The Associated Press

CORVALLIS — Retired state workers are starting to see reductions in their pension checks, while some are being told they actually owe the state money.

All over Oregon, thousands of retired public employees have begun to receive letters explaining how their pension benefits have been recalculated. While a few will get additional payments, most will find they owe money to the state and some, like Kathy Meddaugh, will see their monthly checks slashed.

"Seventy-five bucks a month — ouch," she told the Corvallis Gazette-Times while looking over a letter from the Oregon Public Employees Retirement System notifying her about the changes.

"I'm not thrilled about the fact that I have to pay the money back, but also I'm of a mind that what can I do? I'm just a little cog in a big wheel," Meddaugh said.

It's an effort to resolve a thorny dispute that dates back to 1999, when the PERS board credited retirement accounts with a 20 percent return on their pension fund investments for the year, the result of an overheated stock market.

The multibillion-dollar payout resulted in increased matching payments to the system by public employers, and several filed lawsuits claiming the charges were excessive.

In 2002, Marion County Circuit Judge Paul Lipscomb ruled the PERS board had indeed overpaid the retirement accounts at the expense of the fund's reserves. In early 2004, the board reached a settlement agreement with the plaintiffs in a lawsuit filed by the city of Eugene that called for recovering the overpayments.

In the meantime, the 2003 Legislature took up the matter, spurred by public outcry over reports of government workers making more in retirement than they earned on the job.

Lawmakers enacted a package of reforms designed to reduce the burden on public employers and taxpayers. The reforms, which included a freeze on annual cost-of-living adjustments, were appealed, and last year the freeze was overturned.

The Lipscomb decision was also appealed, but the Oregon Supreme Court held that the settlement agreement and the cost-of-living ruling had rendered that appeal moot, clearing the way for the PERS board to move ahead with plans to recoup the 1999 overpayments.

Early this month, PERS began notifying "window retirees" how much they owe with letters like the one Meddaugh received. The notification process is expected to take about two years.

"Well probably be doing anywhere from 1,500 to 2,000 a month from here on out," said Dale Lucht, who heads a staff of 36 employees within PERS who will be recalculating benefits and collecting overpayments.