Opinion ID: 3039297
Heading Depth: 2
Heading Rank: 1

Heading: The Oregon Public Employees Retirement System

Text: “Oregon has provided its public employees with a retirement plan, as a contractual benefit of public employment, since 1945.” Strunk v. Public Employees Retirement Board, 108 P.3d 1058, 1068 (Or. 2005). Prior to the 2003 legislation, PERS members contributed six percent of their salaries to the 1 See House Bill 2003 (2003), Oregon Laws 2003, chapter 67. 2 As the Employees note in their Supplemental Opening Brief, their Second, Third, Fourth and Fifth Claims are moot in light of the Oregon Supreme Court’s holding in Strunk v. Public Employees Retirement Board, 108 P.3d 1058 (Or. 2005). Moreover, the Employees have specifically withdrawn their appeal of the district court’s decision regarding their Third, Seventh, Eighth, Ninth and Tenth Claims. Although the Employees contend that this appeal is now “limited to the diversion of employee contributions from employee regular accounts” — which could be construed as a representation that only the First Claim remains at issue — because the Employees’ Sixth Claim is not moot and the Employees do not specifically withdraw their appeal as to that claim, we consider it here. ROBERTSON v. KULONGOSKI 17717 PERS fund, see O.R.S. 238.200(1)(a) (2001), and the contributions to the fund were then directed to either a “regular” account or a “variable” account. See O.R.S. 238.200(2) (2001); O.R.S. 238.260(3) (2001); Strunk, 108 P.3d at 107980, 1095-96. Earnings on contributions to the regular accounts were credited to those accounts. See Strunk, 108 P.3d at 1071. 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.”3 Id. at 1087; see also O.R.S. 238.255 (1995). As for the calculation of the members’ benefits at retirement, the Oregon Supreme Court has explained: There are three formulas available for calculating a PERS member’s service retirement allowance, commonly known as the Pension Plus Annuity, the Full Formula, and the Money Match. The Pension Plus Annuity, which is available to only members who contributed to PERS before August 21, 1981, con- sists of the sum of an annuity component and a pen- sion component. The annuity component is composed of the actuarial equivalent of the mem- ber’s account balances at retirement. The pension component, funded by the employer, is equal to one percent of the member’s final average salary (1.35 percent for legislators and police and fire employees) for each service year. The Full Formula also includes an annuity compo- nent composed of the actuarial equivalent of the member’s account balances at retirement and a pension component; however, the pension component is 3 PERS classifies Oregon employees into two “tiers.” “Tier One” members are those whose membership in PERS began before January 1, 1996. See Strunk, 108 P.3d at 1069. All plaintiffs in this action are Tier One members or retired Tier One members. 17718 ROBERTSON v. KULONGOSKI calculated differently than under the Pension Plus Annuity. The Full Formula first calculates a mem- ber’s service retirement allowance by multiplying the member’s final average salary by a factor set at 1.67 percent (two percent for legislators, police officers, and firefighters) and then multiplying the resulting figure by the member’s years of member- ship. That service retirement allowance then is funded using the actuarial equivalent of the mem- ber’s account balances at retirement (the annuity component) and employer contributions required to make up the difference (the pension component). Under the Money Match, a member’s service retire- ment allowance is calculated by determining the sum of the actuarial equivalent of the member’s account balances at retirement (the annuity component) and then adding a sum in an equal amount that is charged to the employer, i.e., the “match” (the pension component). The resulting service retirement allowance therefore amounts to twice the actuarial equivalent of the member’s account balances at retirement. Strunk, 108 P.3d at 1069-70. Upon retiring, “a PERS member receives a service retirement allowance based on the formula that produces the highest pension amount among the foregoing three alternative formulas.” Id. at 1070; see also O.R.S. 238.300 (2001). Prior to 2003, a retired member’s service retirement allowance was increased annually through a costof-living adjustment (“COLA”) regardless of the formula used to determine the allowance. Strunk, 108 P.3d at 1070. Under the challenged 2003 legislation, Tier One members no longer have the option of contributing to the regular or variable accounts. Rather, all member contributions made after January 1, 2004, are now placed in a new Individual Account Program (“IAP”) account. See id. at 1071-72. Importantly, unlike the balances in the regular accounts, “[t]he balROBERTSON v. KULONGOSKI 17719 ances 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.” Id. at 1072. The statutory provisions regarding how benefits are calculated under the Pension Plus Annuity, the Full Formula and the Money Match were not altered by the 2003 legislation. However, the effect of the 2003 legislation is that Money Match will not be the predominant formula for calculating PERS retirement allowances, which it has been in recent years. Id. at 1070 n.18. The Money Match in recent years has provided generous retirement allowances. For example, in 2000, “the average PERS retired member with 30 years of creditable service retired at the age of 53 with a service retirement allowance equal to 106 percent of the member’s final average salary.” Id. at 1070.