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.

Watch This Space

According to the Department of Justice website, the Oregon Supreme Court will release its decision in the Moro et al v. State of Oregon case tomorrow at 10 a.m..  For those who don’t pay attention to court titles, that is the case we’ve all been waiting to hear about.  This is the case pertaining to the Legislative modification of the PERS COLA and elimination of the income tax subsidy for those not residing in Oregon.  This has been one of the longer-awaited opinions.

So, watch this space tomorrow for a quick posting about the decision and for possibly a longer analysis of what the opinion means.  Unless the case is an outright slam dunk for the defendants (State of Oregon and others), the implications will probably take some time to figure out.  

Stay tuned.

Future People

Not a heck of lot going on in PERSland, but I thought I’d write a brief post to do two things:  to let people know I’m still alive, and to let future retirees know that the PERS Board has tipped its hand that the assumed interest rate may be changing again.  At the most recent Board meeting (3/30/15), the actuarial assumptions going forward were briefly discussed.  The actuaries will present their study of the PERS system for the next system valuation at the May meeting.  In the meantime, two numbers were whispered about.  The assumed interest rate (currently 7.75%) is expected to drop again on 1/1/16 to 7.5% or 7.25%.  Bear in mind that the PERS fund did NOT make the assumed rate in 2014, coming in with earnings at 7.3%.  While the Board did not have to dip into the gain/loss reserve to fund the 45 basis point discrepancy, it is clear that neither the Oregon Investment Council nor the PERS Board/Actuaries think the higher 7.75% is sustainable.  So, be prepared for another drop in the assumed rate.  If you want to know how this might affect you, just remember that the earnings on Tier 1 accounts, as well as the mortality factors to determine retirement benefits are negatively affected by a lowering of the assumed rate.  For each 25 basis point drop, it takes working about 3 months longer to make up the difference.  So, between the previous 25 basis point drop (from 8 to 7.75%), and the anticipated drop, Tier 1 members remaining in the system will have to work 6 months to possibly 9 months longer to earn the same benefit that would have been received if the assumed rate had remained at 8%.
If things like this worry you, plan on attending the May and July Board meeting where these issues will be discussed.
Here’s hoping the Oregon Supreme Court will finally release its decision in the Moro et al cases (COLA and tax remedy) this month.  We cross the 6 month boundary since the hearings in about 10 days.