The Associated Press
SALEM - A federal judge has upheld the Oregon Legislature's cost-cutting reforms to the Oregon Public Employees Retirement System, rejecting claims that the changes violate workers' contract rights.
U.S. District Judge Michael Mosman's ruling was hailed Monday as a "victory for Oregon's economy" by Gov. Ted Kulongoski, who sought the reforms as a way to avert a deficit once estimated to be as high as $17 billion.
But union officials who are challenging the PERS changes said that Mosman's ruling is far from the last word on the issue and that a major challenge is still pending before the Oregon Supreme Court.
"We don't see this as a huge issue," said Mary Botkin of the American Federation of State, County and Municipal Employees. "We are optimistic that the state Supreme Court will rule in our favor."
Mosman's ruling, which was made public Monday, upheld legislative changes approved last year that union officials say could reduce public employees' pensions by as much as one-third for employees in midcareer.
Mosman rejected arguments by the unions that the pension changes run afoul of the federal Constitution's protection of contract rights. Those protections do not prohibit legislation to make changes to future benefits, the judge said.
"If the state of Oregon is to be bound to provide employees a set level of benefits in perpetuity, such a legislative intent must be clear. Here it is not," he said.
The stakes in the case are high for the 300,000 active and retired state and local government workers that belong to PERS, as well as for state and local governments who could face up to $8.2 billion in additional pension costs if the reforms are struck down.
The federal judge's ruling came on a lawsuit filed by unions that also have a similar challenge pending before the Oregon Supreme Court, which heard arguments in the case July 30.
Greg Hartman, an attorney for a coalition of public employee unions that brought one of the challenges, said Mosman's ruling will be appealed to the 9th U.S. Circuit Court of Appeals.
"Judge Mosman decided this as a matter of federal law, and we disagree with his ruling," Hartman said.
In the meantime, Hartman said, all sides are awaiting the state Supreme Court's ruling on the unions' lawsuit contending that the state was wrong to shave some benefits without offering workers some kind of offsetting gains in return.
"The state Supreme Court will decide the scope of protection of contract rights under the state constitution," Hartman said.
After hearing arguments in the case July 30, the Supreme Court didn't indicate when it will rule. At times, state Supreme Court justices have spent a year or more deciding major cases.
One change to the system made by lawmakers stopped making a minimum 8 percent annual increase in retirement payments of workers who were in the pension system before 1996. That reduced future pensions for many.
Another revision eliminates the so-called "money match" provision under which governments equally matched workers' pension accounts when they retired.
The feature allowed several thousand career employees to retire with pensions higher than their salaries when they left their jobs.
In urging the Supreme Court to uphold the PERS changes, lawyers for the government argued that contract rights apply to benefits already earned but that the terms can be legally changed for benefits to be accrued in the future to adjust for changing financial circumstances.
Kulongoski said after Mosman's ruling Monday that he remains convinced the PERS reforms will result in a "fair, adequate and sustainable system."
"This ruling strikes a sensible balance between protecting employees' contract rights while allowing enough flexibility to address the important needs of the future," the governor said.