shall receive a service member retirement which the following allowance shall consist of annuity pensions:
“(1) annuity A refund which shall the actuarial be equivalent of accumulated contributions the member and interest thereon credited at the time of retirement
“(2)(a) (nonrefund) pension A life for current service provided by employers, pension, the contributions of which (b) subsection, an subject paragraph of this shall be which, annuity added to ofthe under amount when the sum (1) annuity, any, pro- if subsection of this section and payable vided on the same basis and Annuity from the Variable Account, both annuities considered on refund basis, results in a total of:
“(A) firefighter, For as a officer or two police service percent average salary multiplied by of final the number of * * years membership system in the *.
“(B) Assembly, Legislative For serviceas a member ofthe average salary multiplied by two of final the num- percent ** years membership system in the *. ber “(C) officer, than a fire- police For service other fighter Legislative Assembly, percent of the 1.67 member years of average salary multiplied by final the number of * * system *. membership “(b) at least: pension A under this subsection shall be 238.300; however, Assembly Legislative those The 2003 amended ORS that we discuss above. See Or amendments do not affect the formula calculations 625, 22; 67, 4, ch Or Laws ch § Laws ch as amended Or Laws § 733, § 46e.
“(A) equivalent annuity provided The actuarial by the accumulated contributions of the member.
“(B) For a who before member made contributions August 21,1981, equivalent pension computed pur- of a suant as it immediately to this subsection existed before that date.” plain pro- matter text,
As a ORS 238.300 vides, that a first, is entitled to receive a service member by multiplying retirement allowance that calculated average salary by percent member’s final general a factor of 1.67 *37 employees multiplying resulting and service then the figure by years membership. the member’s That service annuity compo- retirement allowance then is funded an (consisting equivalent nent of the actuarial of the member’s retirement) pension component account balances at and a contributions). (2)(a) (consisting employer 238.300(1), ORS (2001). That is the Full Formula. pension component However, if the as calculated equivalent under the Full Formula is less than the actuarial annuity component of the based on a member’s accumulated fund, contributions the then the member is entitled to pension higher component composed receive a is, one —that equivalent of the actuarial of the member’s accumulated (2001). 238.300(2)(b)(A) contributions. ORS That is the Money (i.e., employer-funded pension component Match the annuity component). “matches” the And, member’s if a mem- August pen- ber contributed to 21,1981, PERS before the and component sys- sion calculated that member based on immediately provides tem as it existed before that date higher pension component than ones calculated under the Money Full Match, Formula and the then the member 238.300(2)(b)(B) higher pension receives the ORS amount. (2001). Annuity. is the That Pension Plus (2001) (and provided words, other ORS 238.300 provides) still that a retired PERS member receive a will final service retirement allowance that is calculated under yields the one formula the three above that described highest pension member, amount for that whichever formula may appears time, At the that, be. same it to us notwith- standing placement the somewhat awkward ofthe words “at 238.300(2)(b) (2001), legislature intended
least” ORS to primary gener- and, Full as the formula set the Formula ally, designed provide a Formula so minimum Full pension component should fall. level which the not below significantly, which, Full is Formula, That is so because the 238.300(1) parts statute, in the first ORS set out two (2)(a) (2001), vary a defined benefit that does and sets not depending earnings on fluctuations in or on the size of the member’s annuities from the Thus, and variable accounts.36 context, in that “at least” in ORS words 238.300(2)(b)(2001)refer to a calculation ofthe Full Formula pension component equals or of a exceeds a calculation Money pension component calculated under the Match (based on the accumulated contributions to the member’s (based fund) Annuity statutory the Pension Plus on earlier requirements). importantly, wording of ORS More 238.300
(2001) Through unambiguously promissory. statute, continuously unequivocally has commu- they that, if retire from service at nicated to members they pension compo- age, will receive a normal retirement that, final when nent oftheir service retirement allowance equivalent their accumulated combined with actuarial of of the Full Formula fund, contributions amount based will consist upon average salary, years service, final any equals pension component of service that or exceeds *38 class (2) in formulas; two the event calculated under the other pension short, a com- that the Full Formula calculation falls Money ponent the the Match or Pension calculated under Annuity. obligation set short, In the state’s out Plus provide a final service retirement ORS 238.300 is to annuity pension up component and a made of an allowance component at the minimum level above. described (2001), which includes
The context of ORS 238.300
legisla
through
development
successive
the
of the statute
Dept.
331,
Rev.,
326,
320
187 (1994), reading. predeces- and confirms that ORS 238.300 its (1993), part statute, ORS 237.147 have been a sor former the PERS statutes since the creation of PERS 1953.37Dur- years, provided ing those 50 the benefits that PERS has calculating changed considerably. the manner for them have legislature Special noted, As the Master when the created system provided Money PERS, the Purchase Plan with an component. matching employer 1953, 200, See Or Laws ch formula).38 (setting goal § out stated 18 benefit of that annuity formula, once with an funded combined member provide employees ineligible contributions, was to career for Security program approximately federal the Social one half average eligible salaries; of their final Security, for those for Social target § the less. was Id. at 13. legislature target replace- 1955, the increased the percent average salary,
ment ratio from
50 to
of final
5(2).
including
Security.
§
Social
1955,
131,
Or Laws
ch
That
enactment also modified the
rate
member contribution
provide
making
per year
$4,800
members
more than
equal
salary
percentage
elect
could
excess of that
to contribute an
“purchase
which
amount,
would
contributions
[ ]
at retirement
will
additional benefits which
be matched
employer.”
Id.
legislature repealed
provisions
In 1967, stat-
ing target
goals
calculating
retirement
mem-
abandoned
strictly
assump-
ber contribution
based
actuarial
rates
on
opting
straight percentage-of-salary
tions,
instead for a
§
1967,
622,
See Or
ch
model.
Laws
4. The
also
Annuity,
enacted the Pension Plus
under which retired mem-
(based
annuity
would
bers
butions and
receive an
on accumulated contri-
earnings)
pension
and a
calculated as the actu-
equivalent
percent
average
arial
salary
of 1.67
ofthe
final
member’s
(1.92
general
employees
percent
service
for fire and.
Employe[e]s
The 1953 act was
the “Public
Retirement Act
entitled
of 1953.”
1953,
predecessor scheme,
similarly
§
Or Laws
ch
1. The
in 1945 and
enacted
Act,”
similar,
to,
Employees
named
“Public
Retirement
but not identical
was
act,
eventually
(enacting original
PERS.
ch 401
named
See Or Laws
act).
general
relationship
acts,
For
discussion of
between
1945 and 1953
Hughes,
see
police employees) to 30 service). (25 police years years general fire service for for Finally, legislature repealed § 1967, 622, ch 13. the Or Laws calculating pension matching employer the method for the component. Id. legislature employer restored the 1969, Match”) (now “Money
matching as one known as the method component determining pension ofretirement method for Money and the Pension Plus As Match benefits. Annuity, between pension compo- provided that the the amendment retirement allowance “shall be at least nent of a service annuity provided by equivalent the accumu- actuarial [member].” 1969, 640, ch of the Or Laws lated contributions 7(2)(b) added). (emphasis § changing multiplier the Pension Other than Annuity, § 1973, ch 1971, 738, 2; ch Or Laws Or Laws Plus years 30-year removing on § limits 695, 4, the 25- including legis- membership, § 1971, 738, 2, ch Or Laws legisla- system, § 1975, 137, 3, ch in the Or Laws lators way any significant in the PERS statutes ture did not amend legislature year, Full For- added the In that until 1981. greater has remained above, detail which mula, described substantially unchanged Or Laws ch since that time. § 761, 4.39 fully develop below, the evolution we more As calculating setting
statutory provisions formulas for out the view, allowances, in our retirement PERS members’ service preliminary drew from conclusion that we with the accords (2001). contrary examining is, That 238.300 the text of ORS promise petitioners’ arguments, did not Money Match so that the would be maintained that PERS primary retirement member service calculator of remains the grad Assembly note, Legislative amended the respondents also the 1981 As instead, salary, providing, that the based on rates for members uated contribution percent made less withholding unless the member would be six for all members month, ch $1,000 withheld. Or Laws per which case less would be than (1981). statute, num 1; now 237.071 As amended substantially § ORS former unchanged. 238.200, remained as ORS has bered presently happens allowances, ally it which to be because it usu- statutory Instead, is the most remunerative. evolu- legislature promised tion that the demonstrates mem- *40 bers would service receive retirement allowances calculated yields highest pension under whichever formula the amount for that member and that the Full Formula calculation ordi- narily equal Money or should exceed calculations under the applicable, Annuity. or, Match if the Pension Plus assessing import statutory Before the of the context ascertaining above, set out we must that we ensure are legislature inquiry intent the correct that is critical —an analyzing statutory when fundamental legislative so contracts. That is because the purpose behind to such contracts is bind future (dis Hughes, generally action. See Or at 13 cussing binding succeeding legislature). effect of To know legislature a bound, when which is so we first must determine legislature statutory operative enacted the contract. general recognized
As a
matter, this court has
sev
principles
applied
eral
that it has
at the first level ofthe PGE
analysis,
at 610-11,
317 Or
assist in
the construction of
amendatory
principles
presumption
One of
acts.
those
is the
changes
language
that “material
in the
of the statute create
changes meaning.”
Myers,
material
in
213,
Carlson v.
327 Or
(1998).
corollary
pre
225,
follows,”and the section
set
is then
forth with
portions
made,
intended to be
those
of the
sectionthat
old
merely copied
change
are
into the amendment without
are
not to be
as
considered re-enacted or as a new statement of
part
law,
statute,
but
to be
are
read as a
the earlier
if
passed
in conflict with another law
after the section
amendatory act, unless
amended and
there is a
before
legislative
contrary.
clear manifestation of
In the
intention the
change
intention,
such an
it
absence of
is the
or the
only
incorporated
additions
in the
amended
that are
section
”
to be consideredenacted.’
Corp.,
418,
v.
Or
Jones General Motors
P2d 608
(1997) (quoting
Hatton,
Allison v.
46 Or
With the following progression statutory benefit for- from the through pro- did not mulas over time. From 1953 any Instead, level of vide members with minimum benefits. only earnings in members received their the contributions and employer pension equal matched an accounts earnings. key And, amount. variable that formula was only earnings provided hope petitioners note, those “the annuity achieving would have an which that members goals system.” approached repealed changed That 1967, when employer-matching replaced it alternative and with the Annuity. system, Plus a retired PERS Pension member Under component pension guaranteed minimum was annuity would be to whatever that the contribu- added provided, earnings *41 the had tions and on member’s accounts earnings good Thus, those had unlike whether the earlier been bad. placed employer-matching method, had the which members, loss on under the Pension Plus risk investment Annuity, expect level of could some minimum ben- members earnings the risk of shortfalls with efits shared employers. legislature reinstated what is noted,
As the Money as an additional formula to now known the Match as pension component service retire- calculate the of member’s amendment an could have been ment allowance. Such meaningful only legislature legislative act if the contem- Money might plated for retired mem- that the Match some pension expectation, provide higher amounts. Such an bers legislature support the however, does not the conclusion that promised always case. that would be the members that change
The determine to be relevant final that we calculating understanding for the evolution of the formulas the 1981 with cre- retirement allowances occurred service ation legis- amendment, of the Full Formula. With that provided a formula lature, time, members with first earnings fell—and continues which risk of loss under squarely employers. changes on that the 1981 fall— (1979), amendments made to ORS 237.147 now ORS former they primary 238.300, were material: new, added a benefit system calculator to the and shifted the downside risk of away presume investment return from members. Because we legislature changes that intended those material change meaning materially ofthe statute well, we con- clude that the 1981 amendment effected a reenactment ofthe provides entire section and the version ofthe statute to which ascertaining legislature’s promissory will we look in intent.
Having chapter concluded that Laws operative statutory section enacted the contract that (and is now embodied in ORS 238.300 also was embodied in (2001)), nothing statutory ORS 238.300 we find about the law preceded the 1981 amendments to ORS 237.147 former preliminary that detracts from the conclusion that we wording (2001), drew from the of ORS 238.300 is, Legislative Assembly promised the 1981 that, on retirement, PERS members
they
would receive the retirement for-
yielding
highest pension
mula
find
amount. Nor do we
any contrary
upon
intent revealed in the other statutes
petitioners rely (concerning
percent
which
six
member con-
reg-
tributions and direction of those contributions to PERS
accounts).
ular
Our case law is consistent with that conclusion. As
parties
an
prior
matter,
initial
have not directed us to a
interpreting
statutory provisions,
decision
the relevant
Looking
broadly
we have found none.
more
to this court’s
prior
involving
petitioners place heavy
decisions
PERS,
reli-
ance on this court’s
OSPOA,
decision in
reached after (2001).40 Legislative summary, conclude that the 1981
In we eligible Assembly promised retirement, that, member at each a retirement entitled to receive service the member would be yielded calculated under the formula allowance legislature highest pension not alter or The did amount. promise 2003 PERS it enacted the when eliminate legislation. statutory however, that contend,
Petitioners
just
obligation
have
includes
that we
described
contractual
right,
promise
have the
that PERS members
an additional
membership,
during
to contribute a
oftheir PERS
the course
salary
percentage
so
their
accounts
oftheir
certain
as to increase the
pension amount
value of their ultimate
disagree.
Money Match. We
under the
238.200(l)(a) (2001),
Nothing in the text of ORS
percent
required
six
PERS members to contribute
which
argument
petitioners’
supports
fund,
to the
their salaries
legislature
immu-
to be
intended that contribution
that the
Assembly
Legislative
low-
earlier, the 1981
table. As noted
high
per-
a
of seven
rate from
ered the member contribution
percent.
time, And, at the same
to a uniform six
cent
previously paying
legislature grandfathered those inembers
though
percent,
it
even
rate of less than six
a contribution
balances, and therefore
those members’ account
meant that
ulti-
members
that the
retirement allowances
the service
Money
mately
under the
receive, would be smaller
would
238.200(l)(a) (2001)
words,
text of ORS
In
Match.
other
clearly
statutory
and unam-
context do not establish
and its
promise
biguously
members
intended
Taylor,
argue
brief, petitioners
that this court’s decision
reply
also
In their
developing analysis
pen
pivotal
more
case in this court’s
265 Or
“is a much
sys
county
Taylor,
retirement
involved a
which
than is OSPOA.”
sion benefits
comple
rights
prior
acknowledged
can arise
tem,
that “contractual
the court
they
necessary
pension.”
course
can.
accounts their PERS pension component calculation under the to maximize their Money Match. foregoing petitioners’
Applying the conclusions to claims that the redirection of PERS members’ future contri- legislation, IAP,. in butions to the as set out the 2003 PERS impairs obligation either or of the breaches contractual Nothing contract, PERS the answer is clear: about the crea- legislature’s promise that, tion of the IAP alters the at retire- ment, each member will receive a service retirement allow- yielding highest ance calculated under the formula pension nothing legislation amount, and the IAP con- about promise. contrary, stitutes a breach of that 2003 To the under the legislation, system each member at the legislation time of the effective date will, at retire- consisting ment, receive a service retirement allowance of an annuity component based on the member’s contributions and earnings pension component and a calculated under the for- yields highest pension mula that amount. Earnings
b. The Assumed Rate (1) The Statutes statutory pro- 1975,
Since the PERS scheme has earnings annually vided that the to be credited to Tier One regular existing members’ accounts will no less than the be earnings generally assumed 1975, 333, rate. See Or Laws ch (1975) (now § 2, ORS 237.277 ORS codified former 238.255).41 identify following statutory provi- Petitioners sions as relevant to our consideration: provide shall regular
“[PEKB] for a account for each system. regular active and inactive of the member account shall show the amount of the member’s contribu- they tions to the fund and the interest which have earned.
[PERB] shall furnish a written statement thereof upon request by any beneficiary system.” member bership. persons establishing plicable “tiers” of As to Tier Two PERS members. Or Laws See Or Laws membership noted, before membership on or after January ch 654, 1, 1996, § (providing PERS did not made January limitation on benefits what is ch 654, § recognize now ORS 238.255 1996). 3. classes of mem creating payable inap (2001).
ORS 238.250 regular “The account for an active or inactive member of system year. shall examined each If the regular be earnings previous year account is credited with for the in an amount less than the that would have cred- earnings been ited pursuant year assumed interest rate for that [PERB], determined by the amount of the difference shall charged be credited to the account and to a reserve account in the fund A purpose. established reserve may account so established not be maintained on a deficit period years. Earnings basis for a of more than five years following excess of the assumed interest rate for *44 year charge for which a is made to the reserve account shall applied first be cit. to reduce or eliminate the amount of a defi- attempt [PERB] shall to ensure that the reserve account adequate is funded with amounts to leave a zero balance in the account when all membership members who establish 1,1996, system January in the before as in ORS described 238.430, have retired.” (2001).
ORS 238.255 administrative expenses system “The of the shall be fund; paid provided, from interest earned the retirement in expense that if such interest be insufficient the thereof shall be excess paid from the contributions which this chapter requires participating employers pay into the [flund.” 238.610(1) (2001).
ORS year earnings “At the close of each calendar in which the * * * rate equal [flund on the or exceed the assumed interest 238.255, by [PERB] [PERB] established set under ORS shall aside, through out of interest and other income received * * * year, that calendar during [flund investment of the advisable, may of the as deem not part [PERB] such income and one-half total exceeding percent seven combined income, moneys segregated shall remain in of such which so [PERB] therein a reserve account. the fund constitute credit the reserve account in the manner shall continue to required by [PERB] this subsection until determines adequately purposes the reserve account is funded for account shall be specified in this subsection. Such reserve any deficit of prevent [PERB] maintained and used allowances, payment ofretirement moneys available for the or, mortality rate fluctuations, changes in interest due to (3) (4) section, of this in provided as subsection except * * *” contingency. other (2001). cur- 238.670(1) 1989, the earlier, since As noted ORS eight percent. has set at earnings rent rate been assumed amended ORS Assembly Legislative The 2003 it into new subsec- (2001), above, out and broke 238.255 set (deleted and ital- (2), follows text brackets tions as ics; type): new text in boldface
“(1) active or inactive regular [an account for mem- member systemJ members who established January system bership in the before 238.430, payees and for alternate described ORS year. regu- each If the shall be examined members, those previous year earnings credited with for lar account is have earnings in an less than the would been amount year interest rate for pursuant credited assumed by [PERB], amount of the difference shall determined regular charged account and to a reserve be credited to purpose. [Areserve account in the fund established for the a may established not be maintained on account so deficit years. Earnings than in excess period basis more five years following year the assumed interest rate for] account, all earn- charge is made to the reserve for which of members who estab- ings on the accounts system January membership lished before 238.430, and of alternate as described in ORS *45 applied shall first be to reduce members, payees of those the amount of a deficit. Only earnings on the or eliminate mem- accounts of members who established regular 1, 1996, system January as bership in the before 238.430, payees and of alternate described in ORS members, used to reduce or eliminate may those be the amount of a deficit. (1) “(2) this sec Notwithstanding subsection (5)[42] in except provided
tion and as subsection any earnings section, may not credit [PERB] this who established regular accounts of members 1,1996, as system January membership in the before 238.255(5), 2003, 625, 10(5), provides chapter section now ORS Laws judge apply person to a who was a to ORS 238.255 do not that the amendments 30,2003. member of PERS on June 238.430,
described in payees ORS or of alternate members, any those year in in which there is a deficit in the reserve account established under subsection (1) section, of this any earnings or credit regu members, lar accounts of those payees, alternate that would result in a in deficit that reserve account. In any year in which loss, the fund experiences shall charge [PERB] the amount of the loss attribut able to accounts of members who estab lished membership system 1, in the January before 1996, 238.430, against described ORS the reserve account.”
Or 67, 5, Laws ch as amended Or Laws ch § 625, 10. The amendments to ORS § 238.255 to the cred apply iting earnings for calendar year 2003 and thereafter. Or Laws ch 67, 6, as amended Or Laws ch 625, § § 11.43
In a separate enactment, the 2003 Legislative (3) Assembly added a new subsection (2001), ORS 238.255 as follows:
“The regular account for an active or inactive member who established in 238.430, membership system January before 1, 1996, as described ORS may not be credited with earnings in excess of the assumed interest rate until:
“(a) The reserve account established under subsection (1) deficit; of this section longer no has a “(b) The reserve account under established subsection (1) of fully this section is funded with amounts determined by [PERB], after actuary consultation with the employed by [PERB], necessary to be to ensure a zero balance in the account when all members who established membership system January 1, 1996, before as described in ORS 238.430, retired; have
“(c) The reserve account established under subsection (1) of fully this section has been funded as described in par- (b) agraph of this subsection in each of the three immediate preceding years.” calendar (2001) rely Petitioners do not on the amendments made to ORS 238.250 (the during legislative ORS 238.610 the 2003 session did not (2001)), agree amend ORS 238.670 appear and we that those amendments do not arguments petitioners
relevant to the make. *46 Or 2003, 3, 1, Laws ch as amended 2003, 67, Or Laws ch § 238.255(3). 5, as ORS § codified the 2003
Finally, Legislative Assembly amended the earnings crediting for Tier One process in members one other respect, by enacting new statute that provides follows: “(1) Notwithstanding any other provision chap- ofthis
ter, the regular account balance of a member or alternate (3) payee less than the described subsection of this may section not be (2) provided amount for under subsection this section for the purpose of computing retirement allow- ances, death benefits and drawing member under ORS 238.265 and for paid amounts to be to a with- compu-
other tations under provisions chapter of this that are based on a member’s or payee’s regular alternate account balance.
If the regular account balance of a member or alternate (3) payee described in subsection of this section is less than (2) the amount provided for under subsection of this section at the time of retirement or withdrawal of account, [PERB] shall credit the account with the difference and charge the amount so credited to the reserve account estab- lished under ORS 238.255.
“(2) The minimum regular account balance for a mem- (3) ber or payee alternate described subsection ofthis sec- tion is the amount that account of a member or payee alternate would have contained if the regular account of the member had been credited earnings with at the assumed interest rate in every year in which the regu- lar account of the member or alternate payee was in existence.
“(3) provisions of this apply only section to: “(a) A member who establishes membership system January 1, 1996, before as described in ORS 238.430, and who retires or withdraws the member account of the member on April 2004; or after (cid:127) “(b) An payee alternate of a member par- described in (a)
agraph of this subsection.” Or Laws ch 8, as amended Or § Laws ch 625, 12, as ORS 238.258. § codified Arguments The Parties’ they pertinent existed
From the statutes as before except petitioner legislation, petitioners, the 2003 PERS all *47 general glean promise, Sartain, the nature of which is that a earnings guaranteed their members “are all on accounts, minus allocations for administrative individual expenses properly Moreover, for and constituted reserves.” legislature petitioners members, that the has Tier One assert year predecessor stat- assured them since 1975—the that the (2001) earnings “the ute to ORS 250.255 was enacted —that annually than to credited to their account will be no less be they then-existing And, continue, assumed interest rate.” legislative history the 1975 enactment demonstrates crediting obligation meeting minimum that, if that creates lasting years, gain-loss than five deficit in the reserve more responsible employers then ing members —are for recover- —not provisions respecting As with the contribu- balance. regular predated that the 2003 tions to members’ accounts legislation, petitioners wording view the of the statu- PERS tory crediting earnings provisions respecting the to those applicable unambiguously promissory, to work accounts as containing yet right performed, no reservation of the to be amendment. future to above-quoted upon understanding that of the
Based petitioners argue statutory provisions, that the above- legislation'directly quoted provisions from the 2003 PERS indirectly impair those earlier either breach or obligations: changes that these question legislative
“There is no but [regular] that requirement petitioners’ eliminate at a at least to the assumed rate grow equal accounts rate Further- annually by legislature. the 1975 promised as Call, more, employer changes these elimi- by removing years, any remaining requirement that after five nate guarantee becomes payment deficit created * * * [Instead], all future deficits liability employers. employee on accounts. only through earnings retired will be 2004, [PERB] dis- provisions, In accordance with these petitioners [’] accounts for earnings tributed zero earnings.” disagree. They argue Respondents that ORS require promise PERB that would 238.255 did not specific regular accounts with a credit PERS members’ requires earnings year. Instead, that statute each amount year crediting only “the assumed rate for that occur at [PERB],” that PERB had the discretion determined change 2003) (and may did in rate, and that the setting rate. PERB’s the assumed confine discretion argue legislation respondents that the 2003 PERS Moreover, newly only prospective crediting applies decisions and that ultimately enacted ORS 238.258 ensures that members never will receive a lower service retirement allowance than they regular if their accounts had been
would have received earnings year. Respon- rate each credited at the assumed disagree petitioners’ reading with of the former dents also provision requiring employers up any call to make five- year gain-loss Finally, respondents deficit in the reserve. argue nothing upon petitioners in the which statutes rely legislative promise establishes that PERS members “any are entitled to have credited to their accounts *48 earnings in excess of the assumed rate.”
(3) Discussion parties’ arguments begins Our assessment of the holding legislature with this court’s that OSPOA earnings intended the assumed rate for Tier One to members yet promise per a constitute that extends to work to be Specifically, formed. the court stated: material,
“The state’s promise,
employee
included
access
procedure
to the return rate
in ORS
described
237.277. Sec-
(1994)]
tion 11 Ballot
[of
Measure 8
would cancel that obli-
gation
employees partially performed
after
their services.
Moreover,
obligation
section 11
impairs
of contract
237.277,
entirely
stated in ORS
because it would
eliminate
obligation
respect
that
with
to
employee contributions
employees
performed
PERS made
current
for work
both
Hughes;
and after the effective date Measure 8.
before
Taylor.”
(emphasis
original).
holding,
OSPOA,
case. Measure 8 had an sce- eliminating entirety legislative promise nario, in in its crediting that Tier One members would receive annual regular their accounts in an amount not less than the earnings assumed rate. legislation,
The 2003 PERS however, does some- thing simply obligation. other than Instead, eliminate the enacting requires guaranteed ORS 238.258—which credit- ing applicable earnings at the assumed rates on a career acknowledged basis at retirement —the at least promissory guaranteed nature of the rate of return that recognized. Accordingly, required interpret OSPOA we are statutory provisions greater at issue in detail than did the court in OSPOA, so as to determine whether the 2003 legislation legislative is consistent with the earlier promise.44 petitioners’ argument
We address first that the stat- legislation guaranteed utes before the 2003 PERS Tier One only earnings members not annual at a rate not less than the earnings any earnings assumed rate but also in excess theof any necessary rate, assumed less allocations for administra- expenses properly tive and to constituted reserves. We find support proposition wording no for that broad in the petitioners rely. statutes on which (2001), example, directly
ORS 238.255 addressed “regular the circumstance in which a Tier One member’s earnings year previous account is credited with for the in an earnings amount less than the that would have been credited pursuant year to the assumed interest rate for that deter- by [PERB].” mined instances, such PERB credited the dif- regular charged ference to the member’s amount to the account and gain-loss Although wording sup- reserve. ports legislative promise that Tier One members’ grow annually will accounts assumed in an amount not less than the *49 earnings support rate, that text evinces no for the proposition contractually that Tier One members are entitled any overage applied expenses to that is not to administrative or reserves. so, doing holding we choose not to revisit the court’s in OSPOA that the
legislature’s promise guaranteed applies to Tier One members of a rate ofreturn to yet performed. work to be legislative Neither does the direction later in that “ arnings [e] statute excess the assumed interest rate years following year charge for which a is made to the [gain-loss reserve] applied shall first be reduce elimi- (2001), support nate the petitioners’ of deficit,” amount ORS 238.255 Although expressly claim. that sentence contem- plated potential earnings, only for excess command statutory wording overage go the restoring is that the first toward gain-loss Notably any reserve. absent is direc- following application, apply any that, tive remaining earnings such PERB must regular
to PERS members’ accounts. (2001), Likewise, ORS 238.670 which addressed years earnings equaled in which the fund’s or exceeded the earnings petitioners rely, assumed rate and on which also did any promise not contain affirmative that PERS members crediting overage, expenses, were entitled to less regular provided only their that, Instead, accounts. that statute years, aside, for such PERB “shall set out ofinterest and * * part other *, income received such of the income as [PERB] may exceeding advisable, deem not seven and one- percent half ofthe combined total of such income” ato reserve legislative account. That statute was not a directive that any remaining earnings PERB must credit excess to mem- regular Finally, nothing bers’ accounts. we have found in the history statutory provisions context or of those that detracts from the conclusion that we have drawn from the text —that promise respecting is, made no such earnings.45 excess
The record in these cases establishes that PERB in historically regular fact has credited PERS members’ good earnings years. accounts with excess investment codify practices. so, Even it is not for this court to PERB’s aspects Instead, our task is to ascertain those of the PERS promissory provisions, and, statutes that are from those precise obligations they determine the nature of the impose. obligations It is those that set the conditions that the legislature may consequence. not in the future alter without (2001) (PERB above, petitioners pro As noted also cite ORS 238.250 shall accounts) (employers respon vide members with ORS 238.610 covering expenses sible for earnings) difference when administrative exceed annual fund We, support argument. however, nothing for their see in those stat petitioners’ utes that advances assertion. *50 system may administering the in a
That PERB have been crediting reg- generous regarding to members’ more fashion required not alter the ular than the statutes does accounts legislature promises nature of the that the made. above, out we conclude that Tier
For the reasons set right had contractual under the PERS stat- to the One members no they legislation PERS existed the 2003 utes as crediting before earnings earn- in excess of the assumed
of annual ings regular Instead, that, accounts. we conclude rate their crediting not in excess members, annual at—but for Tier One legis- earnings promise that the assumed rate is the of—the undermine at conclusions, moreover, lature extended. Those subsidiary argument, part petitioners’ viz., that the least legislature contractually system’s the is bound to maintain funding paying reserves and allocation of the burden of expenses. reg- long as Tier One members’ So administrative annually earnings with that do not are credited ular accounts fall below the assumed
earnings the has rate, any earnings. ability to redirect excess reserved for itself the fully conclusions, however, do not address Those timing argument changing petitioners’ the future that, legislation crediting process, removes the PERS regular obligation impairs) that Tier One members’ {i.e., annually not less than assumed be credited accounts argument, begin by assessing earnings com- we rate. regular statutory processes paring Tier One account for legislation. crediting and after the 2003 both before legislation, PERB examined the 2003 PERS Before annually regular deter- members accounts of Tier One earnings accounts fell credited to those mine whether (2001). earnings If rate. ORS 238.255 the assumed below they to those did, PERB would credit the difference then gain-loss charge reserve. that difference accounts gain-loss provided reserve that the That statute further Id. five a deficit basis more than be maintained on could not (the call), respecting repayment deficit, years and, earnings apply provided future first must that PERB statute earnings rate to reduce or eliminate in excess of the assumed pro- opinion, in this the call And, as noted earlier the deficit. Also, be invoked. have had to statute never visions of the legislation, before the 2003 PERS Tier One members showing crediting received annual statements from the previous year’s earnings, earnings and those were never less earnings than the assumed rate. legislation, however,
Under the 2003 PERS the cred- iting system changed for Tier One members has considera- bly. upheld First, above, we have addressed and Tier One longer salary members no are authorized to contribute with- holdings Accordingly, any to their accounts. future growth solely earnings in those accounts will derive from on members’ account balances as the effective date of the *51 legislation. longer Moreover, 2003 it no is the case that Tier regular necessarily year- One members’ accounts will receive by-year annual credits in an amount not less than the earnings example, assumed rate. For if a deficit in exists gain-loss apply regular reserve, then PERB will Tier One earnings gain-loss years account reserve follow- ing to reduce or eliminate that Moreover, deficit.46 PERB now may any earnings regular not credit to Tier One members’ any year accounts for in which to do so would cause a deficit gain-loss any year in the reserve, and, for in which the fund experiences required charge loss, PERB is the amount of regular the loss attributable to Tier One members’ accounts against gain-loss § 2003, reserve. Or ch 67, 5, Laws as by § 625, amended Or Laws ch 2003, 10, as ORS codified 238.255(1) (2).47 described, As can there be little doubt but that the legislation 2003 PERS tional took what was an before uncondi- right regular of Tier One members to have their accounts credited rate and an not amount less than the assumed earnings changed right to a conditional one. change, standing impair- alone, That would constitute an obligation ment of a contractual set out in contract, the PERS example, reason, For regular for that PERB credited Tier One members’ earnings accounts -withno for 2003. above, 2003, 3, 1, As chapter noted under Laws section as amended by Oregon 67, chapter 238.255(3), Laws section as ORS Tier One codified regular earnings accounts will not be credited with excess of assumed earn ings gain-loss longer fully rate until the reserve no has a is deficit and funded as years. validity determined legislation PERB for three consecutive The of that not before us on review. legislature’s prom- it an alteration of the
because amounts to regular crediting respecting See ofmembers’ accounts. ise (explaining gravamen 395, 400 of constitu- Eckles, 306 Or at breach). contrasting impairment with violation; tional legislation, new however, added a 2003 PERS above), (quoted apparently statutory provision, ORS 238.258 impairment clear of contrac- to meet what otherwise seems a purposes obligation. provision that, tual That states computing Tier of a retired the service retirement allowance regular minimum account bal- member, One the member’s regular mem- ance be that the account of a will “the amount regular if the account had been ber would have contained every earnings interest rate in credited with at assumed * * * year regular Or account was in existence.” in which the 8(2), § 2003, ch as Or Laws Laws ch amended petitioners’ argument, validity § Therefore, as 625, 12. legisla- validity aspect of PERS well tion, of that the 2003 depends provision whether that new is consistent on legislature’s guarantee. it We conclude that with the earlier is not. legislature’s respect promise
As
with
discussed,
would receive
to Tier One members was that those members
no less than the assumed
annually
earnings
rate credited
statutory promise
That
extends
their
accounts.
throughout
membership.
OSPOA,
amended Or ch that obli- Laws. gation, ultimately resulting many in cases account bal- represent earnings ances that, that will not the sum of all consistently legislative promise, annually with the earlier (and be) reg- have been would credited Tier One members’ Oregon ular accounts. We 2003, therefore hold that Laws chapter by Oregon 67, 8, sections 5 to as amended Laws chapter 625, sections 10 to alter the state’s earlier con- obligation thereby impair obligation tractual in vio- Oregon I, lation ofArticle section Constitution.
Having part concluded that that of the 2003 PERS legislation thereby impairs alters and the state’s contractual obligation to credit Tier One members’ accounts annually earnings in an amount not less than the assumed proceed Oregon rate, we to consider the State of and nonstate respondents’ remaining argument alternative and affirma- they tive defense that advance to avoid the ultimate conclu- impairment constitutionally significant. sion that that For respondents’ the reasons below, set out we conclude that remaining argument and affirmative defense are not avail- ing present under the circumstances. respondents argue
First, that, I, to violate Article impairment section Constitution, an of con- obligation respon- tractual must And, be “substantial.” any impairment resulting view, dents’ from the 2003 PERS legislation magnitude. Specifically, they argue: is not of that directly question “This Court has not addressed the Legislative Assemblymay, whether the within the confines Oregon’s obligation Clause, Contract amend or alter an impairing breaching statutory
without or occasions, contract.It has implied on however, several that a lesser modifi- statutory may constitutionally cation to a contract be permissible.” proposition, respondents rely primarily For that on Hughes employee’s that, the statement vested, once “an *53 206 may pension plan be interest in a not substan-
contractual tially impaired by subsequent legislation.” at 20 314 Or added). respondents argue (emphasis Moreover, that other conclusion in and federal courts have reached the same state urge litigation pension this court to follow of and the context suit. yet agree respondents that has to
We with this court substantiality impairment of a con- whether of an determine obligation required I, to show a violation Article tractual thoroughly the well- Further, 21. we have considered section developed arguments addressing issue. from sides both question not that However, we conclude that we need answer assuming because, That is without decid- in this instance. so substantiality ing impairment required we element, is a deem that obligation respecting contract in the PERS earnings guarantee rate to be substan- the annual assumed reasons. tial. We reach that conclusion two although matter, the evidence As an initial regular crediting changes impact to Tier One members’ theof sharply Special Master, contested before the accounts was Special consisted of Master found that the evidence contingent, data is suf- were themselves that estimates that precise permit ficiently that, court to find for Strunk this crediting example, relating petitioners provisions an as in a reduc- Tier accounts will result One members’ (compared they would have tion of to those benefits legislation) varying between without the amounts received significant percent per approximately month. Such impairment ofthe of a substantial reductions are illustrative earnings guarantee. rate assumed significantly, impairment to be we deem the
More that the alternative for the further reason substantial crediting legislature provided career-long at — retrospective earnings earn- effect on rate —has a assumed already performed. ings because, so That is for work accrued legis- remedy, providing the 2003 the career-basis crediting entirely disregards deci- earlier PERB’s lation challenged48 generally not were sions—decisions —and crediting opinion, particular decision length in this As at further discussed City litigation. challenged part Eugene in 1999 was that PERB made effectively resulting regular replaces earnings, account many earnings, of which had exceeded the minimum rate earnings legal with the assumed rate. Absent some basis for *54 adjustment, legislative such a downward that choice nothing amounts to more than a unilateral decision to reduce already view, That, benefits earned. our is a substantial impairment obligation respecting of the contractual the guarantee. earnings reject Accordingly, assumed rate we respondents’ argument contrary. to
Respondents
argue
way
next
of affirmative
impairment
that,
if
defense
even
substantial,
is
sub-
impairment
justified
stantial
can be
if reasonable and neces-
sary
important public purpose. Oregon
for an
has not
(“the
adopted
Hughes,
appli-
that view. See
The voluminous introduced concerning and testimonial evidence the financial status of Oregon economy generally support PERS and the of and against Special respondents’ what the Master described hardship specifi- “economic defenses.” evidence, That cally findings Special the recommended that Master derived therefrom, do not convince us that the situation rises high to the nomic threshold that would have to be met for an eco-
hardship recognize defense—were we to one—to succeed. emphasize dealing
First, we that we are not here legislation impairs private with Instead, that contracts. we dealing statutory are awith In words, contract. other is it one (the state) parties attempt- to the contract that now is rely ing change permit on a in circumstances to it to alter obligations its contractual in a constitutional manner.
light, Special among we note that the made, others, Master following findings: recommended (cid:127) “Oregon’s currently approxi- tax state burden
mately percent average.” .7 less than the national
(cid:127) willingness is little voter to raise taxes “[T]here government provide additional revenues.” (cid:127) through from 2000 “capital downturn” although causing a on tax revenues greater impact state previous past than economic downturns over the two dec- ades, magnitude not or duration compare “did of the 1930s.” Depression Great report Special sure, contains
To be
Master’s
findings
demonstrate that
recommended
other
resulted in
recent fiscal status is both serious and has
state’s
governmental
provision
serv-
detriments
substantial
accept
findings. Taken
the state. We
all those
ices across
rewriting
they
justify
together,
however,
do not
earnings
guarantee
rate
in a manner
would
assumed
earnings
promised
both
and actu-
result in the elimination
ally
time to Tier One members’
credited over
reject
hardship
respondents’
affirma-
We
economic
accounts.
chapter
67, sec-
and declare
Laws
tive defense
*55
by
chapter
2003,
625,
Laws
8,
to
as amended
tions 5
(law
Hughes
impair-
(1) The Statutes legislature in 1967 authorized PERS noted, As percentage of their contributions to direct a members to creating annuity by equity variable account investments, a § program. 622, 24, as ORS 1967, ch Or Laws codified former (1995). (1967), The renumbered as ORS 238.260 237.197 substantially statute, which remains of that 2001 version unchanged initially provided, worded, from the enactment as part, in follows: 25, 50 or 75 may any at time to have
“A member elect to on and the member the fund contributions percent into the Variable paid of the election after the effective date account, and Account, to variable Annuity credited a annuity. A a member purchase of variable reserved so percentage to of contributions have a who has elected any may at time thereafter elect paid, credited and reserved of contributions 50 percent additional to have an percent, member, but not to exceeda maximum 75 so writing paid, and electionshall credited reserved.An be by [PERB] [PERB]. a filed on form furnished and be with following January 1 fil- An electionshall be effectiveon ing thereof.” 238.260(3) (2001).49 legislation, ORS The 2003 PERS how- (b) 238.260(3), stating paragraph
ever, added a new to ORS “[notwithstanding any provision section, that, other ofthis may Annuity member not contribute to the Variable Account 31, 2003, § after ch 67, December 2003.” Or Laws 3. Arguments The Parties’ petitioners, except argue petitioner
All Sartain, that they statutory “right” directing percent- have a to continue age equity their via contributions investments they only accounts, their variable and focus not on the use of 238.260(3) (2001), the wording word “shall” ORS but also on any any “on time,” after,” “at and “at time there- provision right support after” that their claim only present, future, extends to rather than to member con- point petitioners legis- tributions Moreover, to PERS. history support lative of the 1967 enactment as for their legislature through claim that the intended, establishment annuity program, employees the variable account “to allow opportunity to increase their benefits.”50As before with respect statutory provisions governing to PERS mem- petitioners argue by permitting accounts, bers’ that, members could direct to their variable accounts history Laws *56 time. cuss Or percent Laws below, Even after the 2003 PERS for that legislature initially provided the substantive ch their PERS contributions ch proposition. 622, § 5. Other than that § 24(3). provisions ORS legislation, 238.260(1) that members could contribute either 25 or change, itself statute there variable by adding provided is no one other in 1981 that we have remained the same increased the amount annuity need the 75 as follows: to percent option. rely account on legislative program. over dis Or anticipated portions “It is that investment of those contributions equities larger deposit member accounts will in the result accumulation of during years, preserve working
reserves for to those members their tend purchasing power provided of those reserves and the retirement benefits thereby periods protection and afford better economic inflation.” 24(1) (enacting wording). Or § See also Laws ch that annuity pro- to no further contributions the variable account legislation gram, impairs the the 2003 PERS breaches or statutory provisions PERS are contract because “unquestionably integral [are] part Act, ofthe PERS to the unambiguously [use] Act, calculationofbenefits under the promissory[wording], language excluding [and] no contain gen- future from the contributions attributable to service right [the] protection eral and no contractual reservation offuture amendment.”
Respondents advance what in essence likewise repeats argument concerning regular PERS members’ their response petitioners’ claims, account accounts in to variable continuing viz., that, right members have no contractual because they similarly PERS, to have no make contributions to right to a variable account. to direct those contributions Respondents wording anytime “at thereafter” view the 238.260(3) (2001) right establishing not a to make ORS as allowing but, a to instead, future as member contributions change any long at time so his or her election the variable Finally, statutory option. a account remains available as respondents emphasize legislation impacts nothing that about the 2003 in a
funds held member’s variable legislation. account as of effective date of (3) Discussion many same that we concluded
For ofthe reasons statutory provisions respecting PERS members’ con contract, of the PERS we likewise accounts are terms discussion, that the variable clude, and do so without further (We provisions not understand are as well. do account Accordingly, pro contrary.) respondents argue we statutory meaning contractual ofthose ceed determine they legislative specifically, a terms, whether constitute right promise for the duration would have members directing membership in PERS to continue contribu their accounts. tions their variable petitioners’ standpoint, from From textual 238.260(3) (2001) wording
perspective, of ORS the salient appears phrase any in that two times time,” “at which *57 temporal isolation, subsection.51Read in broad refer- those support petitioners’ legisla- ences could contention that the they promised permitted ture PERS members that would be (as to to their variable accounts well to increase contribute accounts) their contributions to those for the duration oftheir membership. Ascribing legisla- active such an intent to the supportable ture, however, becomes much less when other wording particularly wording in considered, the statute is the right any that ties a member’s “at time” to to contribute a var- * ** iable account to the member’s “contributions to the added.) (Emphasis right fund,” Likewise, a member’s to any increase or her his variable account election “at time tied thereafter” is to the “contributions member” to the added.) (Emphasis fund. prom- above, As we have held not did they making ise members could continue contributions throughout membership their And, PERS. fund upheld legislature’s because have we 2003 decision to prohibit contributing (and, members from to the fund further LAP), instead, to direct member contributions to the there no longer percentage will fund be contributions which from a could be directed to a variable account. As we view the 238.260(3) entirety wording (2001), of ORS then, that wording support petitioners’ promise not does claim of a of a right annuity pro- continued to invest in the variable account gram. right Instead, at most, such a of contribution exists only long permitted so as members are to contribute to the fund. perceive wording do, however,
We from that a differ- legislative promise respecting annuity ent the variable program throughout membership account that extends any is, PERS. for That member has to “who elected have a percentage paid,” of contributions so once PERB credited has legislature’s We deem do not use of words “shall” “on and after” 238.260(3) (2001) promise right in ORS to be indicative of a of a to future contri annuity program. import butions to the variable account of the word “shall” is specifically, PERB-approved limited its its reference to use of a form context — particular Similarly, merely clarify and to a effective “on and date. words after” when the variable election takes effect. account, those contri-
those monies to member’s variable purchase a will for the annu- butions be “reserved variable added). 238.260(3) (2001) (emphasis ity.” ORS Stated differ- ently, wording support although the does statute not right annuity to the variable account continued contribute wording legislative program, promise evince a does any time monies a mem- reserve until the of retirement annuity program ber has invested the variable account annuity. purchase of variable Turning support little context, next to we find *58 preliminary that we have detract from the observations 238.260(3) (2001). Again, gleaned we from the words of ORS Legislative Assembly deem the actions of the 1981 to be the body point analysis, that fun- our because it was that focal for damentally system provide to for the Full restructured Consistently comprehensive with the Formula benefit. legislation, legislature added a nature of the 1981 provision also (1979), renumbered as to ORS 237.197 former 238.260(12) (1995), to for those members who had account annuity program made to variable account contributions salary $4,800 on or who had made contributions excess per year § 1967. ch 6. between 1956 and Or Laws legislature to deter- members, directed PERB For such mine the difference between each member’s
total account bal- had the member ance and what that total would have been annuity pro- participated account in the variable either not gram, contributions, Id. The value of not made excess or both. positive negative, or resulted in difference, whether then monthly the member’s either an increase a decrease to service retirement allowance.
Through to what is now ORS that amendment Assembly only pre- 238.260(12), Legislative not had some members excess contributions that served the annuity 1967 and contributions to the variable made before permitted program 1967 and but also account between annuity program mean- to remain as a account the variable (Otherwise, Money system. ingful part absent the Annuity yielding higher pension Match or the Pension Plus component, variable decreases to a member’s increases or only the amount to increase or decrease would serve account employer pay pension that an would have to to fund the com- ponent of the service retirement allowance under the Full Formula.) What that limited contextual evidence does not suggest, legislature promised however, is that the members they ability would have varia- contribute their throughout membership accounts ble their PERS. That only amendment, instead, concerned the effect a varia- ble account could have on the service retirement allowance ultimately that member receive would at retirement.52 light foregoing discussion, of the we conclude that nothing promise there is inconsistent between the earlier respect that the made with annu- variable ity program any placed account funds into variable —that purchase accounts would be reserved of a variable annuity Legislative Assembly’s the 2003 decision to —and permitting discontinue PERS members to contribute their Consequently, variable accounts. there can be no breach or impairment obligations set out in the PERS contract in respect. (COLAs) Cost-of-LivingAdjustments
d. briefly explained As earlier, both before after (and legislation, required the 2003 PERS ORS 238.360 requires) apply still PERB to COLAs, determine and annual *59 (CPI), on based the Consumer Price Index to retired parts members’ service However, retirement allowances. of legislation effectively suspend par- the 2003 PERS COLAson specified ticular allowances, service retirement until finan- met, cial are conditions for certain retired Tier One members. step response took that to a in trial court rul- ing City Eugene litigation, in the also below. described of petitioners argue part Strunk and Sartain of the legislation impairment 2003 constitutes either an or a breach statutory of the PERS contract. We address conten- those Eugene beginning City below, tions litigation. with the a discussion of of noted, dispute City Eugene litigation partic As there in is a the as to that aspect annuity dispute, program. ular however, ofthe variable account The resolution ofthat impact analysis does not our cases. these
(1) Background opinion, PERS stat- As earlier in this the discussed provide maintenance ofvarious reserve accounts. utes for the City litigation significant Eugene the to the are con- Most gain-loss tingency the reserve. reserve and 238.670(1) parameters ORS the ofthe con- describes tingency providing that PERB “shall set aside” as reserve, through interest other income received investment much “may exceeding advisable, not seven and one- as PERB deem percent [,]”for of the combined total of such income the half maintaining contingency “prevent any purpose of a reserve to payment money of retirement deficit of allowances, available for the changes mortality fluctuations, interest due to * * * 238.670(1). contingency.” PERB ORS has rate or other contingency funded a reserve since 1979. not (2001) (now 238.255(1)) ORS describes ORS 238.255 “gain-loss parameters reserve,” to PERB which the required gain- charge respect certain amounts. With Special reserve, Master found: loss legislation, [PERS] “Before enactment of the 2003 it set ‘gain-loss a reserve’ in which PER[B] maintained earnings to that suf- portion aside a of annual fund ensure pay guaranteed benefits ficient would be available to assets earnings earnings years rate. In when fund at assumed amount, por- PERB guaranteed deposited exceeded the into the reserve. The evidence gain-loss tion of those funds at gain-loss reserve that it is reasonable to fund showed guaranteed Tier projected level that would fund One which, using the earnings period, for a credits 30-month set the earnings percent, of 8 would current assumed rate fund’s percent at 20 value.” reserve balance gain-loss reserve and As to PERB’s treatment of Special contingency Master 1990s, reserve the late as follows: found billion, approximately $7.5 “In fund earned to Tier percent [PERB percent its value. credited
24.89 year.] PERB allocated One accounts reserve, which gain-loss billion to the approximately $1.3 new percent [its] approximately left it funded at
215 30-month, earnings, After PERB the goal. allocated 1999 $4,744 had billion. gain-loss positive reserve balance fully contingency PERB had reserve for “If funded the by crediting earnings percent 1999 7.5 fund’s 238.670(1) and, fully ORS if PERB had by authorized gain-loss according the to its goal, funded reserve 30-month 11.33 approximately percent would have been available for crediting to Tier One accounts.”53 funding gap
The created not to PERB’s choice fully, Special fund the two accounts as the Master described sought it, meant that an imbalance existed that PERB to up through i.e., make contribution rate assessments — employers. response orders—on In to assessments, those government employers, including City three local the Eugene, challenged their 1998 and 2000 contribution rate by filing against County orders an action PERB in Marion employers challenged Circuit Court. Several also PERB’s allocating earnings. part, employers order In argued that their contribution rates would have if been lower properly contingency gain-loss PERB had funded the and challenges All reserves. the were consolidated and became City Eugene litigation. Several PERS members inter- litigation crediting vened in the to defend PERB’s decisions respecting regular their accounts. July the trial court held that PERB had funding contingency
abused its discretion not reserve since 1979. The court further held that PERB had its abused by crediting percent discretion interest to Tier One mem- regular properly funding bers’ accounts in 1999, instead of contingency gain-loss and reserves. The court remanded challenged rate orders to PERB with instructions consistently PERB issue new rate orders with the court’s judgment. appealed judgment PERB intervenors Appeals, litigation the Court of which transferred the to this pursuant Oregon chapter court Laws section pending. where it is now Special to, findings presented Master made on those based evidence
findings by, City Eugene litigation, made trial court in described text below.
Pursuant court’s trial Fiscal judgment, (FSD) Services of PERS recalculated the Division credits Tier One members’ accounts for 1999 and concluded *61 that, if PERB had the and contingency gain- funded properly 1999, in reg- loss reserves credit to members’ appropriate year ular accounts for that would have been 11.33 percent. FSD to PERB final presented figure approval, Before however, requested that information legislature directly legislature subsequently from FSD. The enacted 2003 2003, 67, Laws sections 9 legislation. Oregon chapter by Oregon amended 10, 625, as 2003, and Laws sec- chapter 13, 11.33 as the effectively codifying percent figure tion 1999 correct decision.54 crediting 2003,
After the enacted Laws legislature Oregon 67, PERB and entered into a chapter employer parties City agreement purporting settlement resolve Eugene litigation. agreement That settlement provided, part: (such a in law “[Ejxcept supervening change the event of order): by legislative
as enactment or further court * * * earnings pro- “1.3 The allocation order will new earnings to Tier appropriate vide that the allocation [percent], [One] member accounts 11.33 regular earnings of the 1999 should have [percent] 7.5 contingency to the reserve established been allocated by 238.670(1), gain-loss that the reserve ORS 238.670(3) funded created ORS should have been policy to the to main- full extent the former PERB’s credit gain-loss tain a reserve sufficient [One] Tier member assumed interest rate to accounts earnings.” during period [percent] of 30 months of 0 PERB settlement moved entering agreement, After into that motion, opposed but intervenors appeal, to dismiss it As a result of the and this court denied without prejudice. noted, 2003, 537, 1, granted chapter this Oregon section court Laws As litigation. City Eugene not jurisdiction We do address to decide” “exclusive litigation. judgment The issues that that court’s in that here the merits the trial opinion in that presents appropriately will our case. more be addressed case challenges crediting decision, court to PERB’s 1999 that deci- subject potentially sion was to reversal at the time that the Oregon chapter enacted 2003, 67, Laws sections 9 by Oregon chapter 10, as 2003, 625, amended Laws sec- tion 13. chapter 2003, 67, 10, Laws sections and by Oregon chapter
amended 2003, 625, 13, Laws section apply only Tier One members who receive service retire- pursuant Money ment allowances Match and who April April retired on or after pertinent 1, 2000, 1, but before 2004. As by Oregon here, section as amended Laws chapter requires section PERB to two recalculate alternative service retirement members, allowances for those resulting in a “revised” allowance and a “fixed”allowance.
To calculate the “revised” service retirement allow- reg- ance, PERB first must recalculate the affected members’ percent, per- ular account balances as if 11.33 rather than 20 cent, had been credited in 1999. PERB then must recalculate *62 the members’ service retirement allowances based on those newly apply appropriate calculated account balances and year COLAs for each calendar since each member’s retire- newly ment to the calculated service retirement allowance. aAs result of those calculations, PERB will have determined a new service retirement allowance for each affected member percent as of the date calculation, based on an 11.33 (i.e., credit to each member’s account in 1999 allowance). “revised” service retirement 67, Or Laws 2003, ch 10(2), by § § as amended Or 2003, 625, Laws ch 13. PERB required apply thereafter is annual COLAs on members’ “revised” service retirement 2003, allowances. Or Laws ch 10(2)(d). §67,
To calculate the “fixed” service retirement allow- payable ance, PERB must determine the amount to each July 1, affected member on 2003, or on the member’s retire- resulting ment date, whichever is later. The “fixed” service may adjusted by appli- retirement allowance not be annual 10(3), § cation by aof COLA. Or 2003, 67, Laws ch as amended § 2003, Or 625, Laws ch 13.55 55 particular Oregon 2003, 67, chapter We note that the sentence in Laws sec 10(3), precludes application
tion of annual COLAs to “fixed” service retire by Oregon 2003, chapter 625, ment allowances was not amended Laws section 13.
218 2003, 67, Laws section
Finally, Oregon chapter as amended 10(4), 2003, 625, chapter Laws section Oregon 13, that each affected member be requires paid greater and “fixed” service retirement newly calculated “revised” allowances. Stated if an affected member’s “fixed” differently, (which on a service retirement allowance is based 20 percent COLA) but is not 1999, credit in to an annual exceeds subject that member’s determined “revised” service periodically (which on an retirement allowance is based 11.33 percent and is COLA), credit in to an annual then that subject 1999 member will not receive annual COLAs until such time as the “revised” allowance exceeds the “fixed” allowance. From forward, will receive annual COLAs point member allowance. on the “revised” service retirement (2) The Arguments Parties’ Strunk Sartain and petitioners argue Oregon as amended 67, 10, Laws sections 9 chapter Laws section breach the PERS chapter in vio- obligations contract and contractual statutory impair I, Article 21. They particularly argue, per- lation of section (2001), which PERB here, required tinent that ORS 238.360 on their retired members with annual COLAs provide allowances, retirement is a term of the PERS monthly service in part: contract. ORS 238.360 provided, “(1) January year, practicable As soon as after each increase or percentage [PERB] shall determine cost-of-living previous year, for the calendar decrease * * July Price Index *. Prior to based on the Consumer or the member’s year each the allowance which the member August 1 beneficiary receiving or is entitled to receive on by the July multiplied percentage for the month of figure months shall be determined, the allowance for the next July adjusted to the resultant amount. beginning *63 “(2) decrease shall not exceed two Such increase or any year any monthly retirement allowance percent of adjusted to an amount less than and no allowance shall be entitled if no recipient to which the would be amount cost-of-living adjustment were authorized.” Strunk and Sartain petitioners that, contrary to argue as amended 67, 10(3), 2003, Laws section Oregon chapter Oregon chapter 2003, 625, 13, Laws section which calculates subject a “fixed” service retirement allowance that is not 238.360(1) (2001) required an COLA, annual ORS PERB to provide COLAs on all service retirement allowances. In other petitioners words, Strunk and Sartain assert affected receiving Tier One are members who “fixed” service retire- legislation ment allowances under the 2003 PERS have a right contractual to receive annual COLAs on those allow- though regular ances, even the allowances were based on a legislature’s account that, balance in the determination, percent They argue included an erroneous 20 credit in 1999. performed fully that, when a member has under the PERS 238.360(1) promise contract in reliance on the set out in ORS (2001), rights legislature that member’s have vested and the may away breaching not take COLAswithout the PERS con- unconstitutionally impairing obligation tract or an of that contract.
Respondents acknowledge that the affected Tier One performed fully members have and are entitled to receive service retirement allowances that are calculated based on properly They amounts argue, credited to their accounts. petitioners however, that seek more than that. Peti- respondents asserting they tioners, claim, are have a right contractual to receive service retirement allowances improper percent that reflect an credit of 20 in' 1999. The respondents argue, grant petitioners statutes, PERS the do not right erroneously earnings. they fact, credited (which assert, another statute —ORS 238.715 we discuss in below) greater detail PERB to recover the over- —authorizes petitioners, though they credited amounts from even are retired.
Respondents setting that, also observe in addition specific recouping overpayments, out avenues for ORS 238.715(8) “any may allows PERB to use other remedies that recovery [it] incorrectly paid be available to of amounts Respondents fund[.]”56 argue enacting from the that, Oregon chapter 67, 10, Laws section as amended chapter Laws section 238.715(1) The current versions of ORS are identical to the 2001 ver provisions. sions of those
220 recouping provided for has PERB with “other remedies” erroneously earnings. credited
(3) Discussion turning analysis petitioners’ claims, Before to our inquiry helpful clarify precise nature of our think it to we creating party appears dispute that, to in First, here. no coupled with the sus “fixed” service retirement allowance legislature’s pension recoup COLA, the intent was to of an annual overpayments to the affected what it deemed to be Second, accounts in 1999.57 as discussed members’ contemplate respondents below, note that the PERS statutes erroneously might pay certain amounts to a mem that PERB generally per already PERB ber who has retired and that statutory recoup payments. matter, erroneous mitted, as a to respondents appear suggest, And, third, Strunk as challenges petitioners’ particular contractual to the Sartain chapter suspension Laws section COLA in 10(3), legislature’s question raise the whether the essence preclude application annual COLAs on choice to fixed permissible method of facilitat retirement allowances was ing by directing differently, recoupment. PERB Stated such a suspend allowances, retirement annual COLAs on fixed legislation impair either or breach the 2003 PERS does PERB’s apply obligation ORS annual COLAs under (2001)? 238.360 challenged analysis foregoing As with our of the legislation, aspects determine 2003 PERS we first of the the PERS statu- constituted a term of whether ORS 238.360 legislation. tory of the 2003 the enactment contract before part: provided, in ORS 238.360 “(1) January year, practicable 1 each after As soon percentage [PERB] increaseor decrease determinethe shall year, living previous on calendar based in the cost * * July year *. Prior to each Price Index the Consumer theallowance beneficiary member’s whichthe memberor the August receiving 1 for the receiveon is entitled to is month of figure percentage July multiplied shall be City Eugene litigation, cred noted, light pending PERB’s 1999 As legislature subject that the enacted iting to reversal at the time remained decision legislation. the 2003 begin- determined, the next12months allowancefor ning July adjusted amount. resultant “(2) increase shall exceed two Such or decrease not percent any year any monthly retirement allowance adjusted and no allowanceshall to an less than be amount recipient the amount to which the would be entitled if no adjustment living costof were authorized.” added.) (Emphasis enacted that statute in unchanged, 1971, and its substance has remained notwith- standing other interim amendments. See ORS former 237.060(1) *65 (1995) (set- (1971), as renumbered ORS 238.360 statute). ting original out 238.360(1), pres-
ORS as it existed in and as ently provides monthly worded, that PERS members’ service annually adjusted retirement allowances shall be to reflect percentage living “the increase or decrease the cost of for previous year[.]” provision the lyzed Hughes, calendar Like the tax ana- 238.360(1) (2001) the text of ORS evinces a legislative provide clear intent retired members with annual COLAs their allowances, on service retirement when- ever the CPI warrants such COLAs. We therefore conclude 238.360(1) (2001) general promise that the in ORS embodied part statutory applicable was of the PERS contract group provisions of retired members affected the 2003 at Having concluded, issue here. so we now must determine the promise. extent of that wording specifi- and,
We return to the of the statute cally, requirement July year, prior that, 1 each “the beneficiary allowance which member or the member’s is receiving August or is entitled to receive”on the month 238.360(1) (2001) July subject must be to a ORS COLA. added). 238.360(1) (emphasis (2001), The context of ORS other statutes, PGE, which includes related 317 Or at reading emphasized wording. assists our As noted ear- (2001) provided, part: lier, ORS 238.715 “(1) system determinesthat a member theof IffPERBJ any monthly person receiving payment or * * * other from the any [f]und has received amount in excess person amounts that thememberor other isentitledto under or other may overpayment recover the [PERB] chapter,
this by: payment made improperly
“(a) to the member or monthly payment Reducing many may be determined for as months person other or other necessary overpayment to recover the to be [PERB] payment; or improperly made
“(b) to the member Reducing monthly payment actuarially to be determined by an amount person other improperly or other overpayment recover the adequate to monthly which the during during period made payment person.” other to the member or will be made payment added.) apparent (Emphasis ORS from the text of As is 238.715(1) anticipated (2001), legislature PERB that has might pay a mem- is, in error —that from the fund amounts (or beneficiary) might paid person, be such as a other ber is “entitled” fund than that member more from the “receive[ ]” in the event that And, under the PERS statutes. pro- overpayment further has occurs, the such an overpayment. may PERB recover vided that wording light in ORS 238.360 the identical 238.715(1) (2001),regarding allowances ORS “received”that and amounts to receive” a member is “entitled “entitled,” we conclude to which a member exceed those 238.360(1) (2001) respecting promise in ORS set out application extend to errone- does not annual COLAs *66 overpayments retirement service included in a member’s ous receive. How- entitled to was not that the member allowance properly promise calculated service does extend ever, the allowances. retirement prom- scope legislature’s
Having of the defined legislation to determine the 2003 ise, we turn to with is inconsistent so, what extent —it and, if whether — chap- Oregon explained 2003, promise. Laws earlier, As chapter by Oregon 2003, Laws 10, as amended 67, section ter original provides retirement service that the 13, 625, section affected who are Tier One members retired allowances for resulting ways, in a in two be recalculated that section shall alternative and an allowance retirement “revised” service above, the noted As also allowance. retirement “fixed”service “revised” service retirement allowance continues to be sub- 238.360(1). ject to an annual The “fixed” COLA under ORS service retirement allowance is set at the amount that was payable July 1, 2003, to the retired member as of or as of the date, retirement later, member’s whichever is and is not sub- 238.360(1). ject to an annual COLA under ORS The crux of question us, then, before is whether the “fixed” service Oregon 2003, retirement allowance calculated under Laws 10(3), chapter chapter by Oregon 67, 2003, section as amended Laws qualify section either does or does not as an subject annual allowance that is 238.360(1) (2001). to an COLA under ORS specifically,
Stated more does the “fixed” represent payment service retirement allowance ofan “allow- ance” that the member was not “entitled to receive?” question
The answer to that is no. It is true that the legislature’s apparent creating intent in the “fixed” service notably, coupled retirement allowance—most when with any applicable elimination of otherwise COLA—was to allow recoup PERB to members’ accounts in 1999 certain amounts credited to the affected
(and Legislative which the 2003 Assembly overpayments). deemed to be However, the “fixed” represents service retirement allowance a determined itself expressly is, allowance—that the an allowance determined legislature. light legislative ofthat determination, the “fixed”service retirement allowance cannot be said to trans- any fer to the affected member funds to which the member determination) (again, legislature’s in the was not entitled. such, As the “fixed” service retirement allowance falls within 238.360(1) (2001)— scope promise the that set out in ORS annually apply is, that PERB a COLA each affected (in years member’s allowance in which the CPI warrants COLA) represents such a the allowance funds that —because by legislative member, determination, is “entitled to receive.”
We therefore conclude that the elimination of annual COLAsfrom as set out in allowance, the “fixed”service retirement chapter 10(3), Laws section legislature’s promise inconsistent with the set out in ORS 238.360(1) (2001). Having so, done we next must determine inconsistency whether that impairment amounts to a breach or an obligation ofthat under the PERS contract. As to *67 224 question, Eckles, in 306 Or court’s decision
that instructive. this legislation explained that earlier, Eckles involved
As surplus which, stat- funds from the had transferred IAF— only compensation pur- ute, were to be used for workers’ legislature’s poses There, here, the the General Fund. —to legisla- transferring the funds had been to attain intent appeared legitimate goal generally speaking, that, tive deficit). (in avoiding budget dispute Eckles, a state was not in attaining legislature’s that method for However, it was the goal Eckles, had contrac- that, in the court’s determination Specifically, implications the con- the court tual for state. part legislation that had eliminated that the ofthe cluded statutorily specified obligation IAF in the to use funds state’s impairment of the an unconstitutional manner constituted obligation. fur- Or at 399. The court contractual state’s legislation part had that that ther concluded that the amounted to a mandate directed the transfer offunds Id. at 400. state breach the contract. statutory
Applying
contractual issue
Eckles to the
promise
indisputable
set out
now, it is
that
before us
238.360(1) (2001) respecting
remains
annual COLAs
ORS
applicable
statutory
part
to the affected
PERS
scheme
of the
applica-
by precluding
group
However,
retired members.
allow-
to “fixed” service retirement
annual COLAs
tion of
members,
Laws
those affected
determined for
ances
10(3),
chapter
to a directive from
amounts
67, section
promise
legislature
set out in ORS
to PERB breach
238.360(1) (2001)
respect
con-
those members. We
with
aspect
petitioners
the 2003
contend,
clude, as
legislation
PERS contract. See
a term of the
breaches
(so explaining in
circum-
similar
Eckles,
Or at 400-02
(same).58
stances);
Hughes,
Having final now concluded, so we must address as disposition petitioners’ respect- matter the claims for relief ing provisions COLA the above-described 2003 PERS legislation. explained, Oregon chapter As Laws sec- *68 10(3), by directing tion the contract PERB breaches PERS provide not to “fixed” annual COLAs on service retirement Normally, legislature, allowances. this court leaves to the as appropriate government the instance,” of “most branch in the first Hughes, Or n 36, at 33 the choice to which remedy legislation statutory to select when a breaches con- unique Here, however, tract. under we to what deem be cir- prudent dispositional cumstances, we conclude the that offending statutory wording. action to is invalidate the Accordingly, part Oregon chap- we 2003, declare that of Laws 10(3), provides, “[t]he 67, ter section that fixed service retire- may adjusted ment allowance not be 238.360,” under ORS to part be void. The effect of our choiceto declare that ofthe law petitioners to be void is that bewill returned —at least for being position they the time the same in which would —to legislature if have been had not enacted the COLA suspension.59 Equivalency
e. Actuarial Factors opinion explained As noted earlier in this and as fully part legislation below, more of the 2003 PERS modifies the calculation of PERS certain service retirement allowances for system 1999, members who entered the before (AEFs). adopting equivalency peti- new actuarial factors All challenge part legislation, tioners below. of the as discussed
(1) Background following description take We of PERB’s approach Special report: toward AEFs from the Master’s consulting actuary,[60] time, time “From to after itswith adopted
PERB has AEFs for use of administration disposition foregoing petitioners quo ante, Because to returns the status disposition any petitioners’ arguments obviates need to consider that the tem porary suspension taking I, property of COLAs constitutes a under Article sec 18, Oregon tion Constitution or their additional constitu contractual and challenges tional to the “revised” service set retirement allowance calculations out Oregon 10(2), 2003, chapter Laws section as amended Laws chapter 625, 13. section inception Since the of what PERS in now has required actuary “prepare report evaluating to the current and assumptions concerning the fund. are based on AEFs expected the fund members’ mortal- earnings
future and lump to sum account bal- ity rates. AEFs are used convert change monthly streams one payment ances to converting form another. When optional payment benefit benefit, monthly lump sum and the lump sum to a monthly payments actuarially equivalent are if benefit present have value. Two payment forms of the same both Money types three PERS retirement Match benefits — Annuity Pension Plus calculated based on AEFs. —are 1978, PERB of AEF “Before used a substantial number particular categories of members. In applied tables that tables, simplified PERB two sets actuarial adopted and female members. The tables for one each male monthly a lower retirement produced female members allowance, would, they on assumed females because life than average, longer spans after retirement have males. State, District Case
“In Henderson v. U.S. Court No. CV74-538, gen separate concluded that the use of the court *69 unlawful.[61] 1978, PERB was In der-based calculations male-only the actuarial factors for all PERS mem adopted process commonly ‘topping up’ That referred to as bers. the AEF tables. The was employer increased
topped-up tables percent. 0.49 contribution rates 1978, earnings adopted percent
“In a 7 assumed PERB 1979, the PERB increased the assumed rate for fund. However, change percent. it did not the earnings rate to 7.5 (1) actuary the determined that system’s AEFs because retirement; longer after and generally living members were (2) blended assumed male new actuarial factors would have therefore, have and, rates would been mortality and female indicating pro- system current prospective of the and its and assets and liabilities 401, (stating 238.605; § Laws ch 13 spective ORS see Or financial condition.” same). that, report!,] required preparing “[i]n has The further experience mortality, disability, actuary investigate service and other shall system, of, fully employers participating state in the shall members actuary system, as the shall make such recommendations of the condition administering properly.” it Id. advisable facilitate deems 61 practice Supreme has held that that violates United Court also States Governing Committee v. Rights Act of Arizona of the Civil 1964. See Title VII (“The (1983) Norris, 1073, 1084, 103 use sex- S Ct L Ed 2d 1236 463 US VII segregated to calculate retirement benefits violates Title actuarial tables prediction longevity of women reflect an accurate whether or not tables class!.]”) as a lower than those produced by the use of male-only tables. change PERB did not again its AEFs until 1989.
“When PERB increased the earnings assumed rate to percent it adopted also revised mortality tables. The revised AEFs were a combination of the pre-existing percent earnings male-only and 1978 mortality assump- tions, and new 8 percent earnings and 1989 blended male/ mortality female assumptions. PERB used the new factors only if they benefits; increased otherwise, member PERB used the preexisting factors. “In PERB adopted OAR 459-05-055 [former]
[(1993)]. That rule provided that actuary [the] PER[S]’s perform would an actuarial equivalency study every two years. The rule required actuary to ‘recommend to [PERB] assumptions, factors and any the rationale for rec- ommended changes to the actuarial tables used [PERS].’ 459-05-055(l)(b) (1993)[, [Former] OAR renumbered as (1996)]. OAR 459-005-0055 Subsection of the pro- rule vided, in part:
“ ‘(b) All changes System’s annuity tables prospective shall be only for allowances effective on or after the effective date change; of the
“ ‘(c) If the consulting actuary’s recommendation to change a factor produce would benefit, lower [PERB] change will not the current factor.’ “In the study, 1995 actuarial actuary reported
continuing improvement in mortality rates wouldjustify an adjustment system’s AEFs, opined but he that [for- * * * (1993)] mer] OAR [459-05-055 adoption foreclosed the of factors that would reduce member actuary benefits. The asked PERB to review the rule mortality because rates expected were improve, continue to and the use of the existing AEFs was a significant cost consideration.” (Footnote omitted.) The actuary also in a explained July 1995 letter to PERB that the factors that PERB intended adopt *70 pursuant OAR 459-05-055 would not serve former “ to achieve ‘true actuarial equivalenc[y]’ because of the grandfathering higher benefit factors over years [.]” 1996, PERB both renumbered and amended for- (1993) (set above) mer OAR 459-05-055 in out part provide that AEFs would be for updated only members who joined as rule, The new renumbered 1, 1999. January
PERS after (1996), part: provided, 459-005-0055 OAR ** * «(4)
“(b) equivalency System’s actuarial changes All that of an allow- only portion for prospective factors shall be beginning an active member to service as ance attributable change. of the after the effective date on or (4)(b) “(5) rule, of this for Notwithstanding subsection in PERS before membership members who established 1995, 1999, Chap- Laws described January ter would change a factor that shall not [PERB] Section single payment, periodic a lower benefit produce factor(s) apply to the total allow- any change shall and ance payable.” advice legal response that rule
PERB had promulgated the fund’s status maintaining regarding it had received under and trust retirement plan as a qualified governmental (IRC).62 Code the Internal Revenue report explains: Master’s Special sys- reviewed the AEFs for again
“In PERB using factors time, adopted policy PERB tem. At that the factors ade- mortality assumptions if on current based under former earned protected previously benefits quately protecting options various PERB reviewed AEFs. process benefits, completed that it had not accrued but the 2003 apparent it when became subject. on the same legislation to enact intended enacted, PERB was sum, legislation the 2003 “In before 1978 and in effect since AEFs that had been generally used actuary used that the assumptions did not match the system make about system projections to value expectancy the life understated costs. Those factors a mem they used to convert When were PERS members. allowance, aggregate monthly to a account balance ber’s value of than the value higher was monthly allowance funds Therefore, additional unless account balance. again legislation, PERB amended Following 2003 PERS enactment of the 459-005-0055(3) (2004) (requiring legislation. See OAR rule to conform with the 1,2003). retiring July updated after AEFs for members use of *71 system, were contributed the the to account balance would dissipated have average expec before the member’s life tancy Put way, was reached. another because the AEFs did actuary’s assumptions not match the life expectancy for the BIF[63] system, pay upon the amount to available was, things being equal, member’s retirement other insuf projected ficient to cover the costs for that member. PERS up’ then had to ‘true transferring BIF additional employer amounts from accounts. 1995, actuary
“In estimated that the continued use ‘grand[ ]fathered’ of a approach changes to AEFs cost system approximately percent payroll per year. 0.5 of As more members retired the Money under Match and the increased, amount their benefits the financial impact using 2002, outdated factors also grew. actuary esti- mated that the updated immediate use of mortality tables employer would decrease contribution rates approxi- mately percent 2.28 of payroll.”
(Footnote omitted.)
Oregon 2003, 68, Laws chapter 2, section requires PERB adopt current actuarial equivalency factor tables that “use the best actuarial information on availa- mortality at ble the time [PERB] adopts [.]” tables Those tables become effective on January 1 of the calendar year following Id. PERB’s adoption of the new tables.
Further, Oregon 2003, 68, as 4, Laws section chapter amended by Oregon 2003, 67, Laws 40, section and chapter Oregon 2003, 625, 16, chapter Laws section the cal- modifies culation for the annuity component the service retirement allowance certain who system members entered the (or Specifically, before 1999. such will members who retired retire) July 1, on or after will their 2003, annuity have com- calculated under ponents legislation, the new which directs PERB calculations, to use one of two whichever produces the greater benefit. The first AEFs in requires application effect as of member’s effective retirement date retiring date; member’s account balances on that the second (or account) earlier, explained As BIF “Benefits-In-Force” reserve acts as newly a transitional account to which PERB transfers a retired account member’s balances, together employer necessary pay with the contributions that member’s service retirement allowance. 30, 2003, an balance as of June that consists
creates of account earnings only credited as the member’s contributions and determines PERB the member’s annu- date, then component using ity on from that the AEFs effect balance generally referred 30, That second calculation June 2003. provision. as the “look-back” Arguments Parties’ challenge petitioner petitioners, except Sartain, All by Oregon Oregon chapter amended Laws, 4, section chapter Laws Laws section adopt requires chapter 625, 16, which PERB to section *72 July beginning apply updated 2003, to and, 1, those AEFs calculating certain retired PERS members’ AEFs when annuity They rely primarily components. on OAR 459-005- 0055(5) (1996), provided: quoted which, above, (4)(b)
“Notwithstanding rule,[64] this for subsection membershipin PERS Jan whoestablished before members Oregon Chapter uary 1, 1995, Laws 1999,as described change [PERB] 654, 2, not a factorthat would Section shall any single payment, produce periodic benefit and a lower factor(s) change apply total to the allowance shall payable.” They is trustee ofthe fund and that, assert because PERB the adopt governing granted authority admin- to rules has been foregoing the fund, rule is a term of istration of the the statutory they argue such, As that the contract. by requiring
may PERB to calculate not that term remove likely annuity components using updated AEFs, effect of allowances. will to reduce their service retirement which be argue petitioners support contention, As for that (2001), 238.630(3)(g) predecessor which version of ORS that gave author- below, PERB “the absolute discussed further is (specifically, system’s ity” actuarial factors to establish 1978) required that such factors since those effect They argue part system.” further that of the “shall constitute equiv System’s changes provided “[a]ll actuarial That that subsection only alency prospective portion of an attributa allowance factors shall be beginning date on or after effective to service as an active member ble change.” 238.650(2) (2001), ORS rules provided “[a] which of the written document adopted by plan [PERB] become part [PERS],” right reinforces their contractual to enforce the 459-005-0055(5) (1996). terms of OAR Because Laws Oregon as amended 2003, 68, chapter 4, section Laws Oregon 40, section Laws chapter 2003, chapter rule, section nullifies the of that effect petitioners it argue, impairs obligations breaches PERS contract and of the contract.
Petitioner Dahlin presents argument, samé but adds a “federal law” on his analysis premised observation that PERB must maintain the fund’s tax status under the IRC. analysis designed His illustrate that the incorpo- ration of AEFs updated IRC, will violate provisions status, tax jeopardize fund’s and therefore peti- violate tioners’ rights. contractual
For their part, respondents first observe PERS statutes require yield AEFs service retirement “ allowances that are the ‘actuarial of members’ equivalent’ account balances.” Yet petitioners, respondents’ view, assert a contractual right that, to the use of outdated factors by definition, produce cannot actuarial To equivalency. sup- port that argument, cite ORS respondents 238.630(3)(g) (2001), which PERB required new AEFs from “time adopt that, to time” once will applied, calculate “actuarial equi- valen optional allowances,” [t] of forms of retirement and ORS *73 238.300(1) (and (2001), which still “actu- required requires) arial equivalen [cy]” converting each member’s account bal- ances at retirement into annuity the of the mem- component ber’s service retirement allowance. of
Respondents further dismiss the OAR validity 459-005-0055(5) (1996) that by observing departs that rule from the aforementioned Finally, mandates. legislative that respondents observe the 2003 “look-back” calculation preserves service retirement allowances that members would had their com- annuity have received PERB calculated ponents the factors account using and balances place day Thus, before the 2003 PERS went into effect. legislation 2003, they 68, 4, Laws section argue, Oregon chapter by Oregon amended 67, 40, Laws section chapter chapter 16, does not reduce Laws section retroactively to which the service retirement allowances are entitled. members
(3) Discussion briefly dispose petitioner matter, we of As an initial addressing fully separate First, IRC-based claims. Dahlin’s analysis specific require of would an those IRC-based claims 7476(a), juris provisions. however, IRC confers IRC section plan qualification to retirement diction to determine engaging Tax It follows that in the United States Court. petitioner require analysis Dahlin’s claims IRC-based jurisdiction. scope outside the of our We therefore would be reject petitioner IRC-based claims without further Dahlin’s discussion. analysis
Turning challenges, again our the other begin determining specific must with terms statutory contract. (1991), 237.251(3)(g)
Former renumbered as ORS 238.630(3)(g) (1995), initially provided the ORS which basis adoption the rule that OAR 459-005- for PERB’s of became (1996), provided: equivalency “[PERB] [s]hall determine actuarial of establish from optional forms of retirement allowances and necessary actuarial purpose to time for that fac- time tors, system[.]”65 part which shall constitute methodology, again apply at 610-12, 317 Or We PGE legislature’s intent and conclude to ascertain the the statute legislature’s intent is clear from the first level of that the 237.251(3)(g) respondents argue, analysis. ORS As former legislative periodically mandate PERB set out a equiva- perform “actuarial first, two tasks: to determine the lency optional and, allowances”; of retirement sec- forms purpose [the [,] ond, time[,] to “establish from time to optional determining equivalency the actuarial forms statutory provision when was the same in PERB The text of that (1993), renumbered as OAR amended OAR 459-05-055 renumbered and former Legislative (1996), Assem was the same 2001. The 459-005-0055 also 238.630(3X0 it; bly provision and amended amend as ORS renumbered here. ment is not at issue *74 necessary allowances,] factors, retirement the actuarial part system [.]” which shall of constitute Former ORS (1991) 237.251(3)(g) required periodically therefore PERB to update its actuarial factors to ensure that service retirement ultimately regardless paid, allowances of the form of those equivalency” allowances,66satisfied an “actual standard. (1991) Similarly, ORS 237.147 renumbered former 238.300(1) (1995), provided, part, annuity
as ORS that the component of each member’s service retirement allowance equivalent” “shall be actuarial of each member’s “accu- * * * mulated contributions at the of In time retirement.” clearly legislature short, both statutes indicate that intended for members’ service retirement allowances to sat- isfy equivalency” an “actuarial standard. The del- egated responsibility, updating sys- which included factors, tem’s actuarial to PERB. define PERS statutes did not the term “actuar- equivalent” adopted
ial at the time that PERB OAR former (1993), (1996); 459-05-055 renumbered as OAR 459-005-0055 that term remained undefined until 2003.67The PERS actu- ary, consistently following expla- however, testified with the Special report: nation the term, of set as out in the Master’s are on assumptions concerning “AEFs based the future earnings of the fund expected mortality and members’ rates. AEFs lump are used to convert sum account balances monthly to payment change optional streams one payment benefit form to another. When converting lump a monthly benefit, sum to lump monthly sum and the actuarially payments equivalent are both benefit if of forms payment present have the same value.” added.) (Emphasis suggests concept definition That that equivalency, cases, actuarial as it relates these is con- substituting equally payment cerned with one form (and form) ORS 238.305 allowed allows in retired mem still amended calculations, variety “optional” bers to select from a service retirement allowance in addition those set out in ORS 238.300. 238A.005(2) provides: ORS now “ equivalent’ payment payments having Actuarial means a or series payment payments replaced, computed same on value or series assumptions mortality adopted [PERB].” basis of interest rate and lump representing a total is, a sum member’s another —that payments allowance for a stream of over service retirement addition, that, it is if from that sum. clear time derived mortality monthly improve, allowances rates members’ *75 properly updated to those if are reflect would decrease AEFs improvements. essentially adopted has a rule that PERB, however, 459-005-0055(5) (1996) pro- renders the AEFs static. OAR change “[PERB] members,68 shall a that, vided for certain not produce periodic single or a lower benefit factor that would payment.” effectively that, even if the PERS That text states actuary update PERB the AEFs to reflect recommended that mortality improved assumptions, it would so if PERB not do monthly in lower service retirement allowances would result actuary Indeed, the PERS testified for certain members. update Special PERB had declined to Master that before notwithstanding warning that PERB- AEFs his the applied actuarially equivalent producing ben- were not AEFs (1991) (as 237.251(3)(g) and ORS ORS efits former former 237.147(1) (1991) required) not advice that PERB his (1996). adopt OAR 459-05-0055 argue of ORS that the last clause Petitioners former (1991) part
237.251(3)(g) a of the shall constitute —“which legislative provide system” to PERB intent —demonstrates authority discretion, the establish, to at its with absolute They system’s argue that, of that because actuarial factors. authority, has that PERB established the actuarial factors statutory part and cannot be the PERS contract are breaching changed impairing their contrac- without either disagree, rights. two reasons. tual We for reading petitioners’ of the final clause First, misapprehends l(3)(g) both ORS 237.25 former Again, provision precedes it. clause that devalues the provided: equivalency the actuarial
“[PERB] [s]hall determine
from
allowances and establish
optional
of retirement
forms
January
membership in PERS before
Those members “established
459-005-0055(5) (1996).
1999[J” OAR
necessary
purpose
time to time
actuarial fac-
part
system[.]”
tors, which
shall constitute
grammatical
phrase,
As a
“which shall
matter,
constitute
part
system,”
necessarily
of the
refers
factors that
ensure
equivalency
payment
actuarial
in the
of PERS members’
service
Special
which,
retirement allowances—a standard
as the
found,
Master
the AEFs
used before
2003 PERS
legislation
generally, Bryan
fell
Garner,
short. See
A.
A
(1998) (nonre-
Dictionary
Usage
Modern American
noun).
provides
preceding
strictive clause
edly,
detail as to
Relat-
light
legislature’s
choice to use nonrestrictive
wording
apparent
legisla-
clause,
the final
it is
that the
primary
update
ture’s
intent was to ensure that PERB
the
the
necessary
produce
equivalency
AEFs as
actuarial
calculation of members’ service retirement allowances. See
(nonrestrictive
generally provide supplemental
id.
clauses
relating
preceding
opposed
detail
noun,
to more essen-
detail);
generally
Housley,
tial
see also
v.
Feero
205 Or
(1955) (court presumes
415,
E. Claim Under Article Section State Constitutional legis argues Dahlin that the 2003 PERS Petitioner age in violation of the lation discriminates on basis equal privileges I, Article and immunities clause of section specifically, argues 20, of More he Constitution.69 leg Special findings indicate that the 2003 that the islation will have a Master’s disparate impact on the service retire opposed as to those ment allowances of “older workers” younger argues legisla that, the 2003 workers. He because specifically it tion older workers benefits that confers denies rights younger sec workers, I, it his under Article violates tion 20. various terms to describe
Petitioner Dahlin uses belongs. purported hand, he On one “class” to which he argues legislation denies benefits the 2003 that not it con- does define—that “older fers to term he workers”—a younger but, other, he asserts mem- workers, on the aged namely, specific bership class, Tier One members in a assuming categori- either However, even 40 and older. purposes Article for the zation sufficient to define class prevail petitioner Dahlin cannot as member I, section explained class, either below. argument petitioner on a class Dahlin’s based
As to report Special states workers,” the Master’s of “older years employees is, those within “mid-career —that *77 greater impacts experience [will] on their future retirement — According legislation. a result of the 2003 benefits” as report aged report, to 52. His are 42 his those members 69 provides “[n]o shall I, Oregon law Constitution section of the Article immunities, privileges, or any of citizens passed granting to citizen class be belong terms, which, equally to all citizens.” upon shall not the same aged expected are indicates further that members greater by receive than received mid-career benefits those by aged than those 37. members even received members group pro- That data indicates that the oldest ofmembers are jected many to receive benefits excess those received younger presents Dahlin members. Petitioner no additional any contrary. fact, evidence nor exclusively evidence to the he relies findings Special on the set in the Master’s out report, opposite exactly but he reaches a conclusion to that inescapable report. which on is based the data set out agree that, We conclude even if this court were to that “older compose recognizable I, workers” a class under Article sec- petitioner prevail tion because the evidence that the 2003 PERS rately Dahlin cannot on his claim here
simply support does not his assertion legislation dispa- treats “older workers” younger from ones. petitioner argument
As to Dahlin’s based on class aged argument of “Tier One members older,” 40 and essentially age asserts discrimination within the broader Being “class” Tier member, One a Tier members. One how entirely by statutory ever, ais status created the PERS explained, As scheme. create this court has free to statutory among classes and to create distinctions Phillips, those classes. Greist v. Or 281, 292, 906 P2d 789 (1995). legislature may What do, not however, is create independent distinctions based on characteristics that exist legislation. of the terms Crocker, Crocker 332 Or (2001). petitioner 54-55, P3d 759 As Dahlin above, noted prove any age. has failed to is left to distinction based on He therefore rely entirely on his as a status Tier One member. statutory Because that classification was created independently scheme at issue and not does exist of that petitioner scheme, it cannot serve as for basis Dahlin to reject I, assert an Article section violation. We therefore his claim. Remaining
F. Constitutional Claims
In addition to the claims relief that we have petitioners challenge parts addressed, various also legislation “takings” provisions 2003 PERS based on the Constitution Constitution, and the United States *78 V, XIV, Const, I, 18; Const, Art US Amends and the Con- Or § Const, Constitution, United US tracts Clause of the States I, claims, of those dispose Art 10. The foregoing holdings § in legislation have voided the challenged either because we claims our state contract or because light of petitioners’ determination set out in the particular obligations of the premise petition- PERS the fundamental contract obviates (that is, claims that PERS contract remaining ers’ breached, impaired, them that cannot granted “rights” be use). need those taken We therefore not discuss public further. claims
IV. CONCLUSION
is to declare the law
“The function of the court
to be.” Wallace v. International
ought
it
it
it is and not what
thinks
(1937).
'n,
Ass
652, 661-62,
Or
BALMER, J.,
join
majority’s analysis
aspect
I
in each
disposition
proceedings, including
of these
those that follow
from
this court’s decision
State Police Officers’
Oregon,
*79
Assn. v. State
323 Or
either the result or the
in that case.
contrary, my view,
To the
in
in
court OSPOA lost
sight
polestar
statutory
analysis:
of the
of
clear,
contractual
unambiguous,
promissory
and unmistakable
intent. See
Hughes
Oregon,
v. State
314
1, 17,
Or
I concur. dissenting concurring part J., in
DURHAM, and part. explain why join separately I but
I write some analysis majority’s all and conclusions. not begin by noting agree majority’s I I with the justices necessity” “rule of to allow the invocation of the proceed- to address and decide the issues in these this court majority’s regard- ings. agree determinations I also with the petitioners’ standing justiciable ing con- and the existence of petitioner troversies; the Dahlin’s claims under dismissal of retirees; and behalf of certain PERS USC section 1983 on by petitioners ripeness grounds, dismissal, on ofclaims Oregon challenging Laws Burt, Dahlin, and Evans Strunk, 14b(l)(b) 14b(2); chapter 2003, and 67, sections compel production of in the denial motions to documents proceedings. Strunk and Dahlin disposition majority’s petition-
I turn now to the challenges to 2003 PERS ers’ other substantive legislation. REGULAR OF MEMBERS’
ANNUAL CREDITING RATE AT EARNINGS ACCOUNTS ASSUMED chap- Oregon majority Laws declares Laws 5, 6, as amended ter sections *80 chapter 12, void, 10, sections are because impair provisions contractual retirement those the state’s obligation employees I, in of Article section with violation its part: Oregon provides, That section 21, ofthe Constitution. * * * obligation impairing ever of contracts shall law the “No * * leg- passed provisions of the 2003 PERS The cited be legislature’s annual cred- cancellation of concern the islation regular iting at the account balances of Tier One member majority’s earnings the conclu- rate. I concur with assumed majority respect. the that the I concur with in that also sion charg- statutory legislature’s scheme for modification ing public employer income exceeds when credited accounts “call”) (the impair years earnings does not more than five for obligation statutory underlying contractual contract. The the with the state accounts remains credit member to
241 regardless accounting arrangements pub- of the state’s with employers regarding funding lic of member account balances. (COLAs)
COST OF LIVING ADJUSTMENTS majority Oregon The also concludes that Laws 10(3), chapter Employees 67, section direct Public Retire- (PERB) promise ment Board to breach annual COLAs on certain “fixed” service retirement 225.1 conclude that the cited at allowances. 338 Or legislation
section of 2003 regarding purports obliga- COLAs to eliminate contractual consequence, provision tion of the state. As a theof legislation obligation impairs 2003 of an contract violation leg- I, Article section 21, and is invalid for that reason. The attempt suspend properly islature’s to COLAs on calculated service retirement allowances for the affected retired mem- bers is void. majority theory rests its breach of contract itson
reading Oregon, ofEckles v. State Or 380, P2d (1988). provisions Eckles, In this court examined two of a (the 3), (Special chapter statute, Laws 1982 Session Act”). provision “Transfer four, One Act, of the Transfer section statutory obligation eliminated state’s contractual employers surplus statutory to use to certain funds in a trust only purposes compensation fund laws. A second for related to workers’
provision, two, section directed the State statutory Treasurer to transfer fund to the state General Fund. million from that trust $81 The court concluded that section four theof Transfer impaired obligation preex- Act the state’s contractual under isting employers with contracts was unconstitutional respect. The court also concluded that section two of obligation Transfer Act not did alter the state’s contractual to employers. Requiring the State Treasurer to transfer funds nothing change promise did contractual use state’s solely purposes compensa- the funds related to workers’ tion view, however, laws. the court’s section two did breach promise; exposed the state’s the transfer of the funds legal obligation compensate employers state to a for the breach. *81 my of in the 2003 view, the elimination COLAs legislation closely analogous the elimination of is to statutory duty four the
the contractual effected section majority’s attempt Act, as discussed in Eckles. The Transfer legislation compare aspect the to that of the 2003 PERS to operation Act, as two of the Transfer discussed of section unconvincing. majority Eckles, is I that the mis- conclude reads Eckles.
Nevertheless, I no dissent from the see reason to majority adopts following its of con- result that the breach analysis. posi- majority parties returns the tract legislature adopted they occupied its the tion before amendment, declares that that amendment void. remedy leg- proper demonstrates, when As that is the Eckles obligation statutory impairs contract in vio- islation a Oregon I, Constitution. As a majority opinion. lation ofArticle section aspect consequence, I concur
ADOPTION OF NEW ACTUARIAL (AEFs) EQUIVALENCYFACTORS preexisting legislation modifies the The 2003 PERS application statutory regarding of actuarial scheme PERB’s (AEFs) equivalency to member’s account factors convert a things. monthly among allowance, Peti- to other balance tioners contend a delegation pursuant to rule- that, a lawful (former authority, making adopted in PERB had rules 459-005-0055) (OAR 459-05-055) OAR and 1996 changing any adop- required AEF if the PERB to refrain from lowering peri- a have the effect of tion ofthe new factor would According single payment benefit to member. odic system,” [d] part petitioners, ofthe rules “constitute PERB’s (2001) provided, 238.630(3)(g) of their from the time as ORS amending petitioners argue, adoption. certain Therefore, update require AEFs, its PERB to statutes aspect impaired retirement between contract an of PERS. state and the affected members requires chapter 68, section Laws adopt infor- actuarial AEFs that “use best PERB to new adopts mortality at the time board on available mation incorporates [.]” new AEFs law 4 ofthat the tables Section part as a of the retirement calculus for members who retired July pos- exposes 1,2003, on or after those retirees sibility of lower retirement under the new AEFs. allowances *82 contend of Petitioners that those sections Laws impair obligation chapter 68, the state’s contractual to its employees. majority rejects claim, that question and I concur for the
following reason. There is no and that PERB’s 1993 rule, form, 1996 in its amended in and 1996 absolute uncon- prohibited any changing ditional terms, PERB from AEF to any the economic detriment of member who established membership January unnecessary before 1,1999. It is proceeding to decide in this whether PERB exceeded its rule- making authority adopting only in those rules. The true question requiring is whether the statutes establishment of legisla- AEFs PERB a reflect contractual intention Legislative Assembly ture, such in 2003 lacked authority impair any obligation regarding AEFs that PERB’s rules embodied. arguendo by legislature may
I assume that the create binding delegation authority contract a valid to an agency specify through administrative contractual terms rulemaking. However, that is not what occurred here. many years leg-
For before it enacted the 2003 PERS legislature required islation, had PERB to establish from necessary time to time the PERB to determine the actuarial actuarial factors that would allow
equivalency optional of the system. e.g., forms retirement under See, ORS former (1991).1 237.251(3)(g) “relating “Actuarial” means to statisti- esp. expectancy.” cal calculation of life Webster’sThird New 2002). Dictionary (unabridged Int’l ed As a variable in the 237.251(3) (1991), adopted Former ORS in which was effect when PERB question, provided, part: rules in in
“The board: “(g) equivalency optional Shall determine the actuarial forms of retire- purpose ment and allowances establish from time to time for that necessary factors, part system!.]” actuarial which shall constitute statute, 238.630(3)(g) That renumbered as ORS in in remained effect without legislature by enacting Oregon substantive modification uhtil it amended Laws 2003, chapter 68, 4. sections equivalency, the factor of calculation of actuarial statistical unchanging expectancy” no constant and value. “life has prevalence shifting constantly flux, with the Rather, it (e.g., subject population of factors health the various etc.) longev- history, use, diet, exercise, tobacco that influence (1991)required ity.2 237.251(3)(g) take PERB to ORS Former changing deter- character of the factors that account of the necessary equivalency by establishing the mine actuarial time.” actuarial factors “from time to question has dele- There is no that the authority rulemaking gated When PERB to PERB. broad adopted consideration, under ORS the two rules now former 238.650(1995),provided: (1991), ORS 237.263 renumbered as 237.315, 237.001 to “Subject to the limitations ORS shall, time, trans- time to establish rules
the board acting from system in accor- administering its business ORS 183.310 to 183.550.” requirements with the dance added.) (Emphasis with- statute has remained effect That *83 through present time. Aside out modification substantive any question the 1993 and 1996 from of the lawfulness of authority alter that PERB had to rules, that statute confirms any those rules at time. authority to its rules is insuffi- broad alter
PERB’s standing PERB’s rules did cient, alone, to demonstrate that they legislative in while were a contractual intent not reflect duty ORS However, in of PERB’s under effect. view former (1991) accuracy 237.25l(3)(g) its AEFs and evaluate the of to necessary qual- publish ifying time, time to and new ones from authority rulemaking on PERB’s effect of statute (1991), I cannot read PERB’s rules in ORS 237.263 former legislation obligation not that later could create a contractual variability acknowledged the factors that legislature the inherent The adopted equivalency when actuarial it influence the statistical determination of premises following for enactment of House Bill as one of its statement 2003, chapter Oregon 68: Laws which later codified assumptions con- equivalency on and factors are based “Whereas actuarial system’s pop- demographics vary constituent as the ditions that over time Employees expected performance of the Public and of investments ulation expectation such change, is that that the most reasonable Retirement Fund so demographic very nature, vary
factors, by reflect those must over time to their ** performance and shifts (1991) impair. required ORS PERB “from Former 237.263 conducting business, for time time” establish rules its statutory 237.251(3)(g) and ORS and its successors through required force 2001 also PERB to new establish provisions AEFs “from time to time.” underscore the Those impermanence petitioners AEF rules on which base foregoing their claim. The discussion demonstrates that the majority correctly rejects petitioners’ impairment contract claims based on PERB’s 1993 and 1996 rules. administrative
PETITIONER DAHLIN’SAGE
DISCRIMINATION CLAIM majority rejects peti- the claim addresses legislation tioner Dahlin that the 2003 PERS discriminates against age him the on basis of violation of I, Article sec- tion Constitution. I concur.
TERMINATION OF EMPLOYEE CONTRIBUTIONS
TO ACCOUNT; MEMBER OF LOSS CREDITS TO MEMBER ACCOUNT AND ENHANCEMENTS
TO RETIREMENT ALLOWANCE legislation long- The 2003 PERS terminates standing statutory plan funding key component pub- employee lic allowances, retirement the member account. employees, that, The result is for affected Tier One decades- statutory requirements old for credits to member accounts employer matching longer apply. contributions no will argue changes inevitably Petitioners that those will lead to reduced retirement allowances violation of their retire- they ment Moreover, contend, contract with the state. employee because retirement will allowances fall under the *84 legislation, public employers pay 2003 PERS will COLA adjustments petitioners illegally after retire on of the basis compounding reduced allowances, retirement thus the eco- injury petitioners. petitioners’ impair- nomic to To evaluate respect, necessary put ment the contract claim in this it is proper requirements context the for member accounts place that were in before enactment the 2003 PERS legislation. eligible payment that an member of the PERS
The system retiring on a service receives is known as retirement (2001) provided: allowance. ORS 238.300 age “Uponretiring fromserviceat normal retirement system
thereafter, a member of shall receive service following retirement allowance which shall consist * * pensions: annuity and added.) (Emphasis clear,
As two sources offunds con- that clause makes annuity pen- an and stitute the service retirement allowance: (2001) “annuity’ “pension” ORS defined and sions. 238.005 follows: purposes chapter:
“For ofthis “(1) ‘Annuity payments life means for derived from provided in this contributions made chapter. member as if: if:
«if: if: if: “(15) payments ‘Pension’means annual forlifederived publicemployers.” by one or more fromcontributions phrase a member” in the “contributions made statutory statutory “annuity’ referred to the definition of percent obligation six oftheir of active members to contribute (the fund). Employees Retirement Fund salaries to the Public 238.200(l)(a) provided: ORS system “An ofthe shall contribute the activemember salary shall withheldfrom the member fund six there be salary.” percent employee statutory public Oregon’s for scheme always required employees’ contributions retirement has provides retirement the financial basis their fund that system years present retirement since the creation required ago. to maintain indi- That has PERB scheme also of member con- accounts that reflect both amount vidual any account due increases tributions to the fund 90-710(2) (stating earnings. § those OCLA to interest See original public employee requirements retirement in the 1945). provisions had not those statute changed Until significantly 1945. since *85 below,
Several statutes in effect as set out the nature and explained member accounts and operation their central importance to the calculation each member’s 238.005(13) (2001) service retirement allowance. ORS pro- vided, in part:
“(a) regular ‘Member account’ the means account the variable account.
“(b) ‘Regular account’ the means account established for each active and inactive member under ORS 238.250.
“(c) ‘Variable account’ the account means established for a Annuity member who in the participates Variable Account under ORS 238.260.” 238.200(2) (2001)
ORS provided: “The provided contributions of each member as in sub- (1) section of this by section shall be employer deducted the from payroll by each and transmitted the employer to board, which shall cause them to be credited to the member account of the member.” (2001)
ORS 238.250 provided: provide “The board regular shall for a account for each active and inactive system. member of the regular account shall show the amount of the member’s contribu- tions to the fund and the they interest which have earned. The board shall furnish a written upon statement thereof request by any beneficiary or system.” member
ORS 238.255 explained the requirements for crediting regular account of a Tier One member: “The account an active or inactive member of system shall be year. examined each If the regular account is ¿mount earnings year credited with previous for the in an earnings
less than the that would been have cred- ited pursuant to the assumed interest rate year for that board, determined the amount of the difference shall credited the regular charged be account and to a reserve account in the fund purpose. established for the A reserve account so may established not be maintained on a deficit basis for a period years. of more than five Earnings excess of the years assumed interest rate for following year charge for which a is made to the reserve account shall the amount of a defi- applied
first to reduce eliminate be attempt Employees Public Retirement Board shall cit. The account is funded with amounts to ensure that reserve all adequate to leave a zero balance in account when system membership before members who established January 238.430, 1, 1996, have as described in ORS retired.” out above demonstrate
The statutes set salary regarding requirements member contributions they required personal First, fund served two functions. the investment, system the member in the ulti- time, over *86 they mately Second, fund the member’s retirement. would opportunity, time, over to increase the member the afforded resulting regular account. the size of the member’s system reports majority correctly that the The calculating a formulas for member’s created three different promised and the members retirement allowance service according to the calculate their benefits that the state would highest provide would formula out of the three that one are The three formulas retirement allowance. level service Annuity, Money and Full Match, the Pension Plus applies only Annuity Plus formula The Pension Formula. Tier One members who made contributions system
to the August do For One members who 21, 1981. the Tier before (2001) qualification, two, affords ORS 238.300 not meet Money Formula. Match and the Full three, formulas, the not argue, petitioners undisputed the size that, as It is Money allowance under service retirement member’s Match and the size directly Annuity on turns Pension Plus formulas percentage-of-salary contribu- accumulated reg- in the member’s on those contributions and interest tions account. ular from the terms ORS formulas arise three provided:
238.300, which age or retiring service at normal retirement “Upon from a service thereafter, system shall receive a member following which shall consist of allowance retirement annuity pensions:
“(1) annuity be the actuarial A which shall refund the member accumulated contributions equivalent of and interest retirement, thereon credited at the time of annuity which provide shall an payable during allowance the life of the member and at death a lump equal sum amount to the difference between accumulated contribu- at tions the time of retirement annuity and the sum of the payments actually made during to the member life shall be paid to such if person, any, as the member nominates written designation duly acknowledged and filed with the paid board shall otherwise be according provisions of this chapter disposal of an amount credited to the account member of a at the time member of death in the event the designates member no beneficiary to receive the amount or beneficiary no such is able to receive the amount.
If death of the member payment occurs before the first due, the member account of the member shall be treated as though death had occurred before retirement.
“(2)(a) (nonrefund) A pension life for current service provided by the employers, contributions of pension, which (b) subject to paragraph subsection, this shall be an which, amount when added annuity to the sum of the under subsection of this section and annuity, any, if pro- vided on the same basis payable from the Variable Annuity Account, both annuities considered on a refund basis, results in a total of:
“(A) For police service as a firefighter, officer or two percent average salary of final multiplied by the number of years of membership in system as a police officeror fire- *87 fighter before the effective date of retirement. “(B) For service as a Legislative member of the Assem-
bly, percent two of average salary final multiplied by the years number of of membership system in the as a member of the Legislative Assembly before the effective date of retirement.
“(C) officer, For service as police other than a fire fighter or Legislative member ofthe Assembly, percent 1.67 of final average salary multiplied by years the number of of membership system in the officer, as other than a police firefighter Legislative or member of the Assembly before retirement.[3] the effective date of
“(b) pension A under this subsection shall be at least: paragraph This states the Full Formula.
“(A) provided annuity equivalent The actuarial member.[4] accumulated contributions of the by “(B) who made contributions before For a member 21,1981, pension computed pur a August equivalent of immediately before as it existed suant to this subsection date.[5] “(c) subsection, years of in this ‘number of As used any years plus of full membership’ means the number salary paid was remaining year fraction of a for which System Retirement Employees to the Public contributions in paragraph, in this Except provided made. as otherwise a full month shall be con- determining remaining a fraction major fraction of a year as one-twelfth of a sidered Membership of a considered as a full month. month shall be the State Board of employee, employee district an of school activ- engaged teaching in or other school Higher Education employee or an of ity the higher of education at an institution Services, Youth Department of Human Corrections or the State Authority, Department of teaching in or other school engaged Board of Education authority, board activity supervised at an institution year in a calendar portions or for all of a school department, school, higher edu- institution of year in which the district activity supervised an institution so cation or school at normally in session shall employed which the member is membership. The year of considered as a full one-half be a member who received years membership of of number refund of contributions as 237.976(2) is in ORS provided day the date years after before limited to the number years received. The number on which the refund was any reason separated, who is membership of a member entitling the disability, from all service other than death withdraws the membership system, in the who member to of the member to the member account amount credited and who there- from such service during the fund absence participating an employer reenters the service of after the amount so withdrawn repay does not system but years is limited to the number provided chapter, in this reentering. day the date of so after the before Money paragraph formula. Match This states Annuity paragraph formula. the Pension Plus This states *88 “(3) (nonrefund) An pension prior additional life for credit, service, including military service credited to the at the time becoming sys- member tem, of first a member of the provided as elsewhere chapter, pension this which by shall provided employer.” be the contributions of the added.) (Emphasis Money
The Match formula in that statute derives 238.300(2)(b)(A) (2001).6 particularly from the terms of ORS Master Special described the operation Money Match formula as follows:
“[U]nder Money method, Match a retired member annuity receives an based on his or her member account balance, which is by equal annuity matched an that the employer employers member’s has calculated the balance in the funds. PERB historically
Money Match benefit determining the regular account, member’s adding the bal- ance in the account, member’s any, variable if and multiply- ing the combined balance an AEF. A benefit in an equal amount is then charged added and employer’s account. The resulting retirement allowance is therefore twice the amount of the resulting benefit from the mem- ber’s own annuitized account balances.”
Special Master’s at 13. Report
The legislature created the Pension Plus Annuity formula in 1967, Oregon 1967, Laws chapter and, as already noted, it applies only to PERS members who have made contributions before August 1981. The Special Master described the operation of the Pension Plus Annuity formula as follows: majority indicates, PERS, As the inception provided at its for the cre personal ation of public employee pay accounts into which the would an amount actuarially sufficient, earnings determined balance, to be with on the account provide proposed one-half of (typically, time, retirement allowance at the 50% average salary). Upon retirement, final employee OCLA § 90-714. would annuity receive an personal account, based on public the value of the and the employer provide annuity, also pro would a similar for the other one-half of the posed allowance, by “matching” employee’s retirement the amount in the individ ual projected account. OCLA § 90-719. The level of the retirement benefit has time, augmented increased over system and the has the PERS from time to time provide stability during with various periods reserve features to However, except two-year period years ago,
loss. system one over 35 the PERS Money has retained the Match formula as one available method ofretirement ben through present efit calculation time. only Annuity Plus method is available
“The Pension August before members who made PERS contributions method, pension equal PERS calculates a 1981. Under that *89 (1.35 average salary final 1.0 of the member’s percent employees) and fire for legislators, police for and percent by annuity multiplying An calculated year each of service. by equivalency an actuarial the member’s account balance (AEF) The retirement allow- pension. is added to the factor and the member’s pension the of the formula ance is annuitized account balance. Under sum Annu- the Pension Plus by method, fully funded ity the retirement allowance employers.” Formula pension created the Full
The legislature ch 4. The Special in 1981. Or Laws benefit § the of the Full Formula pension Master described operation as follows: by allowance calculates the Full Formula “PERS staff salary average final and retiring the member’s
multiplying years provides percent formula service a factor. The (25 years of salary employees for career average of final service). Thus, service, the years general or 30 police/fire Full Formula components: calculation consists of three (2) (1) salary; the member’s average final the member’s the date of of creditable service as of years and months at 1.67 for retirement; percent factor set statute and a legislators, employees percent and 2.0 general service is entitled to officers, The member firefighters.7 police final aver to the member’s annuity equal in an amount an of creditable service multiplied by length the age salary statutory factor. percentage the multiplied by applicable “7 legislators, police, Formula benefit for The Full allows those higher multiplier that provides a fire members benefit, by retirement a more favorable members to receive benefit, pro than is at a full allowing earlier retirement general service.” vided for members 238.300(2)(a) (2001) that ORS to note It is important “subject par- was Full Formula method provided (b) (i.e (b) The cited paragraph [.]” of this subsection agraph under this sub- 238.300(2)(b)), pension “[a] stated that ORS Money least:”, and then described at section shall be read When I formulas. Annuity Plus Match and Pension passages together, they ambiguity, indicate, without those that the portion
legislature guaranteed pension qualified retiring allowance, member’s service retirement method, when under Full would not calculated Formula pension employee fall the amount to which below Money or, would either formula be entitled under Match applied, Annuity if it the Pension Plus formula. preexist- foregoing indicates that the discussion
ing system required Tier One members to contribute salary, percent through payroll six their either deduction by employer “pick-up,” fund, but entitled members together contributions, accumulate those with interest on regular contributions, in each member’s account. That tangible scheme created incentive for Tier One members to large regular possible, because, accumulate as account as at guaranteed retirement, the state that the size of the among account, factors, other would size of determine the the because the Finally, member’s service retirement allowance.
Money applicable, Annuity and, Match as the Pension Plus operated pen- formulas aas financial floor which the beneath component identify sion fall, could I not the incentive that regardless par- above for existed all Tier One of members the ticular formula that PERS used to calculate their service retirement allowance. legislature
In the 238.200, amended ORS prohibits any which now future the contributions to fund regular and, thus, the to account or after member’s on 238.200(4) January provides, part: 1, 2004. ORS (1) (3) “Notwithstanding section, a subsections of this system, member of the or a participating employer acting 238.205, on of pursuant behalf the ORS is member not permitted or required to make employee contributions to 1,2004.” the fond service performed January on or after require The new statute continues to members to contribute percent salary,7 six their of but now diverts amounts those (LAP). Program Regular into an Individual Account accounts longer salary will to exist, continue but PERS no will credit 7 238.200(l)(b) requires salary employees ORS smaller contributions from who 21,1981. August were active members on
254 Special The Master sum-
contributions to accounts. aspect consequences the of of the 2003 PERS marized legislation as follows: IAP will
“The of member contributions to the diversion future purposes reduce account balances for members’ a Money under Match On employer matching the formula. basis, elimination system-wide employee the contribu- Money probably from Match will cause tions calculation Money Full Match as option Formula overtake Although most retirement formula. members common IAP, will will held in the those balances receive balances contributions, by employer enhanced not be matched increases, annuitized at assumed earn- living cost package.” rate ings part of defined benefit Hughes Oregon, 1, 12, State 838 P2d v. Or (1992), legislature court whether the this considered modifying impaired had the PERS contract in accruing” “accrued or statute that made retirement benefits exempt income taxation. The court under PERS from state acknowledged a contract rule that the court will not infer express unambiguously legislation from if the law “does not contract[.]” court, how- Id. at 14. The an intention to create was a settled ever, noted that the contractual nature matter: a contract premise
“We from the that PERS is begin contractual employees. between the state its The v. Taylor was pension nature of schemes settled such Bd., P2d 339 Dep. Mult. Ret. 265 Or Sher. (1973).” that, contractual at 18. court concluded because Id. of PERS contractual nature intent of only remaining question, “[t]he law, were matters of settled 237.201 therefore, and to extent ORS what whether former accruing” *91 exempted [the “accrued or that statute taxation] to a term state was intended be PERS benefits from omitted). (footnote at The court Id. of the contract.” question affirmative, because, consid- in the answered that ering exemption’s as a mat- the tax enactment the context of legislature “primary importance,” included the had ter of parcel” exemption part 1953 PERS statute. Id. and of the “as at 25. Hughes impairment holding
The court limited its to already those PERS retirement benefits had accrued in past accruing present, distinguished or were at those categories accruing future, from benefits in the because the preexisting exemption incorporated PERS tax statute had express Hughes Thus, distinction. concluded, court obligated statutory the tract to treat as formed after a had not itself its con-
exempt per- PERS benefits received for work change exemption in the tax statute. Hughes Taylor proposition relied on the case for the (and acceptance employment completion
that, on
of
of a
service)
required
period
employer,
six-month
with a PERS
subsequent legislation
impair
employee’s
cannot
vested
pension plan. Hughes,
contractual
interest
because her contractual arose when she first had ren- completed dered service under ordinance, not when she required the service that the later Ordinance No. 29 receipt pension benefits: “Weconcludefrom the above authorities that adopted only concept pensions,
has
not
the contractual
concept
rights
prior
but, also,the
that contractual
can arise
completion
necessary
pension.
of the service
to a
* * *
rights
subject,
subsequent
course,
Such
are
com-
pletion
necessary
ofthe
service.”
(citations omitted).
Taylor,
According
unilateral contract. Id. at 452.8 part performance.” tender of with the follow- in Taylor quoted approval This court Law Contracts the Restatement the rules of law from ing of of terms nature of the offered binding employer’s the regarding the offer by the employee accepts in a retirement once plan tendering part performance:
“ made, part is of ‘If for a unilateral contract an offer given or tendered in the offer is requested the consideration thereto, by a the offeror is bound by response the offeree which is contract, performance immediate of duty the of being given or ten- fall consideration conditional on the offer, or, if no time is in the within the time stated dered time. therein, within a reasonable stated “ ‘Comment:
«<**** [*]
“ Though the Tender, however, is sufficient. not ‘b. obviously it nevertheless is performance, of equivalent no action- There can be unjust to allow so late withdrawal. received all offeror until he has duty part the able on by is excused his demanded, until the condition that he or tender; he refusing a but prevention performance own of day. The main offer at an earlier may become bound necessarily implied, subsidiary promise, includes as the offeror given, requested performance the part if of assumption Taylor on the the term “unilateral contract” The court in selected partial per employer’s accept offer the tender of employees could the that the binding the subsequent the effect of Taylor discussion of court’s formance. context, partial that, employment partial performance confirms in the tender of Thus, power one char employer’s revoke the offer. performance the to offeror’s terminates power offer truly to revoke the unilateral contract —the acteristic of setting. applicable performance in this not full the offeree tenders before —is fully may longer provide a accu- Moreover, no “unilateral contract” the term binding. relationship employment conception that make the rate of the factors (Second) (1981), Law Institute which the American Contracts 32 § Restatement of Taylor decision, provides: years adopted eight the after accept inviting interpreted the offeree to as “In doubt an offer is case of by rendering per- requests the perform or by promising what the offer to either
formance, the offeree chooses.” performance mode employer as the sole on provision, unless the insists Under by partially may employer employee to its offer either acceptance, bind the case, acceptance terminates perform. a valid promising to In either performing or employer’spower the offer. to revoke offer, will not revoke his and that if tender is made it will be accepted. performance may Part tender thus furnish con- subsidiary promises sideration ***.’” Id. at 452-53 (quoting Restatement Law Contracts (1932)). to those the facts Applying principles Taylor, § the court stated: circumstances,
“As applied present plaintiffs plan tender the contributions and acceptance ter- power offer, minated plaintiff revoke defendants’ be plan would entitled she continued benefits of if *93 requisite necessary to work the period retirement.” for for added). Id. 454 at (emphasis
Two additional authorities that this court discussed with in approval Taylor confirm the nature an binding of offered employer’s inducements for the employment once them employee accepts commencing by service. Harryman Dist., v. Roseburg Fire 631, 420 244 Or (1966), P2d 51 a public it employer represented that would allow to accu employees mulate unused sick leave and them for it ter pay they when minated employment. The plaintiff accepted employment. the Later, public employer revoked the sick leave policy and refused to pay the for the sick that employee leave he had accumulated during employment. his This held court that the public was honor employer required to the inducement for that it employment had made: plaintiff upon employment
“When entered with his defen- dant he was advised that he would an receive allowance for termination upon employment. accumulated sick leave of accepted employment upon He that assumption the the allowance for a part compensation sick leave was of his services. employment, it part accept Since was a of the inducement to regarded
it can be a term as contractual of plaintiffs employment. not, therefore, Defendant could plaintiff of he deprive the allowance after had earned it.” (footnote omitted). Id. at 634-35 Schrunk,
In Adams v.
6
accumulate time toward their spent counting temporary This in in service. court time holding Taylor following summary provided the in expressly agreed with it: Adams and Schrunk, Adams v. (1971),
“In
6 Or
P2d 831
App
(rev.
denied
16,1971),
Appeals
held
November
Court
a
time
police
acquired
right
that Portland
officers
have
periods
in their
temporary
as
officers included
served
At the
necessary
pension.
them to a
time of
service
the
to entitle
temporary
existing pension plan
service
then
length
computing
this inclusion
service
authorized
were withheld
necessary
pension,
for a
and contributions
Subsequently,
plan
was
from the officers’ salaries.
amended to
deny
such
The Court of
the inclusion of
service.
Ret
Teachers’
Appeals
recognized,
[v.
thus
Crawford
Ass’n, (1940)]
Fund
not,
had
Or
P2d
completion
right
contractual
could be established before
agree
necessary to a
We
with
pension.
of the service
opinion.”
added).
(underscoring
Hughes,
Taylor,
See
259 (1996) (OSPOA). 356, 918 P2d OSPOA involved a con- 765 impairment challenge changes tract three to PERS that a to purported measure, ballot Ballot to Measure add to the repeated state constitution. Section 10 measure existing requirement per- six members must contribute salary system, prohibited public cent of to their but employers, by “picking up” otherwise, contract or from employees’ percent payment obligation. provision six That legislature’s concerned the (1979), of enactment ORS 237.075 former (1995), renumbered as ORS 238.205 which authorized public employers agree employees with or to decide unilat- erally pick up employee contribution PERS. See (explaining operation pick-up OSPOA, at 323 Or stat- ute). Section 11 the ballot measure withdrew the statuto- rily guaranteed minimum rate return on PERS member purported accounts. Section of the ballot measure to nul- lify retiring a statute that allowed PERS members to add average accumulated unused sick leave benefits to final their salary. length
The court OSPOA reviewed at including opinion, law, case subject the cases discussed in this on the rights public employee of contractual that arise from plans. Addressing retirement section the court stated: Taylor analysis, “Under the and contrary to the state’s here, argument 237.075, ORS and the implementa- state’s authority tion of statute, in that promised contained pension that plaintiffs only benefit could realize on retire- ment years service, is, with sufficient rendering after labor for accepted by the state. working. Plaintiffs that offer See Taylor, Or at change by 452. The mandated section obligation, alters the state’s contractual in violation of Taylor, by increasing plaintiffs’ cost of retirement benefits that, separation employment, services absent a lawful they provide will consequence, the future. That if approved, permit would the state to retain the benefit of labor, plaintiffs’ but relieve the state of the pay- burden of ing plaintiffs what it promised for that That result labor. would plaintiffs’ frustrate expecta- reasonable contractual tions legal expressly that were based on commitments made the state. and accepted, pension promise
“Once offered
made
the state
a mirage (something
is not
seen in the distance
*95
260
retirement).
employee
reaches
disappears before
contract
plaintiffs’ PERS
express term of
Nullification of an
purposes of Contract
impairment
an
for
with the state is
Spannaus,
Co. v.
analysis, Allied Structural Steel
Clause
(1978).
Section 10 to the cost of respect with promise plaintiffs contractual plan and in the PERS retirement participation their Under section on retirement. they will receive benefits increases while employee to the participation the cost of ultimately will receive on employee that the the benefits impairs Unquestionably, section decrease. retirement the PERS contract.” obligation plaintiffs’ footnote original; OSPOA, (emphasis Or at 374-75 omitted). majority, that the dissent, Gillette opined Justice statutory permis- 10, had transformed section analyzing six per- all up public employees’ to pick
sion into a promise J., Id. at (Gillette, dissenting). cent contributions. as follows: criticism to Justice Gillette’s
majority responded failing it ‘errs in analysis is that fatal flaw in that “The 21 n 314 Or at Hughes, of context.’ significance consider 27. The six the under- integral part an pick-up is percent of the termination contract. Unilateral lying pension PERS contract pension PERS term of the percent pick-up six underlying pension contract materially changes reason- and, thus, plaintiffs’ frustrates plaintiffs’ detriment them and which the state made to reliance on the offer able Id. at part performance. tender of by the they accepted 20-21.”
Id. at 376. 11 and 12 that sections
OSPOA went on to hold rights. contractual employee impaired Measure 8 also Ballot The court was unanimous. conclusions, the court to those As entirety. 8 in its Ballot Measure struck down altera- legislature’s analysis I turn now member crediting for scheme in 2003 of the preexisting tion Both law discussed above. of the case in light contributions are members 2003 legislation, and after the before to a decades, legal many have been they subject, requirement percent salary to contribute six of their to a dis- Salary longer crete “account” in PERS. contributions no will be to, credited and enhance the of, value member salary accounts; instead, PERS will credit contributions to *96 legislative the LAP. change, Also, reg- before and after the the ular account and LAP of each member will earn a rate of changed legislature’s interest. What has before the 2003 is the commitment legislative amendment about how PERS will increase the value of those contributions before and after consequently, and, retirement the value of each member’s service retirement allowance. legislation
First, the pre- 2003 PERS cancelled the existing obligation unconditional to increase Tier One mem- annually by ber account balances the assumed interest rate. already join majority’s L have indicated L in the deter- change impaired mination that that the PERS contract. legislation sig- Second, the 2003 PERS has reduced nificantly practical Money by the value of the Match formula prohibiting salary regular future contributions of member by ehminating any matching regarding accounts and feature change, the LAP.Before the PERS members could work and plan for a service retirement allowance that would reflect a pension salary amount not less than their accumulated con- during years annually tributions by their service, increased plus at least the assumed rate, interest an amount not less (i.e., pension employer) than a an amount “matched” the equivalent annuity that was the actuarial members’ accumulated contributions could of the that the
provide. After the legislation, employer matching 2003 PERS feature will apply July not to member 1, 2003, contributions made after directly either as one available retirement formula or aas minimum financial benchmark for the service retirement allowance. aspect legis-
I conclude that that of the 2003 PERS impairment lation constitutes an of contract under this precedents. According court’s deprivation OSPOA, Ballot Measure 8’s employer pick-up employee feature of the represented impair- account contribution scheme an By logic, recognize ment of contract. dint of we must that the cancellation contribution complete prospective an even clearer of contract. impairment scheme constitutes con- majority’s contrary court’s cases defeat the This law, clusion. to this court’s case focus According proper com- retirement benefit at the employer’s plan place enhancements together any mencement of with employment, after plan implements employment to that employer has court allowed a to mod- begins. public body no case this practical a retirement to effect a reduction bene- ify plan fits, either an alteration of the directly through applicable benefits, calculating inducing formula for after employees Taylor plan. render service in reliance on the retirement As Law Contracts con- as the Restatement held, and firms, plan unchangeable that makes benefit premise act is the employer’s promise, unilateral employer’s revoke the employer the law that the will not implies, which once the commences service. employee retirement plan scheme, i.e., “offer,” was Because the pre-2003 *97 his or when each commenced her petitioner employ- place to revoke ment, the is bound its not implied promise state offer tendered partial performance. that once petitioners differ- makes two in its majority points reaching
The that, First, in the majority ent conclusion. the asserts that expected the Full Formula and that legislature adopted to the new, “a calculator primary formula would be benefit the at The also observes that majority 338 Or 191. system.” it the Full Formula feature was because shifted significant to from away market poor performance employers risk employees. the about expectation frequency
The legislature’s calcu- the as a benefit “primary use of Full Formula method the Master Special that: an As just expectation. lator” found, that member retirement “[u]ntil PERB assumed under the Full Formula would be calculated allowances method!,]” as Match instead in 1997 Money emerged the but But the erroneous assumptions formula. predominant the which retirement formula and PERB about legislature the a calcula- benefit “primary be used most might frequently statute the pre-2003 cannot alter the fact that tor” promised they calcu- members that would receive benefits economically according lated attractive most formula among statutory from three formulas. Those incorrect assumptions frequency the use Full about of the Formula “primary and whether it would the benefit be calculator” obligation pay have no effect on the state’s contractual employees. full benefits that statute held out majority’s point disregards fact, The also con- 238.300(2)(b) (2001), leg- in firmed the text of ORS that the required employer’s pension islature Full Formula to be Money equivalent “at least” the actuarial Match and Annuity Thus, Pension Plus formulas. aas matter of clear may ceiling text, the Full Formula be the it is but not the floor pension statutory component. for the significance
I fail see of the fact that the Full greater employers. Formula shifted risk ofmarket loss to promised they PERS statute that members would receive according economically benefits calculated to the most attrac- regardless perform- tive retirement benefit formula market merely ance. The addition the Full in Formula benefit option added one more to the retirement calculation formu- any las. The risk of market loss under of those formulas has nothing prom- to do with their function in calculation of ised service retirement allowances.
Finally, majority provi- statutory *98 exemption larger statutory statute within a contract was a significant legislature’s contextual clue about the contractual promissory exemption the intent; absence of terms in tax the was, itself view, statute the court’s immaterial. court The Supreme cited numerous United States Court cases that held exemption larger contract, that a tax a term a and was of noted: significant underlying [in cases] is that an
“The contract fact those analogous present. presents was This case an sit- underlying faced with an contract— uation where we are the tax question PERS contract —and the is whether the a term Also exemption cant signifi- statute is of that contract. not, exemption that in cases the tax terms are is those face, repeal on of an intention not to those their indicative The protection constitutional that was exemptions. afforded obligations the provisions’ those fact followed from contract, they were part larger they prom- were not that issory in and themselves.” added). Or at 21-22 n 27 Hughes, (emphasis case, from to this it is Applying point Hughes explicit did not word- legislature append immaterial the its unchangea- account statute to confirm ing is Did the bility. statutory What is context. significant into PERS incorporate provisions contract and the calculation of retirement bene- regular accounts Clearly, fits from the accumulated benefits those accounts? legal The answer is a yes. majority’s contrary answer error. OF ACCOUNT
ELIMINATION VARIABLE as The Master found follows: Special 3 HB “Before enactment Section of percent could to have 50 or 75 of their members elect accounts, employee contributions allocated variable they annuity at retire- purchase were entitled to a variable balances. ORS 238.260 ment with their variable account (2001). that, after December provides Section 3 of HB 31, 2003, to direct longer permitted members no are contri- 238.260(3)(b) (2003). account. ORS butions to variable mem- not affect contributions credited to
“Section does its effective date.” ber accounts before operation Master Special explained before its cancellation follows: variable account system pay are first allocated to “Earnings on variable accounts administrative expenses, share proportionate *99 sys- remainder are credited to member accounts. The PERS tem never has funded a reserve from variable account earn- many ings. years, in reg- For PERB added the balances the ular and variable accounts of members who retired under Match, Money the and it the AEFs applied relevant to cal- annuities. monthly required culate their PERS then match employers gave to those annuities. That practice earnings members twice the on difference between the their regular and variable accounts.” essence, the variable account afforded mem- plan
bers the opportunity to obtain in their greater growth regular accounts a of by investing portion their salary contributions 238.260(1) in equities. ORS explained the legislature’s pur- in pose establishing the variable account program: purpose
“The of this section to establish well bal- anced, broadly program diversified investment for certain portions contributions and of the member accounts so as to provide retirement system benefits for members of that will earnings fluctuate the value and of the investments vary in relation to changes general economy. in the It is anticipated investment of those and por- contributions tions of equities the member accounts will result in the larger deposit accumulation reserves for those members during working years, their preserve tend to purchasing power of those pro- reserves and retirement benefits thereby vided protection afford periods better of eco- nomic inflation.”
Petitioners assert the legislature’s repeal their right to direct contributions to the account pro- variable gram is an of their contract. impairment majority rejects that claim, relying substantially on the used reasoning reject claim petitioners’ regarding members’ accounts. In majority to the absence particular, points specific words ORS or any 238.260 earlier version of the variable account statute in which legislature expressly promised program. continue variable account The majority draws the from that that the leg- conclusion fact islature thus reserved the the variable account right repeal program any at time.
I None of disagree. components of the PERS con- tract, including promised retirement formulas and public legislative promise obligations, appears
employer with a reasoning majority’s repeal them. The will not departs retirement that examine from this court’s decisions standpoint obligations offered. None of benefits from the promise suggested that the absence of has this court’s cases plan nonrepeal exposes to withdrawal a retirement benefit or cancellation. only legislature’s cancellation was that the
The fact impairment prospective of contract it from an does not save accepted employ- employees challenge. the affected When represented plan one available account ment, the variable *100 regular increasing As the their accounts. the size of means for foregoing challenge regular dem- account of the discussion employ- employers, once to allow onstrates, our cases decline plan nullify aspects a retirement commences, to ment may employees retirement ben- their service use to enhance major- expressed discussion, the in that the reasons efit. For contrary ity’s is erroneous. conclusion major- respectfully from the I dissent conclusion, legislature’s regarding ity’s amendment of conclusions regarding employee contributions the statutes concur, for the reasons accounts, and accounts and variable majority’s conclusions. stated, with the balance opinion. Riggs this Kistler, JJ., concur with notes regarding regular separate sion accounts contains no word- ing promises that the will not terminate the accumulation of member contributions accounts. rejected argument This court addressed similar Hughes opinion dissenting majority that a asserted. The Hughes emphasized legislature’s inclusion of tax