Public Employee Union Members Sue Oregon Over Cuts to Their Retirement Benefits

Nine public employees today filed a petition with the Oregon Supreme Court asking the court to review the retirement-benefit cuts in Senate Bill 1049, which lawmakers passed this year and Gov. Kate Brown signed into law on June 11.

The plaintiffs work for a broad range of employers, from the Molalla School District to Oregon Health & Sciences University.

Through their attorneys at the Bennett Hartman firm, the plaintiffs collectively argue that the new law illegally violates a contract they have with their employers.

"The plaintiffs and all PERS members accepted a job in good faith for a salary and benefits package, did the work they promised to do, and planned their futures based on the package they agreed to accept. Their service for public employers creates certain contract rights to retirement benefits. As the Oregon Supreme Court has ruled in the past, the State cannot breach the terms of those contractual promises," Aruna Masih, the lead attorney for the plaintiffs, said in a statement.

Lawmakers acted this session to cut retirement benefits in response to widespread concerns about the Oregon Public Employee Retirement System's $26 billion unfunded liability and in part to balance a new commercial activities tax which will raise billions of dollars in revenue.

Public employees have noted that about 70 percent of the unfunded liability is owed to employees who have already retired.

In two previous instances in which lawmakers tried to cut public employee retirement benefits, the Supreme Court struck down much of the savings to employers. Bennett Hartman represented employees in both cases.

One of the key rulings was that lawmakers cannot rescind money promised to retirees. That means the weight of any proposed cuts falls disproportionately on current employees, most of whom are accruing benefits that are already less generous than their predecessors.

The cuts in Senate Bill 1049 affect what's called employees' Individual Account Programs (IAPs). Currently, many public employers pay an amount equal to 6 percent of employees' salaries into an IAP. Under 1049, part of that 6 percent (the amount varies depending on when an employee was hired) will instead be put toward paying down the unfunded liability.

The state estimates the changes could cost most of current employees 7 percent to 12.5 percent of their previously expected IAP totals. That potential loss is the basis for the legal action.

The lawsuit says the reduction in employees' IAPs  "constitute a "taking" of petitioners' protected property interests.

"The legislature took these amounts to lower the overall obligation of employers with regard to liability attributable to service already performed and/or primarily for other employees (i.e., retirees and inactive members). Petitioners have not received just compensation for the taking of their property interests."

The state does not comment on pending litigation.