Opinion ID: 835784
Heading Depth: 1
Heading Rank: 12

Heading: elimination of variable account

Text: The Special Master found as follows: Before the enactment of Section 3 of HB 2003, PERS members could elect to have 25, 50 or 75 percent of their employee contributions allocated to variable accounts, and they were entitled to purchase a variable annuity at retirement with their variable account balances. ORS 238.260 (2001). Section 3 of HB 2003 provides that, after December 31, 2003, members no longer are permitted to direct contributions to the variable account. ORS 238.260(3)(b) (2003). Section 3 does not affect contributions credited to member accounts before its effective date. The Special Master explained the operation of the variable account system before its cancellation as follows: Earnings on variable accounts are first allocated to pay a proportionate share of administrative expenses, and the remainder are credited to member accounts. The PERS system never has funded a reserve from variable account earnings. For many years, PERB added the balances in the regular and variable accounts of members who retired under the Money Match, and it applied the relevant AEFs to calculate their monthly annuities. PERS then required employers to match those annuities. That practice gave members twice the difference between the earnings on their regular and variable accounts. In essence, the variable account plan afforded members the opportunity to obtain greater growth in their regular accounts by investing a portion of their salary contributions in equities. ORS 238.260(1) explained the legislature's purpose in establishing the variable account program: The purpose of this section is to establish a well balanced, broadly diversified investment program for certain contributions and portions of the member accounts so as to provide retirement benefits for members of the system that will fluctuate as the value and earnings of the investments vary in relation to changes in the general economy. It is anticipated that investment of those contributions and portions of the member accounts in equities will result in the accumulation of larger deposit reserves for those members during their working years, tend to preserve the purchasing power of those reserves and the retirement benefits provided thereby and afford better protection in periods of economic inflation. Petitioners assert that the legislature's repeal of their right to direct contributions to the variable account program is an impairment of their contract. The majority rejects that claim, relying substantially on the reasoning used to reject petitioners' claim regarding members' regular accounts. In particular, the majority points to the absence of specific words in ORS 238.260 (2001) or any earlier version of the variable account statute in which the legislature expressly promised to continue the variable account program. The majority draws the conclusion from that fact that the legislature thus reserved the right to repeal the variable account program at any time. I disagree. None of the components of the PERS contract, including the promised retirement formulas and public employer obligations, appears with a legislative promise that the legislature will not repeal them. The majority's reasoning departs from this court's decisions that examine retirement obligations from the standpoint of benefits offered. None of this court's cases has suggested that the absence of a promise of nonrepeal exposes a retirement plan benefit to withdrawal or cancellation. The fact that the legislature's cancellation was only prospective does not save it from an impairment of contract challenge. When the affected employees accepted employment, the variable account plan represented one available means for increasing the size of their regular accounts. As the foregoing discussion of the regular account challenge demonstrates, our cases decline to allow employers, once employment commences, to nullify aspects of a retirement plan that employees may use to enhance their service retirement benefit. For the reasons expressed in that discussion, the majority's contrary conclusion is erroneous. In conclusion, I respectfully dissent from the majority's conclusions regarding the legislature's amendment of the statutes regarding employee contributions to regular accounts and variable accounts, and concur, for the reasons stated, with the balance of the majority's conclusions. RIGGS and KISTLER, JJ., concur with this opinion.