Oct. 8, 2002 / Associated Press
SALEM - The Public Employees Retirement Board must recalculate contribution rates paid by government employers since 1999, a Marion County judge ruled.
Circuit Judge Paul Lipscomb said Monday the board has failed to follow legal requirements for maintaining reserves while raising employer charges and boosting retirement benefits more than necessary. His ruling means up to $2.2 billion dollars distributed to PERS accounts from the fund's 1999 earnings could be taken back to help protect the struggling retirement fund.
Lipscomb's decision was a victory for the local governments that are challenging increases in their mandated contribution rates to fund pension benefits.
"We've been contending all along that the PERS board has strayed in the statutes they were supposed to be administering," said Bill Gary, who represents the city of Eugene, the main plaintiff in three of the four lawsuits involved. Other plaintiffs include Lane County, Multnomah County and the city of Portland.
Lipscomb sent the case back to the board to correct "various legal errors and several abuses of discretion" in administering the fund.
Mary Botkin, lobbyist for the American Federation of State, County and Municipal Employees, said she wanted more time to study the ruling, but she questioned where the money would come from to lower employer rates.
"Are they going to take it from member accounts, or what about people who are already retired?" Botkin asked.
The ruling could be appealed to the state Court of Appeals and Supreme Court.
PERS covers 294,000 retired and active public employees in Oregon, and their government employers contribute to their pensions through a payroll charge levied by PERS. The fund faces an estimated shortfall of at least $7 billion in funding needed to pay benefits over the long term, partly because of losses on stock investments as the economy soured.
The ruling primarily affects "Tier 1" employees hired before 1996. These employees are offered a guarantee that their accounts will increase 8 percent a year, whether or not PERS earned enough money to cover those costs. Earnings topped 8 percent in the boom years of the late 1990s, and the board used the extra earnings to boost pensions. But Lipscomb said the board abused its discretion in 1999 by using earnings to more than double the guaranteed rate of return to employees without fully funding reserves that are required by law.
The ruling requires the board to reallocate the unusually large 1999 earnings.
That likely would shave employer rates and could affect employee accounts as well.
"I don't think the decision necessarily mandates any significant effect on people who are retired or about to retire," Gary said.
"The most significant thing is the court has given the PERS board very clear directions it needs to make a serious course correction in the way it administers the fund," he said.
Lipscomb also chastised the pension system for using outdated mortality tables to figure benefits and said its August decision to use updated tables by 2004 isn't good enough.
People are living an average of four years longer than in 1978, when the current tables were adopted. Retirees are guaranteed a monthly income, so the system must pay benefits longer than it has money budgeted for.
"The new policy offers too little, too late," Lipscomb said. He said the board has a legal duty to implement the new tables "immediately."