Cold Shoulder

Today, the Oregon Supreme Court issued its ruling in the James et al case, the PERS Coalition challenge to the 2019 Legislature's SB 1049 bill. This bill redirected some IAP monies into the Employee Pension Stability Account, and placed a salary cap for the purposes of FAS on post 2019 income to $195,000 per year. This ruling was one of the fastest rulings in my recall of the Oregon Supreme Court. It comes barely 6 weeks after oral arguments before the court in mid-June. The decision, written by Chief Justice Martha Walters, was en banc, suggesting there was no dissent.

The court ruled that the IAP redirection was prospective and therefore not in violation of the retrospective rules established in Moro. Moreover, they ruled that (1) the money didn't really NOT help retirees; it just applied in a different way; and (2) the fact that the employers benefit from this was essentially a consequence, not the legal intent (if you believe this, I have a 100% effective Covid-19 vaccine to distribute right now).

The court also ruled that the salary cap was not illegal and not retroactive. I must confess that in reading the court's logic and example, I found myself wrapped in pretzel logic trying to figure out exactly how the ruling didn't have adverse effects on members working past 2019. The examples all assumed that members earning less than the cap suddenly came up on the cap in the immediate post 2019 period, but the examples didn't exactly compute for me. The court argued that the blended approach, used by PERS following the Moro ruling on the COLA and, to some extent on the Tax Remedy, didn't necessarily have to apply here because, well...they said so. One of the examples they DIDN'T consider is the worker earning higher than the salary cap well BEFORE the cap went into affect. They argued that SB 1049's salary cap did not remove any benefits already accrued, but didn't make it clear how the accrued benefit is preserved in this circumstance. It may be the case that PERS has to segment the worker's career in order to implement this anyway, but the devil will be in the details. The consequence is that earnings above the salary cap after 2019 won't increase the IAP balance, and those excess earnings cannot be used to compute final retirement benefits. But it isn't entirely clear how FAS will be computed in such circumstances. I don't expect this will help keep highly compensated individuals on public payrolls.

I'm used to reading well-argued, clearly written opinions from the Oregon Supreme Court. This opinion failed that test miserably. If I have to read a sentence 5 times before I'm certain exactly what it means, it blows for me. I attribute the unclear writing to the pressure the Court must have felt about getting this ruling out there before the Legislature convenes in Special Session later this month to try to balance the budget. Once Covid struck, there was never any doubt in my mind that the court would eventually reach the conclusions they did. There is no way that I can see the current court ruling in favor of PERS members in the current climate. This does not bode well for actions that might be taken by the Legislature when it convenes in regular Session in late January or early February 2021.

The court has given PERS members and future retirees the cold shoulder this time around. I expect that measures passed by the Legislature in 2021, so long as they are facially reasonable, will probably result in PERS members and retirees being completely frozen. The days of favorable PERS member/retiree rulings are probably a distant memory.

(Note added 8/7). A number of people have asked me what the likelihood of PERS reform happening during the Special Session coming up later this month. While I concede that nothing is impossible, I regard Special Sessions as unlikely places for PERS reforms. They are too short, PERS legislation is typically too complex, and short sessions are places where simple things happen, not legislation that has many moving parts. That said, I fully expect more PERS reform to be on the 2021 Legislative Agenda. I don't have any idea what form it will take, but legislation that didn't make it out of committee during the 2017 and 2019 sessions look likely to be revisited again. Beyond that, your guess is as good as mine.