James v. State, 080620 ORSC, SC S066933

Docket Nº:SC S066933
Opinion Judge:WALTERS, C. J.
Party Name:Jennifer JAMES, Lisa Riegel, Rosanne Scott, Robert Martineau, Regina Thompson, Emily Marx, Dustin Andrews, Brandon Silence, Thomas Cleary, Petitioners, v. STATE OF OREGON; State of Oregon by and through the Department of Human Services and the Department of Transportation;Multnomah County; City of Portland; City of Salem; Oregon Health & ...
Attorney:Aruna A. Masih, Bennett Hartman, LLP, Portland, argued the cause and fled the briefs for petitioners on review. Also on the brief was Gregory A. Hartman. Benjamin Gutman, Solicitor General, Salem, argued the cause and fled the brief for respondents State of Oregon and the Public Employees Retirem...
Case Date:August 06, 2020
Court:Supreme Court of Oregon

366 Or. 732 (2020)

Jennifer JAMES, Lisa Riegel, Rosanne Scott, Robert Martineau, Regina Thompson, Emily Marx, Dustin Andrews, Brandon Silence, Thomas Cleary, Petitioners,

v.

STATE OF OREGON; State of Oregon by and through the Department of Human Services and the Department of Transportation;Multnomah County; City of Portland; City of Salem; Oregon Health & Science University; Mount Hood Community College; Molalla River School District; and Public Employees Retirement Board, Respondents.

SC S066933

Supreme Court of Oregon, En Banc

August 6, 2020

Argued and submitted June 16, 2020 .

On petition for review under Oregon Laws 2019, chapter 355, section 65.

Aruna A. Masih, Bennett Hartman, LLP, Portland, argued the cause and fled the briefs for petitioners on review. Also on the brief was Gregory A. Hartman.

Benjamin Gutman, Solicitor General, Salem, argued the cause and fled the brief for respondents State of Oregon and the Public Employees Retirement Board. Also on the brief was Ellen F. Rosenblum, Attorney General.

Daniel Simon, Deputy City Attorney, argued the cause and fled the brief for respondents City of Portland and Multnomah County. Also on the brief were Tracy Reeve, City Attorney, and Robert L. Taylor, Chief Deputy City Attorney.

[366 Or. 733] William F. Gary, Harrang Long Gary Rudnick P.C., Eugene, argued the cause for respondents City of Salem, Oregon Health and Science University, Mount Hood Community College, and Molalla River School District. Sharon A. Rudnick fled the brief. Also on the brief was William F. Gary.

Paul C. Elsner, Beery, Elsner & Hammond, LLP, Portland, fled the brief for amici curiae League of Oregon Cities and Association of Oregon Counties. Also on the brief was Ashley O. Driscoll.

Petitioners' requests for relief challenging Oregon Laws 2019, chapter 355, sections 1-19 and 39-40, are denied.

Case Summary: Petitioners sought direct judicial review of two statutory amendments to the Public Employees Retirement System (PERS). The first challenged amendment redirects a member's PERS contributions from the member's individual account program - the defined-contribution component of the member's retirement plan - to a newly created employee pension stability account, used to help fund the defined-benefit component of the member's retirement plan. The second challenged amendment imposes a cap on the salary used to calculate a member's benefits. Held: (1) the challenged amendments do not impair petitioners' contract rights under the state Contract Clause, Article I, section 21, of the Oregon Constitution, because the amendments do not operate retrospectively to decrease the retirement benefits attributable to work that the member performed before the effective date of the amendments and because, although the amendments operate prospectively to change the offer for future retirement benefits, the preamendment statutes did not include a promise that the retirement benefits would not be changed prospectively; (2) the challenged amendments do not breach petitioners' contract with participating employers; (3) the challenged amendments do not violate the federal Contract Clause, Article I, section 10, clause 1, of the United States Constitution; (4) the challenged amendments do not constitute an unconstitutional taking of petitioners' property without just compensation in violation of Article I, section 18, of the Oregon Constitution, and the Fifth and Fourteenth Amendments to the United States Constitution.

Petitioners' requests for relief challenging Oregon Laws 2019, chapter 355, sections 1-19 and 39-40, are denied.

[366 Or. 734] WALTERS, C. J.

The Public Employees Retirement System (PERS) is a retirement-benefit program for covered public employee members. In 2019, the legislature made various changes to PERS by enacting amendments set out in SB 1049. Or Laws 2019, ch 355. Petitioners are PERS members challenging two of those amendments. Respondents are the state, the Public Employees Retirement Board (the board), and various state and local public employers.

The first amendment that petitioners challenge redirects a member's PERS contributions from the member's individual account program-the defined-contribution component of the member's retirement plan-to a newly created employee pension stability account, used to help fund the defined-benefit component of the member's retirement plan. Or Laws 2019, ch 355, §§ 1-19. The second amendment that petitioners challenge imposes a cap on the salary used to calculate a member's benefits. Or Laws 2019, ch 355, §§ 39-40.

Petitioners primarily argue that the amendments impair their contractual rights and therefore violate the state Contract Clause, Article I, section 21, of the Oregon Constitution. For the reasons that follow, we disagree. The challenged amendments do not operate retrospectively to decrease the retirement benefits attributable to work that the member performed before the effective date of the amendments. And, although the amendments operate prospectively to change the offer for future retirement benefits, the preamendment statutes did not include a promise that the retirement benefits would not be changed prospectively. We resolve petitioners' other claims on similar grounds and deny their requests for relief.

I. BACKGROUND

A. Jurisdiction and Evidentiary Record

This court has original jurisdiction to determine whether the PERS amendments contained in SB 1049 breach the contracts between PERS members and their employers or otherwise violate provisions of the state or federal constitution. Or Laws 2019, ch 355, § 65(1). After petitioners filed [366 Or. 735 ]a complaint challenging the PERS amendments, the court appointed Senior Judge Marilyn E. Litzenberger to serve as special master. The special master proceedings resulted in a Revised Joint Stipulated Facts and General Stipulations, which includes factual stipulations necessary to establish petitioners' standing. We rely on those stipulations as the evidentiary record in this case.

B. PERS Funding and Benefits

PERS is administered by the board. Public employees become PERS members after working six months in a qualified position for the state or one of the other 900-plus PERS-participating public employers. ORS 238.015(1); ORS 238A.100(1)(a); ORS 238A.300(1). As of October 2018, there were more than 367, 000 members in the PERS system, which includes active, inactive, and retired members. There are three categories of PERS members: Tier One members, Tier Two members, and Oregon Public Service Retirement Plan (OPSRP) members. Whether members fall into one category or another depends on their start date. Moro v. State of Oregon, 357 Or. 167, 178, 351 P.3d 1 (2015). Tier One members were hired before January 1, 1996; Tier Two members were hired from January 1, 1996, to August 28, 2003; and OPSRP members were hired after August 28, 2003. Id.

PERS is a tax-qualified defined-benefit governmental plan, which, since 2004, has included a defined benefit with a defined-contribution component. Id. at 176 (distinguishing defined-benefit plans and defined-contribution plans). The defined-benefit component is the service retirement allowance or pension. And the defined-contribution component is the individual account program (IAP).

The specifics of the defined-benefit component vary depending on whether a member falls in Tier One, Tier Two, or OPSRP Upon retirement, Tier One and Tier Two members receive a defined benefit in the form of a service retirement allowance calculated using one of three formulas: Full Formula, Formula Plus Annuity, or Money Match. See Strunk v. PERB, 338 Or. 145, 160-61, 108 P.3d 1058 (2005) (detailing the benefit formulas). The Formula Plus Annuity and Money Match formulas calculate a member's service [366 Or. 736] retirement allowance using, among other things, the amount that the member has contributed to his or her regular or variable accounts, as well as the earnings on those contributions. The Full Formula, on the other hand, calculates a member's service retirement allowance by multiplying the member's final average salary by a statutory factor of 1.67 percent (two percent for police officers and firefighters) and then multiplying the resulting figure by the member's years of service. Id. The board uses whichever formula yields the highest pension amount for that member. Id. at 161. Today, most Tier One and Tier Two members retire under the Full Formula.

The defined benefit earned by OPSRP members is not as complicated. OPSRP members earn a pension that is calculated in a manner like the Full Formula-by multiplying the member's final average salary by a statutory factor of 1.50 percent (1.8 percent for police officers and firefighters) and then multiplying the resulting figure by the member's years of service.

The defined benefit is funded, to a significant extent, by employer contributions. From 2004 until the amendment at issue here, the service retirement allowance for most Tier One and Tier Two members was funded by employer contributions, pre-2004 member contributions, and earnings on those contributions. The pension for OPSRP members was funded solely by employer contributions and earnings on those contributions. Under SB 1049, some funding for the defined benefit will also come from member contributions.

In addition to the defined benefit, PERS has included a defined-contribution component-the IAP-that is the same for Tier One, Tier Two, and OPSRP members. Since 2004, active members have been required to contribute six percent of their salary to the IAP, which is invested and adjusted annually to reflect earnings and administrative expenses. The member contributions to the IAP may be paid for by the member's participating...

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