By PETER PRENGAMAN
The Associated Press

SALEM — The Legislature's efforts to turn the Public Employees Retirement system into less of a burden on the state economy have so far gone smoothly, but could spark protests and lawsuits if lawmakers try to cut benefits for existing workers.

Legislators and the unions have quickly agreed on two reforms and they are expected to be signed into law. One will put an 8 percent annual cap on the returns to pensioners' accounts. The other will reduce the PERS' board from 12 to five members.

But fights are expected over other PERS reform proposals, especially those that would reduce the pensions of current employees.

"If they do anything drastic, we'll turn up the heat," said Mary Botkin, from the American Federation of State, County and Municipal Employees union. "There will be a time when we tell our people to storm the Capitol."

The pension system is facing a $15 billion shortfall over the next 25 years. Gov. Ted Kulongoski has said reforming it is a priority as he tries to steer the state out of its economic crisis, and he won't adjourn the Legislature until it's done.

But two proposed reforms of PERS may have to be settled in court, regardless of what lawmakers ultimately decide.

The first has to do with updating the actuarial tables used to calculate retirees' benefits. Because retirees are living an average of five years longer than the 1978 tables project, PERS has had to dip into reserves to continue paying, adding to the shortfall.

The PERS board wants to update the tables beginning Jan. 1, 2004, giving current employees the chance to retire before any changes are implemented. But lawmakers are considering legislation to update the tables retroactively, beginning in January of this year.

Greg Hartman, a lawyer for the unions, said any attempt to update the tables retroactively would breach contract rights.

"If we do see anything so drastic, you may see some major rallies (at the Capitol) and lawsuits," Hartman said.

Employers of PERS recipients could also take the Legislature or the PERS board to court.

Last month, Marion County Circuit Judge Paul Lipscomb ordered that new actuarial tables be implemented "immediately and fully." The ruling stemmed from a suit brought by the cities of Portland and Eugene, Multnomah County and four smaller public employers.

Bill Gary, lead lawyer for the cities, said that if the Legislature decides to implement the tables at some future date — rather than now — his clients will go back to their ruling and insist it's done retroactively.

The dispute could mean more lawsuits.

"'Immediately' does not mean 2004," Gary said.

The second contentious reform proposal that may have to be settled in court relates to mandatory pension contributions.

As it stands, many employees have about six percent of their salaries put into their pension accounts. Depending on the employer, the "pickup" is paid directly out of a worker's salary, or paid for by the company.

When workers retire, they can take the option of the "money match," meaning that their total account is doubled.

Employers are proposing legislation to eliminate the contribution, thus slowing the growth of accounts. They say employees would then be more likely to retire under the traditional system based on years of service and final salary instead of the money-match program, which is more costly for employers.

Unions and pensioners say eliminating employers' contributions would be a breach of contract and renege on a promise to compensate for comparatively low salaries with a good retirement.

Beginning in the late 1970s and early 1980s, many employers agreed to pay their workers' contribution instead of giving them a raise.

"We agreed to work for less than market wages with the understanding that the payoff would be at the end," said Ellen Willis, who after 25 years with the Department of Revenue is preparing to retire this year. "This is shafting people who have done the work that citizens of this state needed to have done."

Leslie Frane, executive director of Service Employee International Union, said unions are working to convince the Legislature that the plan is irresponsible.

But "if it were to pass despite our opposition, we would litigate," Frane said.

Rep. Tim Knopp, a Bend Republican who is chair of the House committee dealing with PERS reform, said he knows lawsuits are inevitable.

"We are trying to do everything to make sure legislation going forward has strong legal ground," Knopp said. "But possible lawsuits won't hold back legislation."

Eliminating the employers' contribution to PERS and updating the actuarial tables retroactively to Jan. 1 could reduce the system's long-term shortfall by $5 billion, according to Mark Johnson, the PERS actuary.

Proponents of the two measures say the changes could save at least $615 million a year.

But the unions are telling lawmakers that such changes could cost the state millions of dollars in lawsuits.

In the meantime, many workers are making a mad rush for retirement because they are uncertain of the changes to come for PERS.

In 2002, 6,809 people in the system retired. As of Feb. 10 of this year, 2,255 have already retired, said David Crosley, a spokesman for PERS.

"About 40,000 are eligible," Crosley said. "And the number retiring is changing daily."