Opinion ID: 835784
Heading Depth: 3
Heading Rank: 3

Heading: Petitioners' Statutory Contract Claims

Text: We now turn to the central issues in these cases  that is, petitioners' contentions that various aspects of the 2003 PERS legislation unconstitutionally impair statutory contractual obligations set out in the PERS contract in violation of Article I, section 21, or, alternatively, that aspects of the 2003 legislation breach statutory contractual obligations set out in the PERS contract. We discuss each challenged aspect of the 2003 legislation separately.

As noted, before the 2003 PERS legislation, PERS members were required to contribute, or to have employers contribute on behalf of their employee members, six percent of members' salaries to those members' regular accounts. We set out the relevant statutes below. 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. ORS 238.200(2) (2001) provided, in part: 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 [PERB], which shall cause them to be credited to the member account of the member. ORS 238.205 (2001) provided, in part: Notwithstanding any other provision of this chapter, and subject to the provisions of this section, a public employer participating in the system may agree, by a written employment policy or agreement in effect on or after July 1, 1979, to `pick-up,' assume or pay the full amount of contributions to the fund required of all or less than all active members of the system employed by the employer. The 2003 PERS legislation, however, amended ORS 238.200 to discontinue contributions to the PERS fund: a member of [PERS], 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.    Or. Laws 2003, ch 67, § 1(4), as amended by Or. Laws 2003, ch. 625, § 9, codified as ORS 238.200(4). Instead, all PERS members who established membership in the system before August 29, 2003, now are members of the IAP. ORS 238A.305(1). As of January 1, 2004, those members' six percent contributions  which remain mandatory  now go into their IAP accounts, rather than into their regular accounts. Or. Laws 2003, ch. 733, §§ 32, 34, 35, codified as ORS 238A.330; ORS 238A.335. As before, employers still may agree to pick up the six percent contributions. Or. Laws, 2003, ch. 733, § 34, codified as ORS 238A.335. Each IAP account is credited with earnings and losses on the member's contributions, less administrative expenses. Or. Laws 2003, ch. 733, § 37(1), codified as ORS 238A.350(1). Upon retiring, the member will receive, in a lump sum payment, the full amount of that member's IAP account, Or. Laws 2003, ch. 733, § 41(1), codified as ORS 238A.400(1), in addition to any retirement benefits for work performed before January 1, 2004, to which the member may be entitled under PERS as it existed before the 2003 legislation. Alternatively, in lieu of the lump sum payment, the member may elect to receive the amount in his or her IAP account in installments paid over 5, 10, 15, or 20 years. Or. Laws 2003, ch. 733, § 41(2), codified as ORS 238A.400(2). As noted earlier in this opinion, although PERS members will receive at retirement the balances held in their IAP accounts, those balances (1) are not guaranteed annual crediting at not less than the assumed earnings rate; (2) at retirement, will not be subject to the Money Match; and (3) at retirement, will not be enhanced by annual COLAs. Respondent State of Oregon characterizes the IAP accounts as invested and credited in the same fashion as a typical 401(k) or IRA account, and we agree with that general description.
All petitioners, except petitioner Sartain, challenge the discontinuation of PERS members' contributions to their regular accounts. [30] Petitioners argue that the 2001 versions of the statutes set out above were unquestionably part of the PERS Act, were integral to the calculation of benefits under the Act, were unambiguously promissory, [and] contained no language excluding contributions attributable to future service from the general contractual protection and no reservation of right of future amendment. In support of that assertion, petitioners note that ORS 238.250 (2001), which provided for the regular account (as that statute continues to do), has remained virtually unchanged since the adoption of the first state retirement act in 1945. Although petitioners note that amounts from each member's IAP account will be payable at retirement as a lump sum without employer matching or application of annual COLAs, that is not the effect of the legislation that they emphasize. Instead, petitioners argue primarily that, [a]s a result of this diversion, most mid-career employees will lose the option of retiring under Money Match and will find their benefits calculated under the less generous full formula benefit.    Under ORS 238.300 (2001), however, petitioners were promised calculation of their benefits under the formula which would produce the highest value.    By diverting their contributions, Section 1 of HB 2003 [Or Laws 2003, ch 67, § 1], effectively denies petitioners the contractual protection afforded by ORS 238.300(2) (2001).[ [31] ]      As it did in OSPOA, [ [32] ] this court should find that this permanent elimination of petitioners' statutory right to receive a pension calculated on the full value of their account[,] including future contributions and earnings thereon, constitutes an impairment of their PERS contract or[,] at a minimum, a breach of the contractual promise that all member contributions and earnings would be directed to and maintained in that PERS member account. Respondents counter that PERS members' contributions to their regular accounts are an obligation on each member's part, rather than a contractual right that inures to each member's benefit. To the extent that any such promise exists, respondents continue, there is no support in the text or context of the PERS statutes for a legislative promise that members could continue to contribute to their regular accounts throughout their PERS membership. Respondents assert that that conclusion is bolstered by the fact that, when the legislature adopted the Full Formula in 1981, it simultaneously reduced the statutory contributions of higher compensated PERS members from seven percent to six percent. Or. Laws 1981, ch. 761, § 1 (discussed further below). Such a reduction, they argue, is inconsistent with a legislative understanding that PERS members would have a perpetual right to maintain contributions to the system at a particular level. Otherwise, the legislature would have grandfathered those members who, before 1981, were required to contribute seven percent of salary so as to preserve the amount of benefits that those members would receive at retirement. Responding to petitioners' assertion that most mid-career PERS members effectively will lose the option of retiring under the Money Match, respondents counter that the PERS statutes require only that a member receive a service retirement allowance calculated under the formula that produces the highest pension amount, whichever formula that may be. There is no indication, they contend, that the legislature intended that members would have an option to have their service retirement allowances calculated under a particular formula, the Money Match or otherwise. Moreover, respondents assert that certain wording in the PERS statutes indicates that the legislature intended the Money Match to be the floor for any service retirement calculation and, consistently with that proposition, either the Full Formula or the Pension Plus Annuity provided the highest service retirement allowance for most members before the mid-1990s. [33] They conclude that, under the 2003 PERS legislation, members 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 to the other statutes upon which petitioners rely, ORS 238.205 (2001) (permitting employer pick-up) and ORS 238.250 (2001) (requiring PERB to provide regular accounts for members, showing contributions and earnings), respondents argue that the 2003 PERS legislation does not alter the pick-up provisions and that the directive for PERB to establish PERS regular accounts for members is nothing more than a clerical obligation imposed on PERB to maintain appropriate record-keeping on member's regular accounts. In the end, respondents assert that petitioners' only true complaint respecting the redirection of PERS member contributions to the IAP is that their projected future service retirement allowances under the 2003 PERS legislation will not be as high as those allowances would have been without the legislation. And, although respondents agree that such will be the case, they disagree with petitioners' claims that that complaint has either contractual or constitutional consequences.
We begin by noting some preliminary considerations. First, we are mindful that the accepted proposition of the contractual nature of PERS is an essential background for our inquiry. Hughes, 314 Or. at 22, 838 P.2d 1018. Further, although petitioners cite a number of statutes as significant to our analysis of their challenge to the redirection of member contributions to the IAP, we conclude that the service retirement allowance formula provisions, set out in ORS 238.300 (2001), viewed in context with other statutes that petitioners cite, are the most central to our analysis, as explained below. [34] As noted, the crux of petitioners' analysis is that the diversion of contributions from PERS members' regular accounts to IAP accounts means that most mid-career employees will lose the option of retiring under Money Match and will find their benefits calculated under the less generous full formula benefit. Accordingly, we proceed to assess in detail the relevant benefit formulas that PERS provides. That is, we consider whether the statutory provisions containing those formulas are part of the PERS contract and, if so, the extent of the state's obligation in that regard. ORS 238.300 (2001) [35] provided, in part, as follows: 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   . (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   . (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   . (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   . (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. (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. As a matter of plain text, ORS 238.300 (2001) provides, first, that a member is entitled to receive a service retirement allowance that is calculated by multiplying the member's final average salary by a factor of 1.67 percent for general service employees and then multiplying the resulting figure by the member's years of membership. That service retirement allowance then is funded by an annuity component (consisting of the actuarial equivalent of the member's account balances at retirement) and a pension component (consisting of employer contributions). ORS 238.300(1), (2)(a) (2001). That is the Full Formula. However, if the pension component as calculated under the Full Formula is less than the actuarial equivalent of the annuity component based on a member's accumulated contributions to the fund, then the member is entitled to receive a higher pension component  that is, one composed of the actuarial equivalent of the member's accumulated contributions. ORS 238.300(2)(b)(A) (2001). That is the Money Match ( i.e., the employer-funded pension component matches the member's annuity component). And, if a member contributed to PERS before August 21, 1981, and the pension component calculated for that member based on the system as it existed immediately before that date provides a higher pension component than ones calculated under the Full Formula and the Money Match, then the member receives the higher pension amount. ORS 238.300(2)(b)(B) (2001). That is the Pension Plus Annuity. In other words, ORS 238.300 (2001) provided (and still provides) that a retired PERS member will receive a final service retirement allowance that is calculated under the one formula of the three described above that yields the highest pension amount for that member, whichever formula that may be. At the same time, it appears to us that, notwithstanding the somewhat awkward placement of the words at least in ORS 238.300(2)(b) (2001), the legislature intended to set the Full Formula as the primary formula and, generally, designed the Full Formula so as to provide a minimum level below which the pension component should not fall. That is so because the Full Formula, which, significantly, is set out in the first two parts of the statute, ORS 238.300(1) and (2)(a) (2001), sets a defined benefit that does not vary depending on fluctuations in earnings or on the size of the member's annuities from the regular and variable accounts. [36] Thus, in that context, the words at least in ORS 238.300(2)(b) (2001) refer to a calculation of the Full Formula pension component that equals or exceeds a calculation of a pension component calculated under the Money Match (based on the member's accumulated contributions to the fund) or the Pension Plus Annuity (based on earlier statutory requirements). More importantly, the wording of ORS 238.300 (2001) is unambiguously promissory. Through that statute, the legislature continuously and unequivocally has communicated to PERS members that, if they retire from service at normal retirement age, they will receive a pension component of their final service retirement allowance that, (1) when combined with the actuarial equivalent of their accumulated contributions to the fund, will consist of the Full Formula amount based upon years of service, final average salary, and class of service that equals or exceeds any pension component calculated under the other two formulas; or (2) in the event that the Full Formula calculation falls short, a pension component calculated under the Money Match or the Pension Plus Annuity. In short, the state's obligation as set out in ORS 238.300 (2001) is to provide a final service retirement allowance made up of an annuity component and a pension component at the minimum level described above. The context of ORS 238.300 (2001), which includes the development of the statute through successive legislatures, Swarens v. Dept. of Rev., 320 Or. 326, 331, 883 P.2d 853 1994), confirms that reading. ORS 238.300 and its predecessor statute, former ORS 237.147 (1993), have been a part of the PERS statutes since the creation of PERS in 1953. [37] During those 50 years, the benefits that PERS has provided and the manner for calculating them have changed considerably. As the Special Master noted, when the legislature created PERS, the system provided a Money Purchase Plan with an employer matching component. See Or. Laws 1953, ch. 200, § 18 (setting out benefit formula). [38] The stated goal of that formula, once combined with an annuity funded by member contributions, was to provide career employees ineligible for the federal Social Security program approximately one half of their final average salaries; for those eligible for Social Security, the target was less. Id. at § 13. In 1955, the legislature increased the target replacement ratio from 50 to 60 percent of final average salary, including Social Security. Or. Laws 1955, ch. 131, § 5(2). That enactment also modified the member contribution rate to provide that members making more than $4,800 per year could elect to contribute an equal percentage of salary in excess of that amount, which contributions would purchase at retirement[] additional benefits which will be matched by the employer. Id. In 1967, the legislature repealed the provisions stating target retirement goals and abandoned calculating member contribution rates based strictly on actuarial assumptions, opting instead for a straight percentage-of-salary model. See Or. Laws 1967, ch. 622, § 4. The legislature also enacted the Pension Plus Annuity, under which retired members would receive an annuity (based on accumulated contributions and earnings) and a pension calculated as the actuarial equivalent of 1.67 percent of the member's final average salary for general service employees (1.92 percent for fire and police employees) multiplied by years of membership up to 30 years for general service (25 years for fire or police service). Or. Laws 1967, ch. 622, § 13. Finally, the legislature repealed the employer matching method for calculating the pension component. Id. In 1969, the legislature restored the employer matching method (now known as the Money Match) as one method for determining the pension component of retirement benefits. As between the Money Match and the Pension Plus Annuity, the amendment provided that the pension component of a service retirement allowance shall be at least the actuarial equivalent of the annuity provided by the accumulated contributions of the [member]. Or. Laws 1969, ch. 640, § 7(2)(b) (emphasis added). Other than changing the multiplier for the Pension Plus Annuity, Or. Laws 1971, ch. 738, § 2; Or. Laws 1973, ch. 695, § 4, removing the 25- and 30-year limits on years of membership, Or. Laws 1971, ch. 738, § 2, and including legislators in the system, Or. Laws 1975, ch. 137, § 3, the legislature did not amend the PERS statutes in any significant way until 1981. In that year, the legislature added the Full Formula, described in greater detail above, which has remained substantially unchanged since that time. Or. Laws 1981, ch. 761, § 4. [39] As we develop more fully below, the evolution of the statutory provisions setting out the formulas for calculating PERS members' service retirement allowances, in our view, accords with the preliminary conclusion that we drew from examining the text of ORS 238.300 (2001). That is, contrary to petitioners' arguments, the legislature did not promise that PERS would be maintained so that the Money Match remains the primary calculator of member service retirement allowances, which it presently happens to be because it usually is the most remunerative. Instead, that statutory evolution demonstrates that the legislature promised that members would receive service retirement allowances calculated under whichever formula yields the highest pension amount for that member and that the Full Formula calculation ordinarily should equal or exceed calculations under the Money Match or, if applicable, the Pension Plus Annuity. Before assessing the import of the statutory context set out above, we must ensure that we are ascertaining the intent of the correct legislature  an inquiry that is critical when analyzing statutory contracts. That is so because the fundamental purpose behind such contracts is to bind future legislative action. See generally Hughes, 314 Or. at 13, 838 P.2d 1018 (discussing effect of binding succeeding legislature). To know when a legislature is so bound, we first must determine which legislature enacted the operative statutory contract. As a general matter, this court has recognized several principles that it has applied at the first level of the PGE analysis, 317 Or. at 610-11, 859 P.2d 1143, to assist in the construction of amendatory acts. One of those principles is the presumption that material changes in the language of the statute create material changes in meaning. Carlson v. Myers, 327 Or. 213, 225, 959 P.2d 31 (1998). Another is a corollary to that presumption: [I]t is presumed that such changes in meaning do not go further than is expressly declared or necessarily implied. Id. And, finally for our purposes here, `where a section of the statute is amended so as to read as follows, and the section is then set forth with the changes intended to be made, those portions of the old section that are merely copied into the amendment without change are not to be considered as re-enacted or as a new statement of the law, but are to be read as a part of the earlier statute, if in conflict with another law passed after the section amended and before the amendatory act, unless there is a clear manifestation of legislative intention to the contrary. In the absence of such an intention, it is the change or the additions incorporated in the section amended only that are to be considered enacted.' Jones v. General Motors Corp., 325 Or. 404, 418, 939 P.2d 608 (1997) (quoting Allison v. Hatton, 46 Or. 370, 372, 80 P. 101 1905)); see also State ex rel Caleb v. Beesley, 326 Or. 83, 88, 949 P.2d 724 (1997) (to same general effect). With the foregoing principles in mind, we glean the following from the progression of the statutory benefit formulas over time. From 1953 through 1967, PERS did not provide members with any minimum level of benefits. Instead, a retired member received only the contributions and earnings in his or her account matched by an employer pension in an equal amount. The key variable to that formula was earnings. And, as petitioners note, those earnings provided the only hope that members would have of achieving an annuity which approached the goals of the system. That changed in 1967, when the legislature repealed the employer-matching alternative and replaced it with the Pension Plus Annuity. Under that system, a retired PERS member was guaranteed a minimum pension component that would be added to whatever annuity that the contributions and earnings on the member's accounts had provided, whether those earnings had been good or bad. Thus, unlike the earlier employer-matching method, which had placed the risk of investment loss on members, under the Pension Plus Annuity, members could expect some minimum level of benefits and shared the risk of earnings shortfalls with employers. As noted, in 1969, the legislature reinstated what is now known as the Money Match as an additional formula to calculate the pension component of a member's service retirement allowance. Such an amendment could have been a meaningful legislative act only if the legislature contemplated that the Money Match might for some retired members provide higher pension amounts. Such an expectation, however, does not support the conclusion that the legislature promised members that that always would be the case. The final change that we determine to be relevant to understanding the evolution of the formulas for calculating service retirement allowances occurred in 1981 with the creation of the Full Formula. With that amendment, the legislature, for the first time, provided members with a formula under which the risk of earnings loss fell  and continues to fall  squarely on employers. The changes that the 1981 amendments made to former ORS 237.147 (1979), now ORS 238.300, were material: they added a new, primary benefit calculator to the system and shifted the downside risk of investment return away from members. Because we presume that the legislature intended those material changes to change the meaning of the statute materially as well, we conclude that the 1981 amendments effected a reenactment of the entire section and provide the version of the statute to which we will look in ascertaining the legislature's promissory intent. Having concluded that Oregon Laws 1981, chapter 761, section 4, enacted the operative statutory contract that is now embodied in ORS 238.300 (and also was embodied in ORS 238.300 (2001)), we find nothing about the statutory law that preceded the 1981 amendments to former ORS 237.147 (1979) that detracts from the preliminary conclusion that we drew from the wording of ORS 238.300 (2001), that is, that the 1981 Legislative Assembly promised PERS members that, on retirement, they would receive the retirement formula yielding the highest pension amount. Nor do we find any contrary intent revealed in the other statutes upon which petitioners rely (concerning six percent member contributions and direction of those contributions to PERS regular accounts). Our case law is consistent with that conclusion. As an initial matter, the parties have not directed us to a prior decision interpreting the relevant statutory provisions, and we have found none. Looking more broadly to this court's prior decisions involving PERS, petitioners place heavy reliance on this court's decision in OSPOA, 323 Or. 356, 918 P.2d 765. OSPOA, however, stands for only the proposition that the legislature promised members that the permissible employer pick-up of member contributions, assumed earnings rate for Tier One members, and unused sick-leave accrual provisions of the PERS statutory scheme were promissory and applied even to work yet to be performed. However, nothing about the court's interpretation of the statutory provisions at issue in OSPOA mandates a conclusion different from the one that we have reached after analyzing the text and context of ORS 238.300 (2001). [40] In summary, we conclude that the 1981 Legislative Assembly promised each eligible member that, at retirement, the member would be entitled to receive a service retirement allowance calculated under the formula that yielded the highest pension amount. The legislature did not alter or eliminate that promise when it enacted the 2003 PERS legislation. Petitioners contend, however, that the statutory contractual obligation that we just have described includes an additional promise that PERS members have the right, during the course of their PERS membership, to contribute a certain percentage of their salary to their regular accounts so as to increase the value of their ultimate pension amount under the Money Match. We disagree. Nothing in the text of ORS 238.200(1)(a) (2001), which required PERS members to contribute six percent of their salaries to the fund, supports petitioners' argument that the legislature intended that contribution to be immutable. As noted earlier, the 1981 Legislative Assembly lowered the member contribution rate from a high of seven percent to a uniform six percent. And, at the same time, the legislature grandfathered those members previously paying a contribution rate of less than six percent, even though it meant that those members' account balances, and therefore the service retirement allowances that the members ultimately would receive, would be smaller under the Money Match. In other words, the text of ORS 238.200(1)(a) (2001) and its statutory context do not establish clearly and unambiguously that the legislature intended to promise members that they could contribute six percent of their salaries to their regular accounts throughout their PERS membership so as to maximize their pension component calculation under the Money Match. Applying the foregoing conclusions to petitioners' claims that the redirection of PERS members' future contributions to the IAP, as set out in the 2003 PERS legislation, either breaches or impairs a contractual obligation of the PERS contract, the answer is clear: Nothing about the creation of the IAP alters the legislature's promise that, at retirement, each member will receive a service retirement allowance calculated under the formula yielding the highest pension amount, and nothing about the IAP legislation constitutes a breach of that promise. To the contrary, under the 2003 PERS legislation, each member in the system at the time of the effective date of that legislation will, at retirement, receive a service retirement allowance consisting of an annuity component based on the member's contributions and earnings and a pension component calculated under the formula that yields the highest pension amount.

Since 1975, the PERS statutory scheme has provided that the earnings to be credited annually to Tier One members' regular accounts will be no less than the existing assumed earnings rate. See generally Or. Laws 1975, ch. 333, § 2, codified as former ORS 237.277 (1975) (now ORS 238.255). [41] Petitioners identify the following statutory provisions as relevant to our consideration: [PERB] 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. [PERB] shall furnish a written statement thereof upon request by any member or beneficiary of the system. ORS 238.250 (2001). 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 [PERB], 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. [PERB] 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 establish membership in the system before January 1, 1996, as described in ORS 238.430, have retired. ORS 238.255 (2001). The administrative expenses of the system shall be paid from interest earned by the retirement fund; provided, that if such interest be insufficient the expense in excess thereof shall be paid from the contributions which this chapter requires participating employers to pay into the [f]und. ORS 238.610(1) (2001). At the close of each calendar year in which the earnings on the    [f]und equal or exceed the assumed interest rate established by [PERB] under ORS 238.255, [PERB] shall set aside, out of interest and other income received through investment of the    [f]und during that calendar year, such part of the income as [PERB] may deem advisable, not exceeding seven and one-half percent of the combined total of such income, which moneys so segregated shall remain in the fund and constitute therein a reserve account. [PERB] shall continue to credit the reserve account in the manner required by this subsection until [PERB] determines that the reserve account is adequately funded for the purposes specified in this subsection. Such reserve account shall be maintained and used by [PERB] to prevent any deficit of moneys available for the payment of retirement allowances, due to interest fluctuations, changes in mortality rate or, except as provided in subsection (3) or (4) of this section, other contingency.    ORS 238.670(1) (2001). As noted earlier, since 1989, the current assumed earnings rate has been set at eight percent. The 2003 Legislative Assembly amended ORS 238.255 (2001), set out above, and broke it into new subsections (1) and (2), as follows (deleted text in brackets and italics; new text in boldface type): (1) The regular account for [ an active or inactive member of the system ] members who established membership in the system before January 1, 1996, as described in ORS 238.430, and for alternate payees of those members, 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 [PERB], 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 ] In years following the year for which a charge is made to the reserve account, all earnings on the regular accounts of members who established membership in the system before January 1, 1996, as described in ORS 238.430, and of alternate payees of those members, shall first be applied to reduce or eliminate the amount of a deficit. Only earnings on the regular accounts of members who established membership in the system before January 1, 1996, as described in ORS 238.430, and of alternate payees of those members, may be used to reduce or eliminate the amount of a deficit. (2) Notwithstanding subsection (1) of this section and except as provided in subsection (5) [ [42] ] of this section, [PERB] may not credit any earnings to the regular accounts of members who established membership in the system before January 1, 1996, as described in ORS 238.430, or of alternate payees of those members, in any year in which there is a deficit in the reserve account established under subsection (1) of this section, or credit any earnings to the regular accounts of those members, or alternate payees, that would result in a deficit in that reserve account. In any year in which the fund experiences a loss, [PERB] shall charge the amount of the loss attributable to the regular accounts of members who established membership in the system before January 1, 1996, as described in ORS 238.430, against the reserve account. Or. Laws 2003, ch. 67, § 5, as amended by Or. Laws 2003, ch. 625, § 10. The amendments to ORS 238.255 apply to the crediting of earnings for calendar year 2003 and thereafter. Or. Laws 2003, ch 67, § 6, as amended by Or Laws 2003, ch 625, § 11. [43] In a separate enactment, the legislature added a new subsection (3) to ORS 238.255 (2001), as follows: The regular account for an active or inactive member who established membership in the system before January 1, 1996, as described in ORS 238.430, may not be credited with earnings in excess of the assumed interest rate until: (a) The reserve account established under subsection (1) of this section no longer has a deficit; (b) The reserve account established under subsection (1) of this section is fully funded with amounts determined by [PERB], after consultation with the actuary employed by [PERB], to be necessary to ensure 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; and (c) The reserve account established under subsection (1) of this section has been fully funded as described in paragraph (b) of this subsection in each of the three immediate preceding calendar years. Or. Laws 2003, ch. 3, § 1, as amended by Or. Laws 2003, ch. 67, § 5, codified as ORS 238.255(3). Finally, the 2003 Legislative Assembly amended the earnings crediting process for Tier One PERS members in one other respect, by enacting a new statute that provides as follows: (1) Notwithstanding any other provision of this chapter, the regular account balance of a member or alternate payee described in subsection (3) of this section may not be less than the amount provided for under subsection (2) of this section for the purpose of computing retirement allowances, death benefits and amounts to be paid to a withdrawing member under ORS 238.265 and for other computations under the provisions of this chapter that are based on a member's or alternate payee's regular account balance. If the regular account balance of a member or alternate payee described in subsection (3) of this section is less than the amount provided for under subsection (2) of this section at the time of retirement or withdrawal of the account, [PERB] shall credit the account with the difference and charge the amount so credited to the reserve account established under ORS 238.255. (2) The minimum regular account balance for a member or alternate payee described in subsection (3) of this section is the amount that the regular account of a member or alternate payee would have contained if the regular account of the member had been credited with earnings at the assumed interest rate in every year in which the regular account of the member or alternate payee was in existence. (3) The provisions of this section apply only to: (a) A member who establishes membership in the system before January 1, 1996, as described in ORS 238.430, and who retires or withdraws the member account of the member on or after April 1, 2004; and (b) An alternate payee of a member described in paragraph (a) of this subsection. Or. Laws 2003, ch. 67, § 8, as amended by Or. Laws 2003, ch. 625, § 12, codified as ORS 238.258.