Court Opinion

ID: 9503368
Source: CourtListenerOpinion
Date Created: 2023-08-06 19:43:12.761759+00
Date Added: 2024-06-11T09:03:25.128118
License: Public Domain

*240DURHAM, J.,
concurring in part and dissenting in part.
I write separately to explain why I join in some but not all of the majority’s analysis and conclusions.
I begin by noting that I agree with the majority’s invocation of the “rule of necessity” to allow the justices of this court to address and decide the issues in these proceedings. I also agree with the majority’s determinations regarding petitioners’ standing and the existence of justiciable controversies; the dismissal of petitioner Dahlin’s claims under 42 USC section 1983 and on behalf of certain PERS retirees; the dismissal, on ripeness grounds, of claims by petitioners in Strunk, Burt, Dahlin, and Evans challenging Oregon Laws 2003, chapter 67, sections 14b(l)(b) and 14b(2); and the denial of motions to compel production of documents in the Strunk and Dahlin proceedings.
I turn now to the majority’s disposition of petitioners’ other substantive challenges to the 2003 PERS legislation.
ANNUAL CREDITING OF MEMBERS’ REGULAR ACCOUNTS AT ASSUMED EARNINGS RATE
The majority declares that Oregon Laws 2003, chapter 67, sections 5, 6, 7, and 8, as amended by Oregon Laws 2003, chapter 625, sections 10, 11, and 12, are void, because those provisions impair the state’s contractual retirement obligation with its employees in violation of Article I, section 21, of the Oregon Constitution. That section provides, in part: “No * * * law impairing the obligation of contracts shall ever be passed * * The cited provisions of the 2003 PERS legislation concern the legislature’s cancellation of annual crediting of Tier One member regular account balances at the assumed earnings rate. I concur with the majority’s conclusion in that respect. I also concur with the majority that the legislature’s modification of the statutory scheme for charging public employer accounts when credited income exceeds earnings for more than five years (the “call”) does not impair the statutory contract. The underlying contractual obligation to credit member regular accounts remains with the state *241regardless of the state’s accounting arrangements with public employers regarding the funding of member account balances.
COST OF LIVING ADJUSTMENTS (COLAs)
The majority also concludes that Oregon Laws 2003, chapter 67, section 10(3), direct the Public Employees Retirement Board (PERB) to breach the promise of annual COLAs on certain “fixed” service retirement allowances. 338 Or at 225.1 conclude that the cited section of the 2003 legislation regarding COLAs purports to eliminate a contractual obligation of the state. As a consequence, that that provision of the 2003 legislation impairs an obligation of contract in violation of Article I, section 21, and is invalid for that reason. The legislature’s attempt to suspend COLAs on properly calculated service retirement allowances for the affected retired members is void.
The majority rests its breach of contract theory on its reading of Eckles v. State of Oregon, 306 Or 380, 760 P2d 846 (1988). In Eckles, this court examined two provisions of a statute, Oregon Laws 1982 (Special Session 3), chapter 2 (the “Transfer Act”). One provision of the Transfer Act, section four, eliminated the state’s statutory contractual obligation to employers to use certain surplus funds in a statutory trust fund only for purposes related to the workers’ compensation laws. A second provision, section two, directed the State Treasurer to transfer $81 million from that statutory trust fund to the state General Fund.
The court concluded that section four of the Transfer Act impaired the state’s contractual obligation under preexisting contracts with employers and was unconstitutional in that respect. The court also concluded that section two of the Transfer Act did not alter the state’s contractual obligation to employers. Requiring the State Treasurer to transfer funds did nothing to change the state’s contractual promise to use the funds solely for purposes related to workers’ compensation laws. In the court’s view, however, section two did breach the state’s promise; the transfer of the funds exposed the state to a legal obligation to compensate employers for the breach.
*242In my view, the elimination of COLAs in the 2003 PERS legislation is closely analogous to the elimination of the statutory contractual duty effected by section four of the Transfer Act, as discussed in Eckles. The majority’s attempt to compare that aspect of the 2003 PERS legislation to the operation of section two of the Transfer Act, as discussed in Eckles, is unconvincing. I conclude that the majority misreads Eckles.
Nevertheless, I see no reason to dissent from the result that the majority adopts following its breach of contract analysis. The majority returns the parties to the position that they occupied before the legislature adopted its 2003 amendment, and declares that that amendment is void. As Eckles demonstrates, that is the proper remedy when legislation impairs the obligation of a statutory contract in violation of Article I, section 21, of the Oregon Constitution. As a consequence, I concur in that aspect of the majority opinion.
ADOPTION OF NEW ACTUARIAL EQUIVALENCY FACTORS (AEFs)
The 2003 PERS legislation modifies the preexisting statutory scheme regarding PERB’s application of actuarial equivalency factors (AEFs) to convert a member’s account balance to a monthly allowance, among other things. Petitioners contend that, pursuant to a lawful delegation of rule-making authority, PERB had adopted rules in 1993 (former OAR 459-05-055) and 1996 (OAR 459-005-0055) that required PERB to refrain from changing any AEF if the adoption of the new factor would have the effect of lowering a periodic or single benefit payment to a member. According to petitioners, PERB’s rules “constitute [d] a part of the system,” as ORS 238.630(3)(g) (2001) provided, from the time of their adoption. Therefore, petitioners argue, by amending certain statutes to require PERB to update its AEFs, the legislature impaired an aspect of the retirement contract between the state and the affected members of PERS.
Oregon Laws 2003, chapter 68, section 2, requires PERB to adopt new AEFs that “use the best actuarial information on mortality available at the time the board adopts the tables [.]” Section 4 of that law incorporates the new AEFs *243as a part of the retirement calculus for members who retired on or after July 1,2003, and exposes those retirees to the possibility of lower retirement allowances under the new AEFs. Petitioners contend that those sections of Oregon Laws 2003, chapter 68, impair the state’s contractual obligation to its employees.
The majority rejects that claim, and I concur for the following reason. There is no question that PERB’s 1993 and 1996 rule, in its amended 1996 form, in absolute and unconditional terms, prohibited PERB from changing any AEF to the economic detriment of any member who established PERS membership before January 1,1999. It is unnecessary to decide in this proceeding whether PERB exceeded its rule-making authority in adopting those rules. The only true question is whether the statutes requiring establishment of AEFs by PERB reflect a contractual intention by the legislature, such that the Legislative Assembly in 2003 lacked authority to impair any obligation regarding AEFs that PERB’s rules embodied.
I assume arguendo that the legislature may create a binding contract by a valid delegation of authority to an administrative agency to specify contractual terms through rulemaking. However, that is not what occurred here.
For many years before it enacted the 2003 PERS legislation, the legislature had required PERB to establish from time to time the necessary actuarial factors that would allow PERB to determine the actuarial equivalency of the optional forms of retirement under the system. See, e.g., former ORS 237.251(3)(g) (1991).1 “Actuarial” means “relating to statistical calculation esp. of life expectancy.” Webster’s Third New Int’l Dictionary 22 (unabridged ed 2002). As a variable in the *244statistical calculation of actuarial equivalency, the factor of “life expectancy” has no constant and unchanging value. Rather, it is constantly in flux, shifting with the prevalence in the subject population of the various factors (e.g., health history, diet, exercise, tobacco use, etc.) that influence longevity.2 Former ORS 237.251(3)(g) (1991) required PERB to take account of the changing character of the factors that determine actuarial equivalency by establishing the necessary actuarial factors “from time to time.”
There is no question that the legislature has delegated broad rulemaking authority to PERB. When PERB adopted the two rules now under consideration, former ORS 237.263 (1991), renumbered as ORS 238.650(1995), provided:
“Subject to the limitations of ORS 237.001 to 237.315, the board shall, from time to time, establish rules for transacting its business and administering the system in accordance with the requirements of ORS 183.310 to 183.550.”
(Emphasis added.) That statute has remained in effect without substantive modification through the present time. Aside from any question of the lawfulness of the 1993 and 1996 rules, that statute confirms that PERB had authority to alter those rules at any time.
PERB’s broad authority to alter its rules is insufficient, standing alone, to demonstrate that PERB’s rules did not reflect a legislative contractual intent while they were in effect. However, in view of PERB’s duty under former ORS 237.25l(3)(g) (1991) to evaluate the accuracy of its AEFs and publish new ones from time to time, and the necessary qualifying effect of that statute on PERB’s rulemaking authority in former ORS 237.263 (1991), I cannot read PERB’s rules to create a contractual obligation that later legislation could not *245impair. Former ORS 237.263 (1991) required PERB “from time to time” to establish rules for conducting its business, and ORS 237.251(3)(g) (1991) and its statutory successors in force through 2001 also required PERB to establish new AEFs “from time to time.” Those provisions underscore the impermanence of the AEF rules on which petitioners base their claim. The foregoing discussion demonstrates that the majority correctly rejects petitioners’ contract impairment claims based on PERB’s 1993 and 1996 administrative rules.
PETITIONER DAHLIN’S AGE DISCRIMINATION CLAIM
The majority addresses and rejects the claim of petitioner Dahlin that the 2003 PERS legislation discriminates against him on the basis of age in violation of Article I, section 20, of the Oregon Constitution. I concur.
TERMINATION OF EMPLOYEE CONTRIBUTIONS TO MEMBER ACCOUNT; LOSS OF CREDITS TO MEMBER ACCOUNT AND ENHANCEMENTS TO RETIREMENT ALLOWANCE
The 2003 PERS legislation terminates the longstanding statutory plan for funding a key component of public employee retirement allowances, the member account. The result is that, for affected Tier One employees, decades-old statutory requirements for credits to member accounts and employer matching contributions no longer will apply. Petitioners argue that those changes inevitably will lead to reduced retirement allowances in violation of their retirement contract with the state. Moreover, they contend, because employee retirement allowances will fall under the 2003 PERS legislation, public employers will pay COLA adjustments after petitioners retire on the basis of illegally reduced retirement allowances, thus compounding the economic injury to petitioners. To evaluate petitioners’ impairment of contract claim in this respect, it is necessary to put in the proper context the requirements for member accounts that were in place before enactment of the 2003 PERS legislation.
*246The payment that an eligible member of the PERS system receives on retiring is known as a service retirement allowance. ORS 238.300 (2001) provided:
“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: * *
(Emphasis added.)
As that clause makes clear, two sources of funds constitute the service retirement allowance: an annuity and pensions. ORS 238.005 (2001) defined “annuity’ and “pension” as follows:
“For purposes of this chapter:
“(1) ‘Annuity means payments for life derived from contributions made by a member as provided in this chapter.
«if: if: if: if: if:
“(15) ‘Pension’ means annual payments for life derived from contributions by one or more public employers.”
The phrase “contributions made by a member” in the statutory definition of “annuity’ referred to the statutory obligation of active members to contribute six percent of their salaries to the Public Employees Retirement Fund (the fund). ORS 238.200(l)(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.”
Oregon’s statutory scheme for public employee retirement always has required employees’ contributions to the fund that provides the financial basis for their retirement since the creation of the present retirement system 60 years ago. That scheme also has required PERB to maintain individual accounts that reflect both the amount of member contributions to the fund and any increases in the account due to interest earnings. See OCLA § 90-710(2) (stating those requirements in the original public employee retirement statute in 1945). Until 2003, those provisions had not changed significantly since 1945.
*247Several statutes in effect in 2001, as set out below, explained the nature and operation of member accounts and their central importance to the calculation of each member’s service retirement allowance. ORS 238.005(13) (2001) provided, in part:
“(a) ‘Member account’ means the regular account and the variable account.
“(b) ‘Regular account’ means the account established for each active and inactive member under ORS 238.250.
“(c) ‘Variable account’ means the account established for a member who participates in the Variable Annuity Account under ORS 238.260.”
ORS 238.200(2) (2001) provided:
“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 the board, which shall cause them to be credited to the member account of the member.”
ORS 238.250 (2001) provided:
“The board 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. The board shall furnish a written statement thereof upon request by any member or beneficiary of the system.”
ORS 238.255 (2001) explained the requirements for crediting the regular account of a Tier One member:
“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 ¿mount less than the earnings that would have been credited pursuant to the assumed interest rate for that year determined by the board, 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 *248first be applied to reduce or eliminate the amount of a deficit. The Public Employees Retirement Board 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 established membership in the system before January 1, 1996, as described in ORS 238.430, have retired.”
The statutes set out above demonstrate that the requirements regarding member contributions of salary to the fund served two functions. First, they required a personal investment, over time, by the member in the system that ultimately would fund the member’s retirement. Second, they afforded the member the opportunity, over time, to increase the size of the resulting member’s regular account.
The majority correctly reports that the PERS system created three different formulas for calculating a member’s service retirement allowance and promised the members that the state would calculate their benefits according to the one formula out of the three that would provide the highest level of service retirement allowance. The three formulas are the Money Match, the Pension Plus Annuity, and the Full Formula. The Pension Plus Annuity formula applies to only Tier One members who made contributions to the system before August 21, 1981. For the Tier One members who do not meet that qualification, ORS 238.300 (2001) affords two, not three, formulas, the Money Match and the Full Formula. It is undisputed that, as petitioners argue, the size of the member’s service retirement allowance under the Money Match and Pension Plus Annuity formulas turns directly on the size of the accumulated percentage-of-salary contributions and interest on those contributions in the member’s regular account.
The three formulas arise from the terms of ORS 238.300, which in 2001, provided:
“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 *249and interest thereon credited at the time of retirement, which annuity shall provide an allowance payable during the life of the member and at death a lump sum equal in amount to the difference between accumulated contributions at the time of retirement and the sum of the annuity payments actually made to the member during life shall be paid to such person, if any, as the member nominates by written designation duly acknowledged and filed with the board or shall otherwise be paid according to the provisions of this chapter for disposal of an amount credited to the member account of a member at the time of death in the event the member designates no beneficiary to receive the amount or no such beneficiary is able to receive the amount. If death of the member occurs before the first payment is due, the member account of the member shall be treated as though death had occurred before 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 as a police officer or firefighter before the effective date of retirement.
“(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 as a member of the Legislative Assembly before the effective date of retirement.
“(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 as other than a police officer, firefighter or member of the Legislative Assembly before the effective date of retirement.[3]
“(b) A pension under this subsection shall be at least:
*250“(A) The actuarial equivalent of the annuity provided by the accumulated contributions of the member.[4]
“(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.[5]
“(c) As used in this subsection, ‘number of years of membership’ means the number of full years plus any remaining fraction of a year for which salary was paid and contributions to the Public Employees Retirement System made. Except as otherwise provided in this paragraph, in determining a remaining fraction a full month shall be considered as one-twelfth of a year and a major fraction of a month shall be considered as a full month. Membership of a school district employee, an employee of the State Board of Higher Education engaged in teaching or other school activity at an institution of higher education or an employee of the Department of Human Services, the Oregon Youth Authority, the Department of Corrections or the State Board of Education engaged in teaching or other school activity at an institution supervised by the authority, board or department, for all portions of a school year in a calendar year in which the district school, institution of higher education or school activity at an institution so supervised in which the member is employed is normally in session shall be considered as a full one-half year of membership. The number of years of membership of a member who received a refund of contributions as provided in ORS 237.976(2) is limited to the number of years after the day before the date on which the refund was received. The number of years of membership of a member who is separated, for any reason other than death or disability, from all service entitling the member to membership in the system, who withdraws the amount credited to the member account of the member in the fund during absence from such service and who thereafter reenters the service of an employer participating in the system but does not repay the amount so withdrawn as provided in this chapter, is limited to the number of years after the day before the date of so reentering.
*251“(3) An additional life pension (nonrefund) for prior service credit, including military service, credited to the member at the time of first becoming a member of the system, as elsewhere provided in this chapter, which pension shall be provided by the contributions of the employer.”
(Emphasis added.)
The Money Match formula in that statute derives particularly from the terms of ORS 238.300(2)(b)(A) (2001).6 The Special Master described the operation of the Money Match formula as follows:
“[U]nder the Money Match method, a retired member receives an annuity based on his or her member account balance, which is matched by an equal annuity that the member’s employer or employers funds. PERB historically has calculated the Money Match benefit by determining the balance in the member’s regular account, adding the balance in the member’s variable account, if any, and multiplying the combined balance by an AEF. A benefit in an equal amount is then added and charged to the employer’s account. The resulting retirement allowance is therefore twice the amount of the benefit resulting from the member’s own annuitized account balances.”
Special Master’s Report at 13.
The legislature created the Pension Plus Annuity formula in 1967, Oregon Laws 1967, chapter 622, and, as already noted, it applies only to PERS members who have made contributions before August 21, 1981. The Special Master described the operation of the Pension Plus Annuity formula as follows:
*252“The Pension Plus Annuity method is available only to members who made PERS contributions before August 21, 1981. Under that method, PERS calculates a pension equal to 1.0 percent of the member’s final average salary (1.35 percent for legislators, and police and fire employees) for each year of service. An annuity calculated by multiplying the member’s account balance by an actuarial equivalency factor (AEF) is added to the pension. The retirement allowance is the sum of the formula pension and the member’s annuitized account balance. Under the Pension Plus Annuity method, the retirement allowance is fully funded by employers.”
The legislature created the Full Formula pension benefit in 1981. Or Laws 1981, ch 616, § 4. The Special Master described the operation of the Full Formula pension as follows:
“PERS staff calculates the Full Formula allowance by multiplying the retiring member’s final average salary and years of service by a factor. The formula provides 50 percent of final average salary for career employees (25 years of police/fire service, or 30 years of general service). Thus, the Full Formula calculation consists of three components: (1) the member’s final average salary; (2) the member’s years and months of creditable service as of the date of retirement; and (3) a factor set by statute at 1.67 percent for general service employees and 2.0 percent for legislators, police officers, and firefighters.7 The member is entitled to an annuity in an amount equal to the member’s final average salary multiplied by the length of creditable service multiplied by the applicable statutory percentage factor.
It is important to note that ORS 238.300(2)(a) (2001) provided that the Full Formula method was “subject to paragraph (b) of this subsection [.]” The cited paragraph (b) (i.e ORS 238.300(2)(b)), stated that “[a] pension under this subsection shall be at least:”, and then described the Money Match and Pension Plus Annuity formulas. When I read *253those passages together, they indicate, without ambiguity, that the legislature guaranteed that the pension portion of the qualified retiring member’s service retirement allowance, when calculated under the Full Formula method, would not fall below the amount of the pension to which the employee would be entitled under either the Money Match formula or, if it applied, the Pension Plus Annuity formula.
The foregoing discussion indicates that the preexisting PERS system required Tier One members to contribute six percent of their salary, either through payroll deduction or by employer “pick-up,” to the fund, but entitled members to accumulate those contributions, together with interest on the contributions, in each member’s regular account. That scheme created a tangible incentive for Tier One members to accumulate as large a regular account as possible, because, at retirement, the state guaranteed that the size of the regular account, among other factors, would determine the size of the member’s service retirement allowance. Finally, because the Money Match and, as applicable, the Pension Plus Annuity formulas operated as a financial floor beneath which the pension component could not fall, the incentive that I identify above existed for all Tier One members regardless of the particular formula that PERS used to calculate their service retirement allowance.
In 2003, the legislature amended ORS 238.200, which now prohibits any future contributions to the fund and, thus, to the member’s regular account on or after January 1, 2004. ORS 238.200(4) provides, in part:
“Notwithstanding subsections (1) to (3) of this section, a member of the system, 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 fond for service performed on or after January 1,2004.”
The new statute continues to require members to contribute six percent of their salary,7 but now diverts those amounts into an Individual Account Program (LAP). Regular accounts will continue to exist, but PERS no longer will credit salary *254contributions to regular accounts. The Special Master summarized the consequences of that aspect of the 2003 PERS legislation as follows:
“The diversion of member contributions to the IAP will reduce members’ future account balances for purposes of employer matching under the Money Match formula. On a system-wide basis, the elimination of employee contributions from the Money Match calculation probably will cause the Full Formula option to overtake the Money Match as the most common retirement formula. Although members will receive balances held in the IAP, those balances will not be matched by employer contributions, enhanced by cost of living increases, or annuitized at the assumed earnings rate as part of a defined benefit package.”
In Hughes v. State of Oregon, 314 Or 1, 12, 838 P2d 1018 (1992), this court considered whether the legislature had impaired the PERS contract in 1991 by modifying the statute that made retirement benefits “accrued or accruing” under PERS exempt from state income taxation. The court acknowledged the rule that the court will not infer a contract from legislation if the law “does not unambiguously express an intention to create a contract[.]” Id. at 14. The court, however, noted that the contractual nature of PERS was a settled matter:
“We begin from the premise that PERS is a contract between the state and its employees. The contractual nature of such pension schemes was settled in Taylor v. Mult. Dep. Sher. Ret. Bd., 265 Or 445, 450, 510 P2d 339 (1973).”
Id. at 18. The court concluded that, because contractual intent of the legislature and the contractual nature of PERS were matters of settled law, “[t]he only remaining question, therefore, is whether and to what extent former ORS 237.201 (1989) [the statute that exempted “accrued or accruing” PERS benefits from state taxation] was intended to be a term of the PERS contract.” Id. at 21 (footnote omitted). The court answered that question in the affirmative, because, considering the context of the tax exemption’s enactment as a matter of “primary importance,” the legislature had included the exemption “as part and parcel” of the 1953 PERS statute. Id. at 25.
*255The Hughes court limited its impairment holding to those PERS retirement benefits that already had accrued in the past or were accruing at present, and distinguished those categories from benefits accruing in the future, because the preexisting PERS tax exemption statute had incorporated that express distinction. Thus, the Hughes court concluded, the legislature had not obligated itself by its statutory contract to treat as exempt PERS benefits received for work performed after a change in the tax exemption statute.
Hughes relied on the Taylor case for the proposition that, on acceptance of employment (and completion of a required six-month period of service) with a PERS employer, subsequent legislation cannot impair the employee’s vested contractual interest in a pension plan. Hughes, 314 Or at 20. In Taylor, the plaintiff was a deputy sheriff who had served for 13 years as a jail matron, and later as a corrections officer, in Multnomah County. The county adopted a retirement ordinance, known as Ordinance No. 25, for sworn personnel who provided “law enforcement” services to the county. The county refused to allow the plaintiff to participate, claiming that her work in the jail did not involve ‘law enforcement” services. The county soon amended the ordinance, in Ordinance No. 29, to exclude the plaintiff more clearly, and relied on its express authority under the ordinance to determine the eligibility and qualifications of county personnel to receive benefits under the county’s retirement system.
This court held that the plaintiff had acquired pension rights under the original ordinance, Ordinance No. 25, because her contractual rights arose when she first had rendered service under that ordinance, not when she completed the service that the later Ordinance No. 29 required for receipt of pension benefits:
“We conclude from the above authorities that Oregon has adopted not only the contractual concept of pensions, but, also, the concept that contractual rights can arise prior to the completion of the service necessary to a pension. * * * Such rights are subject, of course, to subsequent completion of the necessary service.”
Taylor, 265 Or at 451 (citations omitted). According to Taylor, “[t]he adoption of the pension plan was an offer for a *256unilateral contract. Such an offer can be accepted by the tender of part performance.” Id. at 452.8
This court in Taylor quoted with approval the following rules of law from the Restatement of the Law of Contracts regarding the binding nature of the employer’s offered terms in a retirement plan once the employee accepts the offer by tendering part performance:
“ ‘If an offer for a unilateral contract is made, and part of the consideration requested in the offer is given or tendered by the offeree in response thereto, the offeror is bound by a contract, the duty of immediate performance of which is conditional on the fall consideration being given or tendered within the time stated in the offer, or, if no time is stated therein, within a reasonable time.
“ ‘Comment:
«<**** *
“ ‘b. Tender, however, is sufficient. Though not the equivalent of performance, nevertheless it is obviously unjust to allow so late withdrawal. There can be no actionable duty on the part of the offeror until he has received all that he demanded, or until the condition is excused by his own prevention of performance by refusing a tender; but he may become bound at an earlier day. The main offer includes as a subsidiary promise, necessarily implied, that if part of the requested performance is given, the offeror *257will not revoke his offer, and that if tender is made it will be accepted. Part performance or tender may thus furnish consideration for the subsidiary promises ***.’”
Id. at 452-53 (quoting Restatement of the Law of Contracts § 45 (1932)). Applying those principles to the facts in Taylor, the court stated:
“As applied to the present circumstances, plaintiffs tender of the contributions and acceptance of the plan terminated defendants’ power to revoke the offer, and plaintiff would be entitled to the benefits of the plan if she continued to work for the requisite period necessary for retirement.”
Id. at 454 (emphasis added).
Two additional authorities that this court discussed with approval in Taylor confirm the binding nature of an employer’s offered inducements for employment once the employee accepts them by commencing service. In Harryman v. Roseburg Fire Dist., 244 Or 631, 420 P2d 51 (1966), a public employer represented that it would allow employees to accumulate unused sick leave and pay them for it when they terminated employment. The plaintiff accepted employment. Later, the public employer revoked the sick leave policy and refused to pay the employee for the sick leave that he had accumulated during his employment. This court held that the public employer was required to honor the inducement for employment that it had made:
“When plaintiff entered upon his employment with defendant he was advised that he would receive an allowance for accumulated sick leave upon termination of employment. He accepted employment upon the assumption that the allowance for sick leave was a part of his compensation for services. Since it was a part of the inducement to accept employment, it can be regarded as a contractual term of plaintiffs employment. Defendant could not, therefore, deprive plaintiff of the allowance after he had earned it.”
Id. at 634-35 (footnote omitted).
In Adams v. Schrunk, 6 Or App 580, 488 P2d 831 (1971), the Court of Appeals held that a public employer was not entitled to evade, by means of a charter amendment, a provision in its original charter that allowed employees to *258accumulate time toward their eligibility for retirement by counting time spent in temporary service. This court in Taylor provided the following summary of the holding in Adams and expressly agreed with it:
“In Adams v. Schrunk, 6 Or App 580, 488 P2d 831 (1971), (rev. denied November 16,1971), the Court of Appeals held that Portland police officers acquired a right to have time served as temporary officers included in their periods of service necessary to entitle them to a pension. At the time of the temporary service the then existing pension plan authorized this inclusion in computing the length of service necessary for a pension, and contributions were withheld from the officers’ salaries. Subsequently, the plan was amended to deny the inclusion of such service. The Court of Appeals thus recognized, as Crawford [v. Teachers’ Ret Fund Ass’n, 164 Or 77, 99 P2d 729 (1940)] had not, that a contractual right could be established before the completion of the service necessary to a pension. We agree with that opinion.”
Taylor, 265 Or at 450-51 (underscoring added). See Hughes, 314 Or at 20 n 25 (noting that, in Taylor, “this court expressly approved of the holding in Adams v. Schrunk * * *”).
The Taylor court’s statement about the earlier decision in Crawford is significant. Crawford correctly had held that a teachers’ retirement fund could not alter the terms of a teacher’s retirement benefits after the teacher had retired. However, the court had explained its holding in terms that indicated that contract rights did not arise before the employee had rendered complete service:
“[W]e think the trend of modem authority and the better-reasoned cases are to the effect that contractual relations are created and that, upon full performance by the annuitant, rights accrue which cannot be impaired by subsequent legislation * *
Id. at 87-88. This court’s discussion of Adams and Crawford in Taylor constitutes a rejection of the statement in Crawford that contract rights in a retirement plan do not arise before the completion of the necessary service for retirement.
The final case that is pertinent to this discussion is Oregon State Police Officers’ Assn. v. State of Oregon, 323 Or *259356, 918 P2d 765 (1996) (OSPOA). OSPOA involved a contract impairment challenge to three changes to PERS that a ballot measure, Ballot Measure 8, purported to add to the state constitution. Section 10 of the measure repeated the existing requirement that members must contribute six percent of their salary to the system, but prohibited public employers, by contract or otherwise, from “picking up” the employees’ six percent payment obligation. That provision concerned the legislature’s enactment of former ORS 237.075 (1979), renumbered as ORS 238.205 (1995), which authorized public employers to agree with employees or to decide unilaterally to pick up the employee contribution to PERS. See OSPOA, 323 Or at 373 (explaining operation of pick-up statute). Section 11 of the ballot measure withdrew the statutorily guaranteed minimum rate of return on PERS member accounts. Section 12 of the ballot measure purported to nullify a statute that allowed retiring PERS members to add accumulated unused sick leave benefits to their final average salary.
The court in OSPOA reviewed at length the Oregon case law, including the cases discussed in this opinion, on the subject of contractual rights that arise from public employee retirement plans. Addressing section 10, the court stated:
“Under the Taylor analysis, and contrary to the state’s argument here, ORS 237.075, and the state’s implementation of the authority contained in that statute, promised a pension benefit that plaintiffs could realize only on retirement with sufficient years of service, that is, after rendering labor for the state. Plaintiffs accepted that offer by working. See Taylor, 265 Or at 452. The change mandated by section 10 alters the state’s contractual obligation, in violation of Taylor, by increasing plaintiffs’ cost of retirement benefits for services that, absent a lawful separation of employment, they will provide in the future. That consequence, if approved, would permit the state to retain the benefit of plaintiffs’ labor, but relieve the state of the burden of paying plaintiffs what it promised for that labor. That result would frustrate plaintiffs’ reasonable contractual expectations that were based on legal commitments expressly made by the state.
“Once offered and accepted, a pension promise made by the state is not a mirage (something seen in the distance *260that disappears before the employee reaches retirement). Nullification of an express term of plaintiffs’ PERS contract with the state is an impairment for purposes of Contract Clause analysis, Allied Structural Steel Co. v. Spannaus, 438 US 234, 247, 98 S Ct 2716, 57 L Ed 2d 727 (1978). Section 10 expressly and substantially changes the state’s contractual promise to plaintiffs with respect to the cost of their participation in the PERS retirement plan and the benefits that they will receive on retirement. Under section 10, the cost of participation to the employee increases while the benefits that the employee ultimately will receive on retirement decrease. Unquestionably, section 10 impairs the obligation of plaintiffs’ PERS contract.”
OSPOA, 323 Or at 374-75 (emphasis in original; footnote omitted).
In dissent, Justice Gillette opined that the majority, in analyzing section 10, had transformed a statutory permission into a promise to pick up all public employees’ six percent contributions. Id. at 409 (Gillette, J., dissenting). The majority responded to Justice Gillette’s criticism as follows:
“The fatal flaw in that analysis is that it ‘errs in failing to consider the significance of context.’ Hughes, 314 Or at 21 n 27. The six percent pick-up is an integral part of the underlying PERS pension contract. Unilateral termination of the six percent pick-up term of the PERS pension contract materially changes that underlying pension contract to plaintiffs’ detriment and, thus, frustrates plaintiffs’ reasonable reliance on the offer the state made to them and which they accepted by the tender of part performance. Id. at 20-21.”
Id. at 376.
OSPOA went on to hold that sections 11 and 12 of Ballot Measure 8 also impaired employee contractual rights. As to those conclusions, the court was unanimous. The court struck down Ballot Measure 8 in its entirety.
I turn now to the analysis of the legislature’s alteration in 2003 of the preexisting scheme for crediting member contributions in light of the case law discussed above. Both before and after the 2003 legislation, PERS members are subject, as they have been for many decades, to a legal *261requirement to contribute six percent of their salary to a discrete “account” in PERS. Salary contributions no longer will be credited to, and enhance the value of, member regular accounts; instead, PERS will credit salary contributions to the LAP. Also, before and after the legislative change, the regular account and LAP of each member will earn a rate of interest. What has changed is the legislature’s commitment before the 2003 legislative amendment about how PERS will increase the value of those contributions before and after retirement and, consequently, the value of each member’s service retirement allowance.
First, the 2003 PERS legislation cancelled the preexisting unconditional obligation to increase Tier One member account balances annually by the assumed interest rate. L already have indicated that L join in the majority’s determination that that change impaired the PERS contract.
Second, the 2003 PERS legislation has reduced significantly the practical value of the Money Match formula by prohibiting future contributions of salary to regular member accounts and by ehminating any matching feature regarding the LAP. Before the change, PERS members could work and plan for a service retirement allowance that would reflect a pension amount not less than their accumulated salary contributions during their years of service, increased annually by at least the assumed interest rate, plus an amount not less than a pension (i.e., an amount “matched” by the employer) that was the actuarial equivalent of the annuity that the members’ accumulated contributions could provide. After the 2003 PERS legislation, the employer matching feature will not apply to member contributions made after July 1, 2003, either directly as one available retirement formula or as a minimum financial benchmark for the service retirement allowance.
I conclude that that aspect of the 2003 PERS legislation constitutes an impairment of contract under this court’s precedents. According to OSPOA, Ballot Measure 8’s deprivation of the employer pick-up feature of the employee regular account contribution scheme represented an impairment of contract. By dint of logic, we must recognize that the *262complete prospective cancellation of that contribution scheme constitutes an even clearer impairment of contract.
This court’s cases defeat the majority’s contrary conclusion. According to this court’s case law, the proper focus is the employer’s retirement benefit plan in place at the commencement of employment, together with any enhancements to that plan that the employer implements after employment begins. In no case has this court allowed a public body to modify a retirement plan to effect a practical reduction in benefits, either directly or through an alteration of the applicable formula for calculating benefits, after inducing employees to render service in reliance on the retirement plan. As Taylor held, and as the Restatement of the Law of Contracts confirms, the premise that makes the benefit plan unchangeable by the employer’s unilateral act is the employer’s promise, which the law implies, that the employer will not revoke the retirement plan once the employee commences service. Because the pre-2003 PERS scheme, i.e., the “offer,” was in place when each petitioner commenced his or her employment, the state is bound by its implied promise not to revoke that offer once petitioners tendered partial performance.
The majority makes two points in reaching its different conclusion. First, the majority asserts that, in 1981, the legislature adopted the Full Formula and expected that that formula would be “a new, primary benefit calculator to the system.” 338 Or at 191. The majority also observes that the Full Formula feature was significant because it shifted the risk of poor market performance to employers and away from employees.
The legislature’s expectation about the frequency of use of the Full Formula method as a “primary benefit calculator” is just that: an expectation. As the Special Master found, “[u]ntil 1997, PERB assumed that member retirement allowances would be calculated under the Full Formula method!,]” but the Money Match emerged instead in 1997 as the predominant formula. But the erroneous assumptions by the legislature and PERB about which retirement formula might be used most frequently as a “primary benefit calculator” cannot alter the fact that the pre-2003 PERS statute *263promised members that they would receive benefits calculated according to the most economically attractive formula from among three statutory formulas. Those incorrect assumptions about the frequency of use of the Full Formula and whether it would be the “primary benefit calculator” have no effect on the state’s contractual obligation to pay the full benefits that the statute held out to employees.
The majority’s point also disregards the fact, confirmed in the text of ORS 238.300(2)(b) (2001), that the legislature required the employer’s Full Formula pension to be “at least” the actuarial equivalent of the Money Match and Pension Plus Annuity formulas. Thus, as a matter of clear text, the Full Formula may be the ceiling but it is not the floor for the statutory pension component.
I fail to see the significance of the fact that the Full Formula shifted greater risk of market loss to employers. The PERS statute promised members that they would receive benefits calculated according to the most economically attractive retirement benefit formula regardless of market performance. The addition of the Full Formula benefit in 1981 merely added one more option to the retirement calculation formulas. The risk of market loss under any of those formulas has nothing to do with their function in the calculation of promised service retirement allowances.
Finally, the majority notes that the statutory provision regarding regular accounts contains no separate wording that promises that the legislature will not terminate the accumulation of member contributions in regular accounts. This court addressed and rejected a similar argument in Hughes that a dissenting opinion asserted. The majority in Hughes emphasized that the legislature’s inclusion of a tax exemption statute within a larger statutory contract was a significant contextual clue about the legislature’s contractual intent; the absence of promissory terms in the tax exemption statute itself was, in the court’s view, immaterial. The court cited numerous United States Supreme Court cases that held that a tax exemption was a term of a larger contract, and noted:
*264“The significant fact [in those cases] is that an underlying contract was present. This case presents an analogous situation where we are faced with an underlying contract— the PERS contract — and the question is whether the tax exemption statute is a term of that contract. Also significant is that in those cases the tax exemption terms are not, on their face, indicative of an intention not to repeal those exemptions. The constitutional protection that was afforded to those provisions’ obligations followed from the fact that they were part of a larger contract, not that they were promissory in and of themselves.”
Hughes, 314 Or at 21-22 n 27 (emphasis added).
Applying that point from Hughes to this case, it is immaterial that the legislature did not append explicit wording to the regular account statute to confirm its unchangea-bility. What is significant is the statutory context. Did the legislature incorporate into the PERS contract the provisions for regular accounts and the calculation of retirement benefits from the accumulated benefits in those accounts? Clearly, the answer is yes. The majority’s contrary answer is a legal error.
ELIMINATION OF VARIABLE ACCOUNT
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 *265remainder 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 *266employer 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.

 Former ORS 237.251(3) (1991), which was in effect when PERB adopted the rules in question, provided, in part:
“The board:
“(g) Shall determine the actuarial equivalency of optional forms of retirement allowances and establish from time to time for that purpose the necessary actuarial factors, which shall constitute a part of the system!.]”
That statute, renumbered as ORS 238.630(3)(g) in 1995, remained in effect without substantive modification uhtil the legislature amended it by enacting Oregon Laws 2003, chapter 68, sections 2 and 4.

 The legislature acknowledged the inherent variability of the factors that influence the statistical determination of actuarial equivalency when it adopted the following statement as one of its premises for the enactment of House Bill 2004, which the legislature later codified as Oregon Laws 2003, chapter 68:
“Whereas actuarial equivalency factors are based on assumptions and conditions that vary over time as the demographics of a system’s constituent population and the expected performance of investments of the Public Employees Retirement Fund change, so that the most reasonable expectation is that such factors, by their very nature, must vary over time to reflect those demographic and performance shifts * *

 This paragraph states the Full Formula.

 This paragraph states the Money Match formula.

 This paragraph states the Pension Plus Annuity formula.

 As the majority indicates, PERS, at its inception in 1945, provided for the creation of personal accounts into which the public employee would pay an amount actuarially determined to be sufficient, with earnings on the account balance, to provide one-half of the proposed retirement allowance (typically, at the time, 50% of final average salary). OCLA § 90-714. Upon retirement, the employee would receive an annuity based on the value of the personal account, and the public employer also would provide a similar annuity, for the other one-half of the proposed retirement allowance, by “matching” the amount in the employee’s individual account. OCLA § 90-719. The level of the projected retirement benefit has increased over time, and the legislature has augmented the PERS system from time to time with various reserve features to provide stability during periods of loss. However, except for one two-year period over 35 years ago, the PERS system has retained the Money Match formula as one available method of retirement benefit calculation through the present time.

 ORS 238.200(l)(b) requires smaller salary contributions from employees who were active members on August 21,1981.

 The court in Taylor selected the term “unilateral contract” on the assumption that the employees could accept the employer’s offer by the tender of partial performance. The Taylor court’s subsequent discussion of the binding effect of the tender of partial performance confirms that, in the employment context, partial performance terminates the employer’s power to revoke the offer. Thus, one characteristic of a truly unilateral contract — the offeror’s power to revoke the offer before the offeree tenders full performance — is not applicable in this setting.
Moreover, the term “unilateral contract” may no longer provide a fully accurate conception of the factors that make the employment relationship binding. Restatement (Second) of Contracts § 32 (1981), which the American Law Institute adopted eight years after the Taylor decision, provides:
“In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.”
Under that provision, unless the employer insists on performance as the sole mode of acceptance, the employee may bind the employer to its offer either by partially performing or promising to perform. In either case, a valid acceptance terminates the employer’s power to revoke the offer.