Oregonians for Retirement Security and the PERS Coalition
has provided this list of frequently asked questions regarding the Lipscomb
Supreme Court Decision and how it affects members' PERS accounts. Our union,
part of the PERS Coalition, who has filed lawsuits on behalf of PERS
members. AFT-Oregon has also posted a related story on their website.
What was this case about?
The PERS Board made a decision to credit 20% earnings to members’ regular
accounts in 1999. The City of Eugene and other employers sued the PERS
Board and said they credited too much in 1999. Because the lawsuit impacted
member accounts, the PERS Coalition intervened in the lawsuit on behalf of
all public employees and argued that member accounts had been credited correctly. In
2002, Judge Lipscomb sided with employers. The PERS Coalition appealed
to the Supreme Court to have Judge Lipscomb’s rulings in the City of
Eugene case overturned.
In March 2004, prior to the Supreme Court making a decision, the PERS Board
and the employers entered into a settlement agreement that did not include
On August 11, 2005 the Oregon Supreme Court dismissed our appeal due to the
settlement agreement and ruled that we did not have to be included as a party
to the settlement agreement. Therefore the settlement stands as does
Judge Lipscomb’s ruling. (The Supreme Court’s opinion
is available online at: http://www.publications.ojd.state.or.us/S50617.htm)
What was Judge Lipscomb’s original ruling?
There were two major issues Judge Lipscomb decided in his 2002 ruling
in the City of Eugene case that impact us today.
1. The PERS Board credited too much money to regular (fixed) accounts in 1999
and should have saved more money for a rainy day (We were credited with 20%
earnings and Judge Lipscomb believed it should have been 11.33%).
2. If a member had money invested in the variable account and retires on money
match, employers will only match what that employee would have earned in the
regular (fixed) account. This change became effective for all retirements
beginning July 1, 2004 as a result of the Settlement Agreement.
What is the Settlement Agreement between the PERS Board and Employers?
The Settlement Agreement requires PERS to reallocate 1999 earnings to Tier
One member accounts at 11.33 % instead of 20%. It also changes Money
Match retirement benefits to require employers to only match what employees
would have earned if they had only invested in the fixed account (not variable).
The Settlement Agreement is based on Judge Lipscomb’s findings in the
City of Eugene case and the 2003 PERS Reform Legislation challenged in the
Strunk case. The Settlement Agreement is posted on the PERS website at: http://www.oregon.gov/PERS/RELATED/section/board_information/city_of_eugene_v_pers.shtml.
Did the Oregon Supreme Court uphold Judge Lipscomb’s ruling?
No. The Supreme Court dismissed our appeal of Judge Lipscomb’s
case because of the settlement agreement. They did not analyze or rule
on the correctness of Judge Lipscomb’s decision. However, by not
allowing our appeal to proceed, Judge Lipscomb’s decision stands and
the settlement agreement will be implemented.
Who is impacted?
Any member who was in the system in 1999 will be impacted by this
decision. This includes retirees who left the system after March of
Does this only affect Tier 1 members?
No. This ruling affects any person who was an active PERS
member during 1999.
Does the decision mean I will
have money taken out of my variable account?
No it does not. The change to the Money Match calculation
was effective only with retirements as of July 1, 2004 and is not retroactive. When
you retire, if you retire on money match, your employer will only match those
dollars you would have received if you were fully invested in the regular
Is the new match limited to the 8%
annual guarantee, or the actual amount credited to the regular accounts?
The new match is limited to the actual amount credited to the regular
I am a retiree – what
is the impact on me?
If you retired after March of 2000 you will most likely receive an invoice
from PERS for dollars you have already received and your monthly pension will
be reduced. General estimates on the impact to retirees are available
on the PERS website at http://oregon.gov/PERS/RELATED/docs/ex_benefit_changesR.pdf. These
are only estimates until the PERS Board decides at their September 23, 2005
Board meeting how they are going to implement this decision.
I am an active member – what
is the impact on me?
If you were a member of PERS in 1999, you will have money taken
out of your PERS regular (fixed) account. Again, the timing is unknown. Your
account will be reduced by the difference in interest from 20% to 11.33%,
and any interested received on those dollars that were credited to your account.
I retired before
March, 2000. Does
this ruling impact me?
No. It only impacts those members who received earnings credited
What is the impact on employees who
started working in a PERS job after 1999?
Public employees who started working after 1999 are not impacted
by this decision. Only those who were active members of the system
in 1999 are impacted.
When will these changes take place?
It will take time for the PERS Board to implement these
changes. The PERS staff estimates that more than 40,000
retirement benefits will have to be recalculated and many by
hand. The Board meets on September 23, 2005 to discuss
how they will implement this decision.
What are our legal options?
The PERS Coalition continues to study the City of Eugene case as
well as the Strunk case and will be formulating its legal strategy in the
next couple of weeks. The PERS Coalition is committed to taking all
reasonable steps necessary to protect the rights of public employee members.
Already, the PERS Coalition has a case filed in Multnomah County Circuit
Court (the White case) which contests the provisions of the Settlement Agreement. The
Settlement Agreement is based on Judge Lipscomb’s opinion in the City
of Eugene case. Because this case is in circuit court (the lowest court) it
will likely take several years before it is resolved.
Doesn’t the Supreme Court’s
ruling violate contract rights?
No. Judge Lipscomb decided the City of Eugene case based on
his interpretation of statutes that existed in 1999. By construing
the statutes in this fashion, Judge Lipscomb defined the extent of the contract
rights and therefore there can not be a violation of those rights.
We do not agree with Judge Lipscomb’s analysis and the Supreme Court
did not address our arguments with his analysis at this time. But, because
his analysis is the basis for the Settlement Agreement, we have challenged
the Settlement Agreement in a new court case called White.
Can the PERS Board that made the 1999
distribution decision be sued by the Coalition and/or individual PERS members?
No. There is no viable legal theory for suing the board. They
acted in good faith and made what they believed to be the correct decision. The
fact that it was later overturned by Judge Lipscomb does not mean they acted
Will I now get the money owed to me
because of the Strunk decision?
Yes. The PERS Board has been waiting to pay back members for
the Strunk decision until the City of Eugene case was resolved. If
you are a Tier 1 member, you will receive 8% interest on your account for
2003 and 2004. If you are a retiree, you will get the Cost of Living
Adjustment (COLA) owed to you as well. These will most likely be figured
into your account at the same time as the City of Eugene deduction for 1999
Can there be a claim made against any
type of fiduciary insurance policy that PERS may carry on the Board?
Even if the PERS Board carried a fiduciary insurance policy the
amount of money that could be recovered would be insignificant in the context
of a judgment which has an impact in excess of a billion dollars on retiree
Judge Lipscomb’s decisions said
a number of times that retirees will be protected. I’ve read
that retirees will have to pay the most? What is the truth?
Judge Lipscomb did express concern about retirees and whether the
PERS Board could amend their retirement benefits. This is part of our
challenge to the Settlement Agreement under the White case.
Why do people that invested in the variable
pay less than those of us that stayed in the regular (fixed) account?
Public employees that invested up to 75% of their money in the variable
account, had less money in the regular fixed account and received less earnings
on the regular (fixed) account in 1999.
If the PERS Coalition is successful
in protecting retirees from this decision, will active members have to
pay more to offset it?
The PERS Coalition has always been careful to make certain that
the legal positions it asserts benefit all members. The PERS Coalition
will not move forward with a legal position which would disadvantage one
group of PERS members over another.
What if I don't pay it back? What are
PERS indicated that if a member does not voluntarily payback what
they deem to be overpayments, they will begin making deductions from future
pension benefit payments. We do know from statute that this can not
exceed 10% of your monthly pension check. PERS will confirm this at
their September 23, 2005 Board meeting.
Will PERS let me pay back money on a
Yes. PERS indicated they will work with retirees to set up
a payment plan.
What about those people who took their
money out in a lump sum? Will they have to pay money back also?
Does this ruling
mean that PERS can go back and change my retirement again? Does
it mean other people can go back and sue them on past crediting decisions?
In the Strunk case, the court made it clear that all crediting
decisions before 1999 can not be challenged. The challenges made in
this case were due to a set of circumstances that are not likely to happen
again. Once the current issues related to retiree benefits are resolved,
retirees should be able to count on the benefits they have been promised.
I read that retirees
are suing the PERS Board so they don’t have to pay this money – is
No cases have yet been filed but both the PERS Coalition and OPRI
(Oregon Public Employee Retirees, Inc.) are looking into ways to protect
those hurt the most by this ruling, retirees. The PERS Coalition and
OPRI have been working together all along.
I understand Judge
Lipscomb ruled the employer was not liable for matching the variable
part of a member’s
account, only the amount of money that a regular account would have earned.
What would happen if the variable did not do as well as the regular, would
they only be obligated to match the lesser amount? Is the match limited
to the 8% annual guarantee, or the actual amount credited to the regular
Under the Lipscomb ruling the match is only on the amount which
would have been earned in the regular account. If the variable account had
a period of poor returns, then this approach could work to the benefit of
members. Overall it is anticipated that this would result in a substantial
lowering of benefits for many members.
Supreme Court Ruling on PERS Litigation
In March 2005, the Oregon
Supreme Court at last ruled on the PERS legislation enacted by the
previous legislature. As expected, it was a split decision, with the
two biggest aspects of the change going in favor of the Tier 1 employees,
and others going in favor of the employers.
The biggest change--the one eliminating the guaranteed annual increase to PERS
accounts--was ruled a violation of Oregon's constitutional protection of contract
rights. The second biggest--the one temporarily suspending the annual COLA
increases for those who had already retired--was also deemed to be a violation
of contractual expectations (particularly so since it applied to employees
who had already retired). Those two aspects of the case--the core issues in
the case brought by the coalition of public employee unions of which we are
a part--were supported by all 7 justices.
The unions did lose on split 4-3 decisions on two other aspects of the reforms.
The first was the one that created the Individual Account Program (IAP) for
the 6% employee contribution (which in our case the College picks up and contributes
for us). Whereas in the old system the 6% went into one's regular PERS account,
the new IAP is in a separate fund, essentially a 401k plan. The biggest difference
that results from the new system is that the 6% money will not be subject to
the "money match" method of calculating retirement benefits. As a
result, money match--which was responsible for most of the very large payouts
before the reforms were enacted--will become less and less the method of choice
for most employees. In the short run, the impact of the Court's upholding this
change may be minimal, but it will most likely have an adverse impact (no one
knows how much) on those retiring ten or fifteen years down the road or more.
The second split decision involved the elimination of the "Variable" account
for new money after 2003. In other words, money that is already in one's variable
account can stay there, but all contributions after 2003 must go into the regular
account. Presumably, this will increase the stability and predictability of
Finally, the one reform that was unanimously upheld by the Court was the one
allowing for periodic recalculation of the mortality tables upon which annuities
are based. Most observers assumed that this would be upheld, and it does make
There had been talk about the Legislature going back to redo the reforms if
the Court ruled against them, but I'm not sure that will in fact happen, given
the nature of this split decision. What's also not clear as of March 2005 is
the effect on employers like PCC. The overturning of those two major provisions
will ultimately cost the employers money, though it's not yet clear how much.
Fortunately for us, PCC has been wisely setting money aside for this possibility.
Once we see the final impact numbers, we'll have a better sense of whether
the college has set aside too much, too little, or just the right amount.
Greg Hartman, the lead attorney for the coalition of plaintiffs in the case,
will announcing any next steps which may be taken(e.g., there are still some
federal cases in the works which could be pursued on the issues that we lost,
but we'll see).
Overall, this is a very good ruling, and those of us in the public employee
unions can feel that our dues money was well spent. The Court forcefully upheld
the contractual nature of PERS and the Constitution's strong protection for
contracts. It struck down instances in which the Legislature tried to alter
aspects of the PERS system that were explicitly promised in the statutes. At
the same time, it looked at intent and expectation in deciding (albeit narrowly)
to uphold aspects of the reforms that did not violate explicit promises. The
split decision may ultimately save us from a further attempt by the Legislature
to overhaul the system and subject us to another two years of uncertainty,
litigation, and budget cuts.
Below are a link to the Supreme Court's summary of the decision and then to
the actual decision.