Opinion ID: 835784
Heading Depth: 3
Heading Rank: 2

Heading: The Chess Settlement

Text: Until 1991, PERS benefits were not subject to state or local income taxation. ORS 237.201 (1989). In 1989, the United States Supreme Court held that, if a state exempts from state and local taxation pension benefits paid by state and local governments, principles of intergovernmental tax immunity require like treatment of pension benefits paid by the federal government. Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989). At the time of the Davis decision, Oregon taxed federal pension benefits as personal income. Responding to that and other decisions, the 1991 Legislative Assembly enacted Oregon Laws 1991, chapter 823, which repealed the tax exemption for PERS benefits, thereby equalizing the tax treatment of state and federal pensions. As noted earlier in this opinion, this court in Hughes held that that repeal of the tax exemption breached the PERS contract. Hughes, 314 Or. at 33, 838 P.2d 1018. The court, however, concluded that [t]he legislature is the most appropriate branch of government in the first instance to choose among the available remedies for that breach. Id. at 33 n. 36, 838 P.2d 1018. When the legislature failed to enact a remedy, class action litigation  to which we refer as the Chess litigation  ensued. The trial court in Chess ultimately approved a settlement for damages covering all PERS retirees who were PERS members before the effective date of the 1991 tax repeal (September 29, 1991). The settlement agreement provided that the [p]laintiffs agree to accept the remedies provided in [the legislation] as full and complete payment for all claims raised in [the class] actions. The legislature adopted the terms of the Chess settlement and codified them at ORS 238.375 to 238.380. ORS 238.375(3) provides: No member of the system or beneficiary of a member of the system shall acquire a right, contractual or otherwise, to the increased benefits provided by [ORS 238.375 to 238.380]. The implementation of those settlement terms resulted in an annual increase in employer contribution rates of approximately 1.4 percent, amounting to a permanent annual expense that PERB assumed would continue for 30 years. Strunk and Burt petitioners argue that Oregon Laws 2003, chapter 67, as amended by Oregon Laws 2003, chapters 625 and 733, when considered generally, breaches the settlement agreement in Chess. Their analysis proceeds as follows: PERB understood that codifying the Chess settlement would increase employer contribution rates; employer contribution rates in fact increased as a direct result of that legislation; the preamble to Oregon Laws 2003, chapter 67, states that one reason for the enactment was to address the increase in employer contribution rates; some of that increase resulted from the Chess settlement legislation; and therefore, [t]o the extent that the legislature has lowered PERS retirement benefits, at least in part, because of the increase granted by [the legislation], then it has in fact repealed the benefits of [that legislation]. Respondents disagree for various reasons, only one of which we need address. Respondents argue, we conclude correctly, that the Chess settlement agreement by its specific terms limited petitioners' rights to those set out in the 1991 legislation and that that legislation expressly disavowed the creation of any contractual rights. The wording of ORS 238.375(3), which codified the settlement, could not be clearer in that respect. Nothing about the context of that wording alters what we perceive to be the legislature's manifest intent. Because petitioners have failed to demonstrate a contractual right that Oregon Laws 2003, chapter 67, as amended by Oregon Laws 2003, chapters 625 and 733, is capable of breaching with respect to the Chess settlement, we reject their argument.