Opinion ID: 835784
Heading Depth: 2
Heading Rank: 2

Heading: The 2003 PERS Legislation

Text: The following summary addresses only those changes to the system following the 2003 PERS legislation that petitioners have challenged in this litigation. [20]
As noted, before the 2003 PERS legislation, all active PERS members contributed, either directly or by employer pick-up, [21] six percent of their salaries to their regular accounts. Earnings on those contributions also were credited to those accounts. Under the 2003 PERS legislation, all member contributions made after January 1, 2004, are placed into an account for each member under a new Individual Account Program (IAP) instead of being credited to PERS regular accounts. The balances held in members' IAP accounts will not be annually credited at not less than the assumed earnings rate and, at retirement, will not be subject to employer matching under the Money Match or be enhanced by annual COLAs.
Under the 2003 PERS legislation, as of December 31, 2003, members no longer may contribute to the variable annuity account program. The legislation does not affect contributions credited to members' variable accounts before that date.
As explained earlier, the legislature has required PERB to create a reserve account, known as the gain-loss reserve, to offset any deficit created in years in which fund earnings fell below the assumed earnings rate. By statute, PERB could not maintain that reserve account in a deficit position for more than five years. PERB's process for eliminating such a deficit has been referred to as the call. There never has been a five-year deficit in the reserve account, and, accordingly, PERB never has implemented the call. The 2003 PERS legislation eliminates the statutory provisions respecting the call.
As noted, before the 2003 PERS legislation, the PERS statutes guaranteed all Tier One members that PERB would credit earnings on their regular accounts annually at not less than the assumed earnings rate. The 2003 PERS legislation, however, prohibits the allocation of earnings to Tier One members' regular accounts in any year in which a deficit exists in the gain-loss reserve or the allocation of earnings would cause a deficit in the gain-loss reserve. [22] The amendment does not apply to members who retired before April 1, 2004. For Tier One members who retire on or after that date, the amount in their regular accounts at retirement cannot be less than the amount that those accounts would have reflected if PERB had credited those accounts with earnings at the assumed earnings rate for every year that the accounts existed. If a member's regular account balance is deficient in that respect, then PERS is required to pay the difference out of the gain-loss reserve.
As noted, retired PERS members are entitled to annual COLAs on their service retirement allowances not to exceed two percent per year. Under the 2003 PERS legislation, PERS must calculate two alternative service retirement allowances for certain members who retired on or after April 1, 2000, and before April 1, 2004  a revised service retirement allowance and a fixed service retirement allowance. The revised service retirement allowance calculates the amount that the member would have received if PERB had credited all members' regular accounts with 11.33 percent interest in 1999  instead of the 20 percent interest that PERB actually credited to members' regular accounts for that year. [23] The fixed service retirement allowance essentially fixes each member's allowance as of July 1, 2003, or the effective date of the member's retirement (whichever is later), but then is not subject to an annual COLA. The legislation further provides that each member in the identified group shall receive the greater of the revised and fixed service retirement allowances.
Under an administrative rule that PERB adopted in 1993, and later amended in 1996, PERB declared that it would not reduce, by application of new actuarial equivalency factors (AEFs), [24] the service retirement allowances of PERS members who joined the system before 1999. That declaration notwithstanding, the 2003 PERS legislation directs the implementation of updated AEFs beginning July 1, 2003, and thereby modifies the AEF calculation for certain members who entered the system before 1999. Members who retired on or before June 30, 2003  one day before the effective date of the new legislation  receive service retirement allowances calculated using the AEFs in place before the legislative reforms. All other members who joined the system before 1999 and who retired or will retire on or after July 1, 2003, will receive service retirement allowances that are subject to the new legislation. Those allowances are determined using one of two calculations, whichever produces the greater benefit. The first requires that the AEFs in effect at a member's effective retirement date be applied to the member's account balance. The second creates an account balance as of June 30, 2003, that consists only of the member's contributions and earnings credited as of that date. Based on that account balance, PERB determines the member's service retirement allowance using the AEFs in effect on June 30, 2003.