Opinion ID: 835784
Heading Depth: 1
Heading Rank: 11

Heading: termination of employee contributions to member account; loss of credits to member account and enhancements to retirement allowance

Text: The 2003 PERS legislation terminates the longstanding statutory plan for funding a key component of public employee retirement allowances, the member account. The result is that, for affected Tier One employees, decades-old statutory requirements for credits to member accounts and employer matching contributions no longer will apply. Petitioners argue that those changes inevitably will lead to reduced retirement allowances in violation of their retirement contract with the state. Moreover, they contend, because employee retirement allowances will fall under the 2003 PERS legislation, public employers will pay COLA adjustments after petitioners retire on the basis of illegally reduced retirement allowances, thus compounding the economic injury to petitioners. To evaluate petitioners' impairment of contract claim in this respect, it is necessary to put in the proper context the requirements for member accounts that were in place before enactment of the 2003 PERS legislation. The payment that an eligible member of the PERS system receives on retiring is known as a service retirement allowance. ORS 238.300 (2001) provided: Upon retiring from service at normal retirement age or thereafter, a member of the system shall receive a service retirement allowance which shall consist of the following annuity and pensions:   . (Emphasis added.) As that clause makes clear, two sources of funds constitute the service retirement allowance: an annuity and pensions. ORS 238.005 (2001) defined annuity and pension as follows: For purposes of this chapter: (1) `Annuity' means payments for life derived from contributions made by a member as provided in this chapter.      (15) `Pension' means annual payments for life derived from contributions by one or more public employers. The phrase contributions made by a member in the statutory definition of annuity referred to the statutory obligation of active members to contribute six percent of their salaries to the Public Employees Retirement Fund (the fund). ORS 238.200(1)(a) (2001) provided: An active member of the system shall contribute to the fund and there shall be withheld from salary of the member six percent of that salary. Oregon's statutory scheme for public employee retirement always has required employees' contributions to the fund that provides the financial basis for their retirement since the creation of the present retirement system 60 years ago. That scheme also has required PERB to maintain individual accounts that reflect both the amount of member contributions to the fund and any increases in the account due to interest earnings. See OCLA § 90-710(2) (stating those requirements in the original public employee retirement statute in 1945). Until 2003, those provisions had not changed significantly since 1945. Several statutes in effect in 2001, as set out below, explained the nature and operation of member accounts and their central importance to the calculation of each member's service retirement allowance. ORS 238.005(13) (2001) provided, in part: (a) `Member account' means the regular account and the variable account. (b) `Regular account' means the account established for each active and inactive member under ORS 238.250. (c) `Variable account' means the account established for a member who participates in the Variable Annuity Account under ORS 238.260. ORS 238.200(2) (2001) provided: The contributions of each member as provided in subsection (1) of this section shall be deducted by the employer from each payroll and transmitted by the employer to the board, which shall cause them to be credited to the member account of the member. ORS 238.250 (2001) provided: The board shall provide for a regular account for each active and inactive member of the system. The regular account shall show the amount of the member's contributions to the fund and the interest which they have earned. The board shall furnish a written statement thereof upon request by any member or beneficiary of the system. ORS 238.255 (2001) explained the requirements for crediting the regular account of a Tier One member: The regular account for an active or inactive member of the system shall be examined each year. If the regular account is credited with earnings for the previous year in an amount less than the earnings that would have been credited pursuant to the assumed interest rate for that year determined by the board, the amount of the difference shall be credited to the regular account and charged to a reserve account in the fund established for the purpose. A reserve account so established may not be maintained on a deficit basis for a period of more than five years. Earnings in excess of the assumed interest rate for years following the year for which a charge is made to the reserve account shall first be applied to reduce or eliminate the amount of a deficit. The Public Employees Retirement Board shall attempt to ensure that the reserve account is funded with amounts adequate to leave a zero balance in the account when all members who established membership in the system before January 1, 1996, as described in ORS 238.430, have retired. The statutes set out above demonstrate that the requirements regarding member contributions of salary to the fund served two functions. First, they required a personal investment, over time, by the member in the system that ultimately would fund the member's retirement. Second, they afforded the member the opportunity, over time, to increase the size of the resulting member's regular account. The majority correctly reports that the PERS system created three different formulas for calculating a member's service retirement allowance and promised the members that the state would calculate their benefits according to the one formula out of the three that would provide the highest level of service retirement allowance. The three formulas are the Money Match, the Pension Plus Annuity, and the Full Formula. The Pension Plus Annuity formula applies to only Tier One members who made contributions to the system before August 21, 1981. For the Tier One members who do not meet that qualification, ORS 238.300 (2001) affords two, not three, formulas, the Money Match and the Full Formula. It is undisputed that, as petitioners argue, the size of the member's service retirement allowance under the Money Match and Pension Plus Annuity formulas turns directly on the size of the accumulated percentage-of-salary contributions and interest on those contributions in the member's regular account. The three formulas arise from the terms of ORS 238.300, which in 2001 provided: Upon retiring from service at normal retirement age or thereafter, a member of the system shall receive a service retirement allowance which shall consist of the following annuity and pensions: (1) A refund annuity which shall be the actuarial equivalent of accumulated contributions by the member and interest thereon credited at the time of retirement, which annuity shall provide an allowance payable during the life of the member and at death a lump sum equal in amount to the difference between accumulated contributions at the time of retirement and the sum of the annuity payments actually made to the member during life shall be paid to such person, if any, as the member nominates by written designation duly acknowledged and filed with the board or shall otherwise be paid according to the provisions of this chapter for disposal of an amount credited to the member account of a member at the time of death in the event the member designates no beneficiary to receive the amount or no such beneficiary is able to receive the amount. If death of the member occurs before the first payment is due, the member account of the member shall be treated as though death had occurred before retirement. (2)(a) A life pension (nonrefund) for current service provided by the contributions of employers, which pension, subject to paragraph (b) of this subsection, shall be an amount which, when added to the sum of the annuity under subsection (1) of this section and the annuity, if any, provided on the same basis and payable from the Variable Annuity Account, both annuities considered on a refund basis, results in a total of: (A) For service as a police officer or firefighter, two percent of final average salary multiplied by the number of years of membership in the system as a police officer or firefighter before the effective date of retirement. (B) For service as a member of the Legislative Assembly, two percent of final average salary multiplied by the number of years of membership in the system as a member of the Legislative Assembly before the effective date of retirement. (C) For service as other than a police officer, firefighter or member of the Legislative Assembly, 1.67 percent of final average salary multiplied by the number of years of membership in the system as other than a police officer, firefighter or member of the Legislative Assembly before the effective date of retirement.[ [3] ] (b) A pension under this subsection shall be at least: (A) The actuarial equivalent of the annuity provided by the accumulated contributions of the member.[ [4] ] (B) For a member who made contributions before August 21, 1981, the equivalent of a pension computed pursuant to this subsection as it existed immediately before that date.[ [5] ] (c) As used in this subsection, `number of years of membership' means the number of full years plus any remaining fraction of a year for which salary was paid and contributions to the Public Employees Retirement System made. Except as otherwise provided in this paragraph, in determining a remaining fraction a full month shall be considered as one-twelfth of a year and a major fraction of a month shall be considered as a full month. Membership of a school district employee, an employee of the State Board of Higher Education engaged in teaching or other school activity at an institution of higher education or an employee of the Department of Human Services, the Oregon Youth Authority, the Department of Corrections or the State Board of Education engaged in teaching or other school activity at an institution supervised by the authority, board or department, for all portions of a school year in a calendar year in which the district school, institution of higher education or school activity at an institution so supervised in which the member is employed is normally in session shall be considered as a full one-half year of membership. The number of years of membership of a member who received a refund of contributions as provided in ORS 237.976(2) is limited to the number of years after the day before the date on which the refund was received. The number of years of membership of a member who is separated, for any reason other than death or disability, from all service entitling the member to membership in the system, who withdraws the amount credited to the member account of the member in the fund during absence from such service and who thereafter reenters the service of an employer participating in the system but does not repay the amount so withdrawn as provided in this chapter, is limited to the number of years after the day before the date of so reentering. (3) An additional life pension (nonrefund) for prior service credit, including military service, credited to the member at the time of first becoming a member of the system, as elsewhere provided in this chapter, which pension shall be provided by the contributions of the employer. (Emphasis added.) The Money Match formula in that statute derives particularly from the terms of ORS 238.300(2)(b)(A) (2001). [6] The Special Master described the operation of the Money Match formula as follows: [U]nder the Money Match method, a retired member receives an annuity based on his or her member account balance, which is matched by an equal annuity that the member's employer or employers funds. PERB historically has calculated the Money Match benefit by determining the balance in the member's regular account, adding the balance in the member's variable account, if any, and multiplying the combined balance by an AEF. A benefit in an equal amount is then added and charged to the employer's account. The resulting retirement allowance is therefore twice the amount of the benefit resulting from the member's own annuitized account balances. Special Master's Report at 13. The legislature created the Pension Plus Annuity formula in 1967, Oregon Laws 1967, chapter 622, and, as already noted, it applies only to PERS members who have made contributions before August 21, 1981. The Special Master described the operation of the Pension Plus Annuity formula as follows: The Pension Plus Annuity method is available only to members who made PERS contributions before August 21, 1981. Under that method, PERS calculates a pension equal to 1.0 percent of the member's final average salary (1.35 percent for legislators, and police and fire employees) for each year of service. An annuity calculated by multiplying the member's account balance by an actuarial equivalency factor (AEF) is added to the pension. The retirement allowance is the sum of the formula pension and the member's annuitized account balance. Under the Pension Plus Annuity method, the retirement allowance is fully funded by employers. The legislature created the Full Formula pension benefit in 1981. Or. Laws 1981, ch. 616, § 4. The Special Master described the operation of the Full Formula pension as follows: PERS staff calculates the Full Formula allowance by multiplying the retiring member's final average salary and years of service by a factor. The formula provides 50 percent of final average salary for career employees (25 years of police/fire service, or 30 years of general service). Thus, the Full Formula calculation consists of three components: (1) the member's final average salary; (2) the member's years and months of creditable service as of the date of retirement; and (3) a factor set by statute at 1.67 percent for general service employees and 2.0 percent for legislators, police officers, and firefighters.7 The member is entitled to an annuity in an amount equal to the member's final average salary multiplied by the length of creditable service multiplied by the applicable statutory percentage factor. 7 The Full Formula benefit for legislators, police, and fire members provides a higher multiplier that allows those members to receive a more favorable retirement benefit, by allowing earlier retirement at a full benefit, than is provided for members in general service. It is important to note that ORS 238.300(2)(a) (2001) provided that the Full Formula method was subject to paragraph (b) of this subsection [.] The cited paragraph (b) ( i.e., ORS 238.300(2)(b)), stated that [a] pension under this subsection shall be at least:, and then described the Money Match and Pension Plus Annuity formulas. When I read those passages together, they indicate without ambiguity that the legislature guaranteed that the pension portion of the qualified retiring member's service retirement allowance, when calculated under the Full Formula method, would not fall below the amount of the pension to which the employee would be entitled under either the Money Match formula or, if it applied, the Pension Plus Annuity formula. The foregoing discussion indicates that the preexisting PERS system required Tier One members to contribute six percent of their salary, either through payroll deduction or by employer pick-up, to the fund, but entitled members to accumulate those contributions, together with interest on the contributions, in each member's regular account. That scheme created a tangible incentive for Tier One members to accumulate as large a regular account as possible, because, at retirement, the state guaranteed that the size of the regular account, among other factors, would determine the size of the member's service retirement allowance. Finally, because the Money Match and, as applicable, the Pension Plus Annuity formulas operated as a financial floor beneath which the pension component could not fall, the incentive that I identify above existed for all Tier One members regardless of the particular formula that PERS used to calculate their service retirement allowance. In 2003, the legislature amended ORS 238.200, which now prohibits any future contributions to the fund and, thus, to the member's regular account on or after January 1, 2004. ORS 238.200(4) provides in part: Notwithstanding subsections (1) to (3) of this section, a member of the system, or a participating employer acting on behalf of the member pursuant to ORS 238.205, is not permitted or required to make employee contributions to the fund for service performed on or after January 1, 2004. The new statute continues to require members to contribute six percent of their salary, [7] but now diverts those amounts into an Individual Account Program (IAP). Regular accounts will continue to exist, but PERS no longer will credit salary contributions to regular accounts. The Special Master summarized the consequences of that aspect of the 2003 PERS legislation as follows: The diversion of member contributions to the IAP will reduce members' future account balances for purposes of employer matching under the Money Match formula. On a system-wide basis, the elimination of employee contributions from the Money Match calculation probably will cause the Full Formula option to overtake the Money Match as the most common retirement formula. Although members will receive balances held in the IAP, those balances will not be matched by employer contributions, enhanced by cost of living increases, or annuitized at the assumed earnings rate as part of a defined benefit package. In Hughes v. State of Oregon, 314 Or. 1, 12, 838 P.2d 1018 (1992), this court considered whether the legislature had impaired the PERS contract in 1991 by modifying the statute that made retirement benefits accrued or accruing under PERS exempt from state income taxation. The court acknowledged the rule that the court will not infer a contract from legislation if the law does not unambiguously express an intention to create a contract[.] Id. at 14, 838 P.2d 1018. The court, however, noted that the contractual nature of PERS was a settled matter: We begin from the premise that PERS is a contract between the state and its employees. The contractual nature of such pension schemes was settled in Taylor v. Mult. Dep. Sher. Ret. Bd., 265 Or. 445, 450, 510 P.2d 339 (1973). Id. at 18, 838 P.2d 1018. The court concluded that, because contractual intent of the legislature and the contractual nature of PERS were matters of settled law, [t]he only remaining question, therefore, is whether and to what extent former ORS 237.201 (1989) [the statute that exempted accrued or accruing PERS benefits from state taxation] was intended to be a term of the PERS contract. Id. at 21, 838 P.2d 1018 (footnote omitted). The court answered that question in the affirmative, because, considering the context of the tax exemption's enactment as a matter of primary importance, the legislature had included the exemption as part and parcel of the 1953 PERS statute. Id. at 25, 838 P.2d 1018. The Hughes court limited its impairment holding to those PERS retirement benefits that already had accrued in the past or were accruing at present, and distinguished those categories from benefits accruing in the future, because the preexisting PERS tax exemption statute had incorporated that express distinction. Thus, the Hughes court concluded, the legislature had not obligated itself by its statutory contract to treat as exempt PERS benefits received for work performed after a change in the tax exemption statute. Hughes relied on the Taylor case for the proposition that, on acceptance of employment (and completion of a required six-month period of service) with a PERS employer, subsequent legislation cannot impair the employee's vested contractual interest in a pension plan. Hughes, 314 Or. at 20, 838 P.2d 1018. In Taylor, the plaintiff was a deputy sheriff who had served for 13 years as a jail matron, and later as a corrections officer, in Multnomah County. The county adopted a retirement ordinance, known as Ordinance No. 25, for sworn personnel who provided law enforcement services to the county. The county refused to allow the plaintiff to participate, claiming that her work in the jail did not involve law enforcement services. The county soon amended the ordinance, in Ordinance No. 29, to exclude the plaintiff more clearly, and relied on its express authority under the ordinance to determine the eligibility and qualifications of county personnel to receive benefits under the county's retirement system. This court held that the plaintiff had acquired pension rights under the original ordinance, Ordinance No. 25, because her contractual rights arose when she first had rendered service under that ordinance, not when she completed the service that the later Ordinance No. 29 required for receipt of pension benefits: We conclude from the above authorities that Oregon has adopted not only the contractual concept of pensions, but, also, the concept that contractual rights can arise prior to the completion of the service necessary to a pension.    Such rights are subject, of course, to subsequent completion of the necessary service. Taylor, 265 Or. at 451, 510 P.2d 339 (citations omitted). According to Taylor, [t]he adoption of the pension plan was an offer for a unilateral contract. Such an offer can be accepted by the tender of part performance. Id. at 452, 510 P.2d 339. [8] This court in Taylor quoted with approval the following rules of law from the Restatement of the Law of Contracts regarding the binding nature of the employer's offered terms in a retirement plan once the employee accepts the offer by tendering part performance: `If an offer for a unilateral contract is made, and part of the consideration requested in the offer is given or tendered by the offeree in response thereto, the offeror is bound by a contract, the duty of immediate performance of which is conditional on the full consideration being given or tendered within the time stated in the offer, or, if no time is stated therein, within a reasonable time. ` Comment: `     ` b. Tender, however, is sufficient. Though not the equivalent of performance, nevertheless it is obviously unjust to allow so late withdrawal. There can be no actionable duty on the part of the offeror until he has received all that he demanded, or until the condition is excused by his own prevention of performance by refusing a tender; but he may become bound at an earlier day. The main offer includes as a subsidiary promise, necessarily implied, that if part of the requested performance is given, the offeror will not revoke his offer, and that if tender is made it will be accepted. Part performance or tender may thus furnish consideration for the subsidiary promises   .' Id. at 452-53, 510 P.2d 339 (quoting Restatement of the Law of Contracts § 45 (1932)). Applying those principles to the facts in Taylor, the court stated: As applied to the present circumstances, plaintiff's tender of the contributions and acceptance of the plan terminated defendants' power to revoke the offer, and plaintiff would be entitled to the benefits of the plan if she continued to work for the requisite period necessary for retirement.  Id. at 454, 510 P.2d 339 (emphasis added). Two additional authorities that this court discussed with approval in Taylor confirm the binding nature of an employer's offered inducements for employment once the employee accepts them by commencing service. In Harryman v. Roseburg Fire Dist., 244 Or. 631, 420 P.2d 51 (1966), a public employer represented that it would allow employees to accumulate unused sick leave and pay them for it when they terminated employment. The plaintiff accepted employment. Later, the public employer revoked the sick leave policy and refused to pay the employee for the sick leave that he had accumulated during his employment. This court held that the public employer was required to honor the inducement for employment that it had made: When plaintiff entered upon his employment with defendant he was advised that he would receive an allowance for accumulated sick leave upon termination of employment. He accepted employment upon the assumption that the allowance for sick leave was a part of his compensation for services. Since it was a part of the inducement to accept employment, it can be regarded as a contractual term of plaintiff's employment. Defendant could not, therefore, deprive plaintiff of the allowance after he had earned it. Id. at 634-35, 420 P.2d 51 (footnote omitted). In Adams v. Schrunk, 6 Or.App. 580, 488 P.2d 831 (1971), the Court of Appeals held that a public employer was not entitled to evade, by means of a charter amendment, a provision in its original charter that allowed employees to accumulate time toward their eligibility for retirement by counting time spent in temporary service. This court in Taylor provided the following summary of the holding in Adams and expressly agreed with it: In Adams v. Schrunk, 6 Or.App. 580, 488 P.2d 831 (1971), ( rev. denied November 16, 1971), the Court of Appeals held that Portland police officers acquired a right to have time served as temporary officers included in their periods of service necessary to entitle them to a pension. At the time of the temporary service the then existing pension plan authorized this inclusion in computing the length of service necessary for a pension, and contributions were withheld from the officers' salaries. Subsequently, the plan was amended to deny the inclusion of such service. The Court of Appeals thus recognized, as Crawford [ v. Teachers' Ret. Fund Ass'n, 164 Or. 77, 99 P.2d 729 (1940)] had not, that a contractual right could be established before the completion of the service necessary to a pension. We agree with that opinion. Taylor, 265 Or. at 450-51, 510 P.2d 339 (underscoring added). See Hughes, 314 Or. at 20 n. 25, 838 P.2d 1018 (noting that, in Taylor, this court expressly approved of the holding in Adams v. Schrunk    ). The Taylor court's statement about the earlier decision in Crawford is significant. Crawford correctly had held that a teachers' retirement fund could not alter the terms of a teacher's retirement benefits after the teacher had retired. However, the court had explained its holding in terms that indicated that contract rights did not arise before the employee had rendered complete service: [W]e think the trend of modern authority and the better-reasoned cases are to the effect that contractual relations are created and that, upon full performance by the annuitant, rights accrue which cannot be impaired by subsequent legislation   . Id. at 87-88, 99 P.2d 729. This court's discussion of Adams and Crawford in Taylor constitutes a rejection of the statement in Crawford that contract rights in a retirement plan do not arise before the completion of the necessary service for retirement. The final case that is pertinent to this discussion is Oregon State Police Officers' Assn. v. State of Oregon, 323 Or. 356, 918 P.2d 765 (1996) ( OSPOA ). OSPOA involved a contract impairment challenge to three changes to PERS that a ballot measure, Ballot Measure 8, purported to add to the state constitution. Section 10 of the measure repeated the existing requirement that members must contribute six percent of their salary to the system, but prohibited public employers, by contract or otherwise, from picking up the employees' six percent payment obligation. That provision concerned the legislature's enactment of former ORS 237.075 (1979), renumbered as ORS 238.205 (1995), which authorized public employers to agree with employees or to decide unilaterally to pick up the employee contribution to PERS. See OSPOA, 323 Or. at 373, 918 P.2d 765 (explaining operation of pick-up statute). Section 11 of the ballot measure withdrew the statutorily guaranteed minimum rate of return on PERS member accounts. Section 12 of the ballot measure purported to nullify a statute that allowed retiring PERS members to add accumulated unused sick leave benefits to their final average salary. The court in OSPOA reviewed at length the Oregon case law, including the cases discussed in this opinion, on the subject of contractual rights that arise from public employee retirement plans. Addressing section 10, the court stated: Under the Taylor analysis, and contrary to the state's argument here, ORS 237.075, and the state's implementation of the authority contained in that statute, promised a pension benefit that plaintiffs could realize only on retirement with sufficient years of service, that is, after rendering labor for the state. Plaintiffs accepted that offer by working. See Taylor, 265 Or. at 452, 510 P.2d 339. The change mandated by section 10 alters the state's contractual obligation, in violation of Taylor, by increasing plaintiffs' cost of retirement benefits for services that, absent a lawful separation of employment, they will provide in the future. That consequence, if approved, would permit the state to retain the benefit of plaintiffs' labor, but relieve the state of the burden of paying plaintiffs what it promised for that labor. That result would frustrate plaintiffs' reasonable contractual expectations that were based on legal commitments expressly made by the state. Once offered and accepted, a pension promise made by the state is not a mirage (something seen in the distance that disappears before the employee reaches retirement). Nullification of an express term of plaintiffs' PERS contract with the state is an impairment for purposes of Contract Clause analysis, Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 247, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978). Section 10 expressly and substantially changes the state's contractual promise to plaintiffs with respect to the cost of their participation in the PERS retirement plan and the benefits that they will receive on retirement. Under section 10, the cost of participation to the employee increases while the benefits that the employee ultimately will receive on retirement decrease. Unquestionably, section 10 impairs the obligation of plaintiffs' PERS contract. OSPOA, 323 Or. at 374-75, 918 P.2d 765 (emphasis in original; footnote omitted). In dissent, Justice Gillette opined that the majority, in analyzing section 10, had transformed a statutory permission into a promise to pick up all public employees' six percent contributions. Id. at 409, 918 P.2d 765 (Gillette, J., dissenting). The majority responded to Justice Gillette's criticism as follows: The fatal flaw in that analysis is that it `errs in failing to consider the significance of context.' Hughes, 314 Or. at 21 n. 27, 838 P.2d 1018. The six percent pick-up is an integral part of the underlying PERS pension contract. Unilateral termination of the six percent pick-up term of the PERS pension contract materially changes that underlying pension contract to plaintiffs' detriment and, thus, frustrates plaintiffs' reasonable reliance on the offer the state made to them and which they accepted by the tender of part performance. Id. at 20-21, 838 P.2d 1018. Id. at 376, 918 P.2d 765. OSPOA went on to hold that sections 11 and 12 of Ballot Measure 8 also impaired employee contractual rights. As to those conclusions, the court was unanimous. The court struck down Ballot Measure 8 in its entirety. I turn now to the analysis of the legislature's alteration in 2003 of the preexisting scheme for crediting member contributions in light of the case law discussed above. Both before and after the 2003 legislation, PERS members are subject, as they have been for many decades, to a legal requirement to contribute six percent of their salary to a discrete account in PERS. Salary contributions no longer will be credited to, and enhance the value of, member regular accounts; instead, PERS will credit salary contributions to the IAP. Also, before and after the legislative change, the regular account and IAP of each member will earn a rate of interest. What has changed is the legislature's commitment before the 2003 legislative amendment about how PERS will increase the value of those contributions before and after retirement and, consequently, the value of each member's service retirement allowance. First, the 2003 PERS legislation cancelled the preexisting unconditional obligation to increase Tier One member account balances annually by the assumed interest rate. I already have indicated that I join in the majority's determination that that change impaired the PERS contract. Second, the 2003 PERS legislation has reduced significantly the practical value of the Money Match formula by prohibiting future contributions of salary to regular member accounts and by eliminating any matching feature regarding the IAP. Before the change, PERS members could work and plan for a service retirement allowance that would reflect a pension amount not less than their accumulated salary contributions during their years of service, increased annually by at least the assumed interest rate, plus an amount not less than a pension ( i.e., an amount matched by the employer) that was the actuarial equivalent of the annuity that the members' accumulated contributions could provide. After the 2003 PERS legislation, the employer matching feature will not apply to member contributions made after July 1, 2003, either directly as one available retirement formula or as a minimum financial benchmark for the service retirement allowance. I conclude that that aspect of the 2003 PERS legislation constitutes an impairment of contract under this court's precedents. According to OSPOA, Ballot Measure 8's deprivation of the employer pick-up feature of the employee regular account contribution scheme represented an impairment of contract. By dint of logic, we must recognize that the complete prospective cancellation of that contribution scheme constitutes an even clearer impairment of contract. This court's cases defeat the majority's contrary conclusion. According to this court's case law, the proper focus is the employer's retirement benefit plan in place at the commencement of employment, together with any enhancements to that plan that the employer implements after employment begins. In no case has this court allowed a public body to modify a retirement plan to effect a practical reduction in benefits, either directly or through an alteration of the applicable formula for calculating benefits, after inducing employees to render service in reliance on the retirement plan. As Taylor held, and as the Restatement of the Law of Contracts confirms, the premise that makes the benefit plan unchangeable by the employer's unilateral act is the employer's promise, which the law implies, that the employer will not revoke the retirement plan once the employee commences service. Because the pre-2003 PERS scheme, i.e., the offer, was in place when each petitioner commenced his or her employment, the state is bound by its implied promise not to revoke that offer once petitioners tendered partial performance. The majority makes two points in reaching its different conclusion. First, the majority asserts that, in 1981, the legislature adopted the Full Formula and expected that that formula would be a new, primary benefit calculator to the system. 338 Or at 191, 108 P.3d at 1086. The majority also observes that the Full Formula feature was significant because it shifted the risk of poor market performance to employers and away from employees. The legislature's expectation about the frequency of use of the Full Formula method as a primary benefit calculator is just that: an expectation. As the Special Master found, [u]ntil 1997, PERB assumed that member retirement allowances would be calculated under the Full Formula method [,] but the Money Match emerged instead in 1997 as the predominant formula. But the erroneous assumptions by the legislature and PERB about which retirement formula might be used most frequently as a primary benefit calculator cannot alter the fact that the pre-2003 PERS statute promised members that they would receive benefits calculated according to the most economically attractive formula from among three statutory formulas. Those incorrect assumptions about the frequency of use of the Full Formula and whether it would be the primary benefit calculator have no effect on the state's contractual obligation to pay the full benefits that the statute held out to employees. The majority's point also disregards the fact, confirmed in the text of ORS 238.300(2)(b) (2001), that the legislature required the employer's Full Formula pension to be at least the actuarial equivalent of the Money Match and Pension Plus Annuity formulas. Thus, as a matter of clear text, the Full Formula may be the ceiling but it is not the floor for the statutory pension component. I fail to see the significance of the fact that the Full Formula shifted greater risk of market loss to employers. The PERS statute promised members that they would receive benefits calculated according to the most economically attractive retirement benefit formula regardless of market performance. The addition of the Full Formula benefit in 1981 merely added one more option to the retirement calculation formulas. The risk of market loss under any of those formulas has nothing to do with their function in the calculation of promised service retirement allowances. Finally, the majority notes that the statutory provision regarding regular accounts contains no separate wording that promises that the legislature will not terminate the accumulation of member contributions in regular accounts. This court addressed and rejected a similar argument in Hughes that a dissenting opinion asserted. The majority in Hughes emphasized that the legislature's inclusion of a tax exemption statute within a larger statutory contract was a significant contextual clue about the legislature's contractual intent; the absence of promissory terms in the tax exemption statute itself was, in the court's view, immaterial. The court cited numerous United States Supreme Court cases that held that a tax exemption was a term of a larger contract, and noted: The significant fact [in those cases] is that an underlying contract was present. This case presents an analogous situation where we are faced with an underlying contract  the PERS contract  and the question is whether the tax exemption statute is a term of that contract. Also significant is that in those cases the tax exemption terms are not, on their face, indicative of an intention not to repeal those exemptions. The constitutional protection that was afforded to those provisions' obligations followed from the fact that they were part of a larger contract, not that they were promissory in and of themselves.  Hughes, 314 Or. at 21-22 n. 27, 838 P.2d 1018 (emphasis added). Applying that point from Hughes to this case, it is immaterial that the legislature did not append explicit wording to the regular account statute to confirm its unchangeability. What is significant is the statutory context. Did the legislature incorporate into the PERS contract the provisions for regular accounts and the calculation of retirement benefits from the accumulated benefits in those accounts? Clearly, the answer is yes. The majority's contrary answer is a legal error.