By PETER PRENGAMAN
Of The Associated Press

SALEM - Gov. Ted Kulongoski signed three bills into law Friday that will sharply scale back the retirement benefits of state workers.

The reforms, however, will soon be challenged in the Oregon Supreme Court by the unions that represent many of the 294,000 people in the Public Employees Retirement System. The unions claim the reforms are a breach of contract rights.

"They should have found solutions that were constitutional, not irresponsible," said Mark Botkin from the American Federation of State, County and Municipal Employees union. "This is going to be very costly to the state."

Kulongoski, a former Supreme Court Justice, said Friday he believed the courts would uphold the changes.

"When it's all over, the Legislature will be found to have done the right thing," Kulongoski said.

The unions say the lawsuits will be filed within a few months. Under the provisions of the bills, legal challenges go directly to the Oregon Supreme Court. The unions are also considering filing suits in federal court.

Major Supreme Court decisions often take up to two years.

In the meantime, all reforms passed by the Legislature will go into effect, some beginning July 1, others starting Jan. 1, 2004.

The main piece of the reforms, House Bill 2003, aims to recoup excessive returns doled out in the stock market boom of 1999 and slow the growth of pension accounts.

It will do that by freezing the cost-of-living increases for many retirees, eliminating the 8 percent annual return guaranteed to workers hired before 1996 and shifting the employee contribution from the pension accounts to separate 401(k)-style accounts.

The second reform piece signed by Kulongoski, House Bill 2004, updates the life-expectancy tables used to calculate the monthly benefits of retirees.

The tables used now date to 1978, but retirees are living four to five years longer on average.

Kulongoski also signed House Bill 2005, which reduces the pension board from 12 members to five.

The changes will impact future retirees differently, depending on how long they've been working.

For example, the pension board estimates that under HB2003, people who work 29 years and retire in 2009 with a final salary of $55,581 will see their monthly benefit shrink from $4,835 to $3,507.

In total, the reforms will cut in half the $16 billion long-term deficit facing the pension system, and free up hundreds of millions of dollars that schools and local governments can use over the next two years.

But Kulongoski and other lawmakers have cautioned school districts against using the money, should the reforms later be overturned.

"I wouldn't count on the savings," said Sen. Tony Corcoran, D-Cottage Grove.

Lawmakers rushed amendments of HB2003 through both chambers this week, pushing to meet a May deadline set by the pension board for calculating legislative changes into the new employer rates that take effect May 1.

Many Republicans and Democrats voting for it said their main reason was to get it on to the courts.

Tricia Smith, from the Oregon School Employees Association, says the rush to savings will cost the state more money later on.

"Everybody knows this won't pass the constitutional test, which makes me wonder why they passed it," she said.