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Lawsuit challenges changes that tweak savings plan and cap salary number used to determine retirement benefits.

PMG FILE PHOTO - Public union employees are asking the Oregon Supreme Court to review legislative changes to PERS.Nine public employees are asking the state's highest court to review a new state policy that slashed their retirement benefits.

The workers, including a secretary, a firefighter and a water mechanic, claim the new law is unconstitutional. They are asking for what's called a "direct review" of the law by the Oregon Supreme Court.

PMG/EO MEDIA/SRAbout 176,000 people working for state and local government are part of the Oregon Public Employees Retirement System, known as PERS. In May, lawmakers passed Senate Bill 1049, which made a slew of changes to the way the state pays for retirement costs. The combined changes were estimated to save the state about $1.2 billion to $1.8 billion every two years.

The lawsuit challenges two of the changes contained in the law: a tweak to a savings plan and a new cap on a number used to determine retirement benefits for each employee. Oregon public employees get a retirement plan that has two distinct parts: a basic defined-benefit pension, and a market-based savings account that's similar to a 401(k).

Senate Bill 1049 cuts the amount of money going to the savings account. Employees will contribute the same amount of money to their retirement, but a greater portion will go to fund pensions. As a result, employees say they will end up with less money when they retire.

The tweaks to the savings plan affect the vast majority of public employees in the state — workers who make $30,000 a year or more. The law also caps what's called final average salary, or, in simple terms, a number that the state uses to calculate each employee's benefits when he or she retires. Under the new law, the final average salary is capped at $195,000.

Losing retirement money

In each generation of hires — there are three tiers of PERS that depend on when an employee was hired — that change could reduce benefits for a fraction of 1% of workers.

The changes to the savings plan will impact workers such as Jennifer James, a secretary at Mulino Elementary School in Clackamas County. James is the lead plaintiff in the lawsuit. Due to Senate Bill 1049, James expects to have $18,000 less at retirement than she previously thought. "That's a lot of money out of my retirement," said James, who has been working at the school for 20 years.

James took the job when her kids were young. The hours meant she didn't need to send her kids to childcare, and she knew that while she would make less money than she could in the private sector, the retirement benefits would be "good" and "solid," she said.

"I love our families and our students," James said. "Working at an elementary school with young children, it's very gratifying. You get to watch little kids grow up."

James said she expected those benefits.

"Maybe it's naïve in hindsight," James said, "But when you get a job working for the state, you just assume that your benefit is a guarantee, that the state is going to keep its word and this is what you're gonna get."

Making a strong case

Changes to Oregon's enormously complex retirement system are often politically contentious. Democrats hold the majority of legislative seats, and public employee unions make up a powerful lobbying and campaign bloc. Unions are paying for the lawsuit.

The Legislature has tried a variety of cost-saving measures over the years. The most recent reforms in 2013 led to another legal battle. In that case, "Moro v. Oregon," the Oregon Supreme Court essentially said that the state could not retroactively change retirement benefits already earned by public employees.

Lawmakers aimed to abide by Moro by targeting future benefits only in Senate Bill 1049. But, that case looked specifically at changes to employees' cost of living adjustment, said Aruna Masih, the attorney representing the employees.

The case filed Friday, instead, is focused on other parts of the state's retirement benefits — the savings plan and the final average salary.

"It is a different part of the law," Masih said, "And we think we can make a strong case to the court why, based on the text, context and legislative history of the provisions … that the court should find that these are core benefits that are required to be protected."

Facing mounting debt in the retirement system, Senate Bill 1049 also created new financial maneuvers to try to tame the impact that debt is having on government year-to-year.

By and large, state and local government entities such as cities and schools have to pay more money toward employee retirements every year.

Combined with limits on local property taxes, proponents of the law say, the situation is putting the squeeze on government services, diverting money to pension costs instead of local services.

"Vital services and public sector jobs would be at risk," said Rep. Tiffiny Mitchell, D-Astoria, in a letter explaining her vote for the bill. "Not only that, but the long-term viability of our pension system would be threatened if the legislature didn't act."

Reporter Claire Withycombe: This email address is being protected from spambots. You need JavaScript enabled to view it. or 971-304-4148.

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