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Thursday, April 30, 2015

Days of Wines and Roses

In a unanimous decision, written by Chief Justice Balmer, the Oregon Supreme Court today declared the COLA modifications embodied in SB 822 and SB 861 of the 2013 Legislature UNCONSTITUTIONAL for worked performed prior to May 6, 2013 and October 9, 2013.  This means that if you retired on May 1, 2013 or anytime earlier, the older 2%, COLA bank, and CPI provisions still apply to you as part of your PERS Contract.  For work completed after either or both of those dates, the COLA will be a blend of the pre-2013 and post-2013 rates.  Hopefully, the July 1, 2015 COLA will return to 2% for all eligible retirees, and the previous two COLAs for 2013 and 2014 will be adjusted accordingly in due time.

As for the income tax remedy, the Court ruled that the changes were permissible and are not contractual and were never intended to be contractual.  The only remedy available to those out-of-state retirees who still feel aggrieved would be to reopen the class action lawsuit that led to the Chess settlement in 1997.

While I have only skimmed the lengthy and well-written ruling once, several things popped out.  First, the court basically eviscerated the respondents' (State, et al) arguments about the non-contractual nature of the COLA, the poor-pitiful Pearl argument, the “it’s for the children” arguments and pretty much every argument the respondents made to justify their modification of the COLA retrospectively.  The court also rejected the opportunity to re-visit their decision in the Strunk case (specifically, the Sartain case on the COLA in 2003), asserting that they got it exactly right in 2003.

All in all, I’d say that today was a good day for all PERS retirees and for most actives. The only people who will be fully affected by today’s ruling are those employees who started after May 6, 2013, but they aren’t generally the people who read this blog.  So, while it will take some time to sort out the victory, today is a day that we can clearly celebrate.  There was nothing that I saw that was ambiguous, filled with weasel words.  The decision was clear and decisive.

One final observation.   The Court spent a great deal of time explaining what constitutes a contractual element of PERS.  It left very little wiggle room for future Legislatures to make any changes for retired members.  It also did a great deal to make common sense of the words prospective and retrospective.  It will give great pause to future Legislative assemblies on what might be permissible and what isn’t permissible changes to PERS as we knew it prior to May 6, 2013.   Clearly, prospective changes are OK; any retroactive change to a contractual element is unconstitutional, and they basically said that in no uncertain terms.

I will follow this up as I have more time to read and digest the opinion.  If you want to read it yourself, you can go to http://www.publications.ojd.state.or.us/docs/S061452A.pdf

This just in.  Steve Rodeman, Executive Director of PERS, told Ted Sickinger from the Oregonian that the 2015 COLA will be 2%.  PERS will then spend the next year sorting out all the complex calculations imposed by the Court’s decision for 2013 and 2014, and will try to have them remedied by 2016 COLA time.  Good news.

13 comments:

Mad dog said...

So if have not yet retired but have 35 years in the system, will I get 2 % on the approximately 33 years of service in perpetuity after I retire?

mrfearless47 said...

You will get 2% maximum on your 33 years of service, and some blend of the other rates in perpetuity. When you first retire, you don't have a COLA bank, so the rules state that the COLA is the lesser of the CPI or 2%. If the CPI remains low, as it has done for the past several years, and you don't have a COLA bank, composed of the excess over 2% accrued after you retire, then you will only get the lower rate. This is confusing for some people. Those of us who've been retired for a long time, lost the COLA bank after 2013. We hope PERS can reconstruct those banks.

Steven Harley said...

Good afternoon Mark, First and formost much gratitude to you and your efforts over the years keeping us sane in the PERS world. I am in the same boat as Mad Dog. 33 Yrs. before May 6th 35 Yrs. total service. I will also be a Money Match retiree. Here is the question will PERS be looking at the benfit as if you had retired at 33 Yrs. and then look at the Benfit as if you retired at 35 Yrs. and then pay the blended COLA on the differace? If that is the case the longer a person continues to work the more impact the COLA case hurts because the last years of employement is the largest gains in your monthly benefit. Do I have the thinking correct or am I missing something? If I'm correct the retirees before May 6th were held whole but us 35 Yrs. plus Tier 1's still got kicked a bit when we were to gain the most by continuing to work. On the bright side sure could have been worse. :) Thanks again for your service

Unknown said...

I would be more than glad to send PERS my COLA Bank information. Not fully trusting PERS calculations I've kept this information since I retired in 2003. I even kept it while this case worked it's way through the courts, just in case. I'm quite sure I am not the only PERS Retiree that has kept this information.

peg

M&S said...

If I understanding the Supreme Court decision and your analysis, the Supremes upheld the elimination of the Bank for the COLA as NOT a contractual agreement. Correct? So, in the case of two persons both having worked 30 years upon retirement, if one retired on May 1, 2013, then viola, that 30-year worker has the "Bank" protection for life to protect against years of excessive inflation. However, if the other retired 30 days later on June 1, 2013, then that 30 year worker has lost the Bank protection that was earned and counted on for the work performed the last 29 years, 11 months.
I am always amazed at arbitrary, ungraduated cutoffs. For example, the 2nd employee only choice was to retire short of 30 years. One negative for being short of 30 years work credit is the negative effect on the medical insurance subsidy from the State....

Thanks, igjeup

mrfearless47 said...

Steve Harley: You have the COLA bank preserved for the period worked prior to May 6, 2013 based on the CPI and COLA max of 2%. Then from May 6 to October 8, you have the COLA bank for CPI based on a COLA max of 1.5%, and then no COLA bank for periods after October 9, 2013. In practice, this will mean that you retain the protection of accruing the COLA bank, but it will apply variably to your different segments of service. This is why the PERS reprogramming will require some time and effort. You end up preserving most of the beast, but a small part gets lost in the prospective portions of the change. Nevertheless, you aren't going to be affected by very much.

mrfearless47 said...

Peg: Your information will be a good check against PERS' math.

mrfearless47 said...

M&S: The COLA bank was eliminated for work after October 8, 2013. For all service before that, you retain the bank and it will be applied variably to your benefit when you start drawing it.

This is really, really, really early in the whole process and I've always maintained that implementation details are crucial. So far the only implementation detail released so far is that the COLA for 2015 (effective with the August 1 check) will be 2%. Aside from that, I'm speculating on how PERS will implement it. But for the purposes of explanation, the Court's ruling leaves only my interpretation as the logical outcome for PERS. I hope this helps, but you can't expect me to understand details of how PERS will ultimately implement the ruling when the ink is barely dry on the ruling.

Michael DeLaune said...

Reply to mfearless47: "So far the only implementation detail released so far is that the COLA for 2015 (effective with the August 1 check) will be 2%"

My question is whether the 2% increase this August will be applied to our CURRENT benefit, or to what our benefit level SHOULD have been if we had received the correct COLA increases for the past 2 years. Probably too early to tell, but something to keep an eye on.

Mike

mrfearless47 said...

Current benefit. That will be readjusted as far as I know once PERS goes back and does all the re calculations for 2013 and 2014. The natural order of things will be for them to reconcile everything in a single pass. Perhaps timed to coincide with the 2016 COLA.

Paula Burkhart said...

Thank you mrfearless47 for your attention to the twists and turns of PERS and the Oregon Courts. I am very happy to know that my 2% COLA will be restored! As an out-of-state resident (many of us moved for family reasons, to care for elderly parents, etc., so this seems grossly unfair), I am disappointed that the income tax remedy will not be restored for us, but at least I have the satisfaction of knowing that my hard-earned PERS retirement dollars will NOT be going into Oregon coffers, public or private! Thank you again for all you do!

Paula Burkhart said...

Thank you mrfearless47 for your attention to the twists and turns of PERS and the Oregon Courts. I am very happy to know that my 2% COLA will be restored! As an out-of-state resident (many of us moved for family reasons, to care for elderly parents, etc., so this seems grossly unfair), I am disappointed that the income tax remedy will not be restored for us, but at least I have the satisfaction of knowing that my hard-earned PERS retirement dollars will NOT be going into Oregon coffers, public or private! Thank you again for all you do!

Unknown said...

I thought we would lose to some type of backroom deal Oregon's politics are increasingly bad for the state with many one sided partisan bills being forced through the legislature.

The court decision certainly gave notice to many legislators that limits exist. Now I hope they will be held accountable for their actions and the bigger problems they created by spending money they had no right to use.