Embed Size (px)
Citation preview
IN THE SUPREME COURT OF THE STATE OF OREGON
JENNIFER JAMES, LISA RIEGEL, ROSANNE SCOTT, ROBERT MARTINEAU, REGINA THOMPSON, EMILY MARX, DUSTIN ANDREWS,
BRANDON SILENCE, and 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.
S066933
PETITIONERS’ COMBINED REPLY BRIEF
____________________________________________________________
Aruna A. Masih OSB 973241 Gregory A. Hartman OSB 741283 Bennett Hartman, Attorneys at Law, LLP 210 SW Morrison St., Suite 500 Portland, OR 97204 Telephone: 503-227-4600 [email protected] [email protected] Of Attorneys for Petitioners
Ellen F. Rosenblum OSB 753239 Attorney General Benjamin Gutman OSB 160599 Solicitor General Oregon DOJ, Appellate Division 1162 Court St NE Salem, OR 97301 Telephone: 503 378-4402 [email protected] [email protected] Of Attorneys for State Respondents
April 2020
April 29, 2020 03:28 PM
Tracy Reeve OSB 891123 City Attorney Robert L. Taylor OSB 044287 Chief Deputy City Attorney Daniel Simon OSB 124544 Deputy City Attorney City of Portland 1221 SW 4th Avenue, Ste 430 Portland, OR 97204 Telephone: 503 823-4047 [email protected] [email protected] [email protected] Of Attorneys for Respondent City of Portland
Jenny Madkour, OSB 982980 County Counsel, Multnomah County 501 SE Hawthorne Blvd, Room 500 Portland, OR 97214 Telephone: 503 988-3138 [email protected] Of Attorneys for Respondent Multnomah County
Sharon A. Rudnick OSB 830835 William F. Gary OSB 770325 J. Arron Landau OSB 094135 Harrang Long Gary Rudnick PC 497 Oakway Rd Ste 380 Eugene, OR 97401 Telephone: 541 485-0220 [email protected] [email protected] [email protected] Of Attorneys for Respondents City of Salem, Oregon Health & Science University, Mount Hood Community College and Molalla River School District
i
INDEX OF CONTENTS
I. INTRODUCTION ....................................................................................... 1
II. OREGON COMMON LAW ARGUMENTS. ........................................ 4
A. The reasoning of Taylor applies regardless of the length of a pension plan’s vesting period. ................................................... 5
B. Subsequent PERS cases have recognized the PERS statutes to be an offer of a unilateral contract, but to protect both the rights of PERS members under Taylor and the inherent powers of the legislature, courts have examined the statutes at issue in their collective operation for legislative intent of “express or implied” irrevocability. ................................................................ 9
III. STATUTORY ARGUMENTS ............................................................ 13
A. The legislature promised that Tier 1 and Tier 2 members would not have to contribute to the Fund “for service performed on or after January 1, 2004.” ............................................................ 14
B. The “pension” component benefit has always been funded by employers who must bear the full risk of investment losses. ... 16
C. The creation of the individual EPSAs does not change the application of the holdings in Strunk and Arken. ...................... 18
D. The “salary” provisions may not be changed and/or the singular examples devised by Respondents do not require the court to abandon the “segmented service” approach previously used and recognized as acceptable by the courtˆ. ........................... 19
IV. TAKING ARGUMENTS ..................................................................... 22
IV. CITY OF PORTLAND AND MULTNOMAH COUNTY ARGUMENTS .......................................................................................................... 23
V. CONCLUSION ....................................................................................... 24
ii
INDEX OF AUTHORITIES
Cases Arken v. City of Portland,
351 Or 113, 263 P3d 975 (2011) ................................................. 12, 14, 18 Bryson v. Public Employees Retirement Board,
45 Or App 27, 607 P2d 768 (1980) .......................................................... 10 Central Laborers’ Pension Fund v. Heinz,
541 US 739, 124 S Ct 2230 (2004) ............................................................ 2 Gantenbein v. Public Employes’ Retirement Board,
33 Or App 309, 576 P2d 1257 (1978) ........................................................ 9 Gilbert v. Hoisting & Portable Engineers, Local Union No. 701,
237 Or 130, 384 P2d 136 (1963) ............................................................. 25 Hollidge v. Gussow, Kahn & Co.,
67 F2d 459 (1st Cir 1933) ...................................................................... 7, 8 Hughes v. State,
314 Or 1, 838 P2d 1018 (1992) ............................................................... 10 Moro v. State,
357 Or 167, 351 P3d 1 (2015) ................................................... 1, 2, 11, 20 Oregon State Police Officers' Ass'n v. State,
323 Or 356, 918 P2d 765 (1996) ............................................................... 1 State ex rel Thomas v. Hoss,
143 Or 41, 21 P2d 234 (1933) ................................................................... 3 Stovall v. State of Oregon,
324 Or 92, 922 P2d 646 (1996) ........................................................... 3, 24 Strunk v. Pub. Employees Ret. Bd.,
338 Or 145, 108 P3d 1058 (2005) ................................................... Passim
iii
Swett v. Bradbury, 335 Or 378, 67 P3d 391 (2003) ............................................................... 25
Taylor v. Multnomah County Deputy Sheriff’s Retirement Board,
265 Or 445, 510 P2d 339 (1973) ..................................................... Passim
Statutes 29 USC §1054(g) ......................................................................................... 2 29 USC §1002(23) ....................................................................................... 2 ORS 237.201 ............................................................................................. 11 ORS 238A.130 ..................................................................................... 12, 20 ORS 238A.470 ........................................................................... 3, 12, 15, 20 ORS 238.005 ................................................................................. 12, 15, 20 ORS 238.200 ....................................................................................... 12, 14 ORS 238.300 ................................................................................. 13, 16, 17 ORS 238.364 ....................................................................................... 12, 20 Regulations OAR 459-005-0510 (2015) ......................................................................... 20 Other Authorities Restatement of Contracts, § 45 ................................................................... 8 Amy Monahan, Public Pension Plan Reform: The Legal Framework, 5 Education & Finance Policy, Minnesota Legal Research, No 10-13 (2010) ........................................................................................................ 8
1
PETITIONERS’ JOINT REPLY BRIEF
I. INTRODUCTION
Petitioners Jennifer James, Lisa Riegel, Rosanne Scott, Robert
Martineau, Regina Thompson, Emily Marx, Dustin Andrews, Brandon
Silence, and Thomas Cleary (hereinafter referred to collectively as
“Petitioners”) present this Combined Reply Brief to the Answering Briefs
submitted by the Respondents. The Answering Briefs urge the court to go
further than it did in Moro v. State, 357 Or 167, 204-205, 351 P3d 1
(2015),1 and find that even language such as “for service provided on or
after January 1, 2004” is insufficient to establish “express” or “implied”
irrevocability, and to adopt officially the private sector “accrued benefit”
1 In Moro, not only did the court set aside the reasoning of Oregon
State Police Officers' Ass'n v. State, 323 Or 356, 367–70, 918 P2d 765, 771–73 (1996), but also, according to Respondents, it narrowed its reading of Taylor v. Multnomah County Deputy Sheriff’s Retirement Board, 265 Or 445, 510 P2d 339 (1973) to apply “implied irrevocability” only to plans with lengthy vesting periods. Reference to the “20-year vesting period,” however, appears nowhere in the court’s analysis in Taylor nor in any other case citing Taylor before Moro. The concept does, however, appear in an article cited by the court in Moro, 357 Or at 167, n. 21. See Amy Monahan, Public Pension Plan Reform: The Legal Framework, 5 Education & Finance Policy, Minnesota Legal Research, No 10-13, pp. 32, 37 (2010)(admitting that “no court has directly acknowledged this” but nevertheless, pushing “advocates for reform” to “challenge as inaccurate previous characterizations of the contract” based on a “lengthy vesting period” because “[t]here is some hope that courts will respond to changing market conditions”).
2
approach under the anti-cutback provisions of the Employee Retirement
Income Security Act of 1974 (See 29 USC §1054(g) and §1002(23)),2
referenced by Justice Brewer in his concurring opinion in Moro. As Justice
Brewer explained in his concurrence, the private-sector approach for
determining whether “accrued benefits” are reduced by plan changes calls
for the calculation of a pre-amendment “proxy” final average salary or
account amount. 357 Or at 249-252. This is the approach Respondents
now propose the court adopt officially. See e.g. State Respondents Brief, p.
35 (citing Brewer J. concurring).
Not only is the “accrued benefit” approach a creature of a federal
statute inapplicable to public plans like the Public Employee Retirement
System (PERS), but also it is an approach which finds little support under
Oregon common law or the statutes governing PERS (ORS chapters 238
and 238A). It is not the approach adopted by the majority in Moro, 357 Or
at 167 n. 36 or in any other prior Oregon pension case. Moreover, as
recently as in 2003, when it enacted the new Oregon Public Service
Retirement Plan (OPSRP) and the Individual Account Program (IAP), the
2 See e.g. Central Laborers’ Pension Fund v. Heinz, 541 US 739,
744, 124 S Ct 2230 (2004) for a further explanation of the circular, private sector “accrued benefit” definition and approach under ERISA’s “anti-cutback” provision.
3
legislature was well-aware of the “accrued benefit” language in ERISA.
However, even in its express reservation of rights for certain plan changes
for OPSRP members in ORS 238A.470, the legislature adopted language
different than the private sector, “accrued benefit” language. Instead, it
chose the following language: “benefits attributable to service performed
and salary earned.” (Emphasis added). This language must be construed,
at a minimum, consistently with the “segmented service” approach which
provides greater protection to the vast majority of PERS participants,
notwithstanding the singular employee examples devised by Respondents.
In addition, the court must not take any further steps back from its
“expressly or impliedly irrevocable” analysis to protect “core benefits” for
PERS Tier 1 and 2 members under Oregon common law. Otherwise, there
will no longer be any recognizable difference between “salary” and
“pension benefits” under Oregon law, and all the pension cases will have
been a meaningless detour from the basic “salary” analysis adopted by this
court back in State ex rel Thomas v. Hoss, 143 Or 41, 21 P2d 234 (1933).
Finally, applying its reasoning in Stovall v. State of Oregon, 324 Or
92, 124, 922 P2d 646 (1996) that the PERS Contract is actually an offer
from PERS participating employers to their employees, the court should
reject the arguments of Respondents City of Portland and Multnomah
4
County that they be dismissed from this case by their employees about that
PERS Contract.
II. OREGON COMMON LAW ARGUMENTS.
In order to better understand the approach taken by Oregon and how
it differs from the private sector “accrued benefit” approach proposed by
Respondents, it is important to review the Taylor case again and how this
court has interpreted that case in its subsequent decisions dealing
specifically with the PERS statutes. As explained further below, the implied
irrevocability reasoning of the Taylor case applies regardless of the length
of a pension plan’s vesting period or accrual schedule. Subsequent cases
have examined the PERS statutes for legislative intent of “express” or
“implied” irrevocability, however, to protect both the unilateral contract
rights of PERS members under Taylor on the one hand, and the inherent
powers of the legislature to amend laws on the other hand. Under Oregon
common law, therefore, for purposes of the PERS statutory unilateral
contract analysis, all that is required is that the statutes at issue in their
collective operation evince a legislative intent of “express” or “implied”
irrevocability, which as will be shown later in Section III is present in this
case. Therefore, the court should find for Petitioners.
5
A. The reasoning of Taylor applies regardless of the length of a pension plan’s vesting period.
First, it is important to note that the facts of the Taylor case do not
match-up well with the arguments raised by “advocates for reform” to
support a narrowing of well-settled precedent like Taylor. See note 1, supra
(Amy Monahan article). According to these advocates, courts must
reinterpret old pension cases protecting future benefits because it is only
the “lengthy vesting period” prevalent at the time that was the basis for
implying irrevocability in cases like Taylor—implying irrevocability was
necessary in these cases to protect the employee trapped in public
employment and toiling away under a lengthy vesting period from a late
plan amendment depriving them of any benefit whatsoever after many
years of service.
There is nothing in the Taylor case, however, which supports the
conclusion that this was even a factor, let alone the motivating factor, for
the decision in that case. Moreover, the facts before the court in Taylor
would not have supported such a concern. To the contrary, as the court
expressly noted in Taylor, 265 Or at 452:
“Plaintiff did not undertake employment with the county with the expectation that she would be entitled to the advantages of Ordinance No. 25 because the ordinance was not then in existence. She continued her employment after having been refused coverage by defendants, and thus, it cannot be said
6 that she continued her employment, at least after such refusal, upon the expectation she would receive the advantageous pension authorized by Ordinance No. 25.”
Moreover, as Multnomah County pointed out to the court, plaintiff had been
and remained eligible for pension benefits under the County’s other
pension plan for Civil Service employees. 265 Or at 455.
Furthermore, the other arguments raised by reform advocates like
Amy Monahan such as trapping an employee in public service by a lengthy
vesting period were also not present in Taylor. Under the terms of
Ordinance No. 25,3 Section I (3), continuous service was counted on a
twelve (12) month basis, and it was possible to leave County employment
for up to five (5) years without incurring any “interruption of continuous
service.” For those employees who did not want to return to County
employment within a five (5) year period and continue accruing service
toward a pension benefit from the County, they could “on demand” obtain a
refund of all their contributions. See Ordinance No. 25, Section VI.
In short, Taylor wasn’t a situation where the court was trying to
protect an employee trapped in public employment, unable to move on to
3 A copy of Ordinance No. 25 can be found on the Multnomah
County Ordinance webpage at: https://multco.us/file/20519/download.
7
other employment options, because of a lengthy vesting period. In fact, the
20-year vesting period is never even referenced by the court in its decision.
Rather, the key for the court was that, “the adoption of the [new sworn law
enforcement personnel] pension plan was an offer of a unilateral contract”
and that under Section 45 of the Restatement of the Law of Contracts,
“such an offer can be accepted by the tender of part performance.” 265 Or
at 452.
Cases decided under Section 45, which pre-date Taylor, also do not
support a narrower reading of Taylor. For example, in Hollidge v. Gussow,
Kahn & Co., 67 F2d 459, 460 (1st Cir 1933), the court applied Section 45 of
the Restatement to hold that an order for 160,000 pamphlets to be issued
in eight monthly installments, with a per monthly price of $940 and an eight-
month price of $7,520, was accepted in toto by delivery and acceptance of
the first monthly installment. The defendant accepted the delivery of the
first issue installment, went bankrupt, and refused to honor the remainder
of the contract. The court expressly noted that,
“Learned counsel for the bankrupt has argued, with much ability and ingenuity, that this contract was not an entire contract, but was simply ‘an offer for several unilateral contracts to be formed upon the delivery of each 20,000 copies of the Courier.’ But we think the court below has right in holding the contract an entire one, and that it was effectively accepted.”
8
67 F2d at 460. In support of its holding, the court noted that, “The case falls
under the doctrine laid down in the Restatement of Contracts, § 45” and
that, “when the order for 160,000 copies was made and acted upon by the
offeree, we think it clear that both parties regarded themselves as bound to
the whole scheme.” Id.
Similarly, in Taylor, without any reference to the “vesting period” in
Ordinance No. 25 or the length of time it would take for Taylor to accrue
benefits under Ordinance No. 25, the court, citing the Restatement
concluded that: “[a]s applied to the present circumstances, plaintiff’s tender
of contributions and acceptance of the plan terminated defendants’ power
to revoke the offer, and plaintiff would be entitled to the benefits of the plan
if she continued to work for the requisite period necessary for retirement.”
Id. at 452-454 (Emphasis added). In other words, whatever length that
“requisite period” might be (long or short, 20 years or 8 months, equal in
duration to the plan’s “vesting period” or not, serially accrued or not). This
conclusion is supported further by the manner in which Oregon courts have
understood and applied Taylor in subsequent PERS cases, even if one
excludes the OSPOA case from the review. That understanding has been
of “a unilateral contract” for PERS benefits deferred to retirement as
opposed to the usual serially accruing “salary” contract.
9
B. Subsequent PERS cases have recognized the PERS statutes to be an offer of a unilateral contract, but to protect both the rights of PERS members under Taylor and the inherent powers of the legislature, courts have examined the statutes at issue in their collective operation for legislative intent of “express or implied” irrevocability.
For example, in 1978, in Gantenbein v. Public Employes’ Retirement
Board, 33 Or App 309, 316, 576 P2d 1257 (1978), the Court of Appeals
explained its understanding of the meaning of Taylor as applied to the
PERS Judges Plan. In that case, a district court judge was seeking a higher
retirement benefit under a pre-1969 version of the Judges Plan. Prior to
1969, district court judges could not participate in the Judges Plan and
instead contributed to regular PERS. The district court judge was asking
the Court of Appeals to find that the date he accepted the regular PERS
plan should also count as the date he accepted the Judges Plan. In support
of his position, plaintiff cited the Taylor case The Court of Appeals noted
that,
“Taylor simply holds that an employee who accepts an initial retirement plan offer has vested contractual rights under the offer which cannot be altered by a second plan put into effect after the initial plan has been accepted by the employee it does not hold that the rights acquired under the second plan operate retroactively to the date of acceptance of the first plan.”
Plaintiff first accepted the offer of the Judges Plan in 1969, and his rights
were to be determined under the 1969 version of the Plan.
10 Then, in 1980, in Bryson v. Public Employees Retirement Board, 45
Or App 27, 30, 607 P2d 768 (1980), the Court of Appeals cited to the
PERS brief in support of the accepted understanding of Taylor, noting that:
“As PERB states in its brief, it is without question that petitioner has a statutory and contractual right to receive retirement benefits computed at the most favorable rate applicable under laws in effect at any time during his judicial service. See Taylor v. Mult. Dep. Sher. Ret. Bd., 265 Or 445, 510 P2d 339 (1973)”
That court also looked to the actual terms of the PERS statutes in effect
during the plaintiff judge’s different periods of service to determine the most
favorable rate applicable to calculation of his retirement benefits.
Later, in 1992, in Hughes v. State, 314 Or 1, 838 P2d 1018 (1992),
this court explained that:
“We begin from the premise that PERS is a contract between the state and its employees. The contractual nature of such pension schemes was settled in Taylor v. Mult. Dep. Sher. Ret. Bd., 265 Or 445, 510 P2d 339 (1973). [314 Or at 18] [***] We decline the state’s invitation, implicit in that argument, to revisit the issue of the contractual nature of PERS and similar pension plans, an issue that was first decided against the state nearly two decades ago in Taylor v. Mult. Dep. Sher. Ret. Bd., supra. [314 Or at 18] [***] We hold that the legislature intended and understood PERS constituted an offer, by the state to its employees, for a unilateral contract. We now turn to an examination of the essentials of the PERS contract. [314 Or at 20] [***]”
11
(Emphasis added). Then, based on its examination of the words “accrued”
and “accruing” in the actual text of the tax exemption statute for PERS
benefits, ORS 237.201, the court concluded that, “The statute does not,
however, refer to PERS benefits that may accrue in the future. Id. at 28.
Again, in Strunk v. Pub. Employees Ret. Bd., 338 Or 145, 192 n. 40,
108 P3d 1058, 1120–22 (2005), this court accepted its prior analysis in
Taylor that contractual rights to future benefits can be implied prior to the
completion of the service necessary to a pension. However, it found
nothing inconsistent with Taylor to also review the text, context, and
legislative history of “all the statutes at issue as a whole” to determine
“whether the statutory provisions [***] are part of the PERS contract, and if
so, the extent of the state’s obligation in that regard.” 338 Or at 183-84. In
other words, based on a review of text, context, and legislative history “as a
whole” it looked for an “express” or “implied” promise that the obligation
extended over the life of a member’s service. Id. at 192-93.
Finally, most recently in Moro, although the court may have narrowed
its reading of implied irrevocability in Taylor—a reading Petitioners ask the
court to reconsider in light of their discussion above—it did not foreclose
the possibility that there might be other bases in the PERS statutes
themselves which would limit the ability of the legislature to make changes
12
to benefits. 357 Or at 223-225. The court simply noted that it cannot “imply”
from the word “shall” alone a promise to maintain a particular benefit
without change. Id. at 225-226.
Here, however, as shown below, Petitioners do not rely on “shall”
alone, but rather additional language in the statutes at issue and prior
interpretations of the PERS Contract by this court in Strunk and Arken v.
City of Portland, 351 Or 113, 162, 263 P3d 975 (2011). Furthermore, even
if the court deems that additional support for “express or implied
irrevocability” to be insufficient, it must still protect benefits attributable to
prior service for all members in a manner consistent with the “segmented
service” approach referenced by the court in Moro, 357 Or at n. 36 and also
incorporated into ORS 238A.470 applicable only to OPSRP members. It is
the established method used for both the COLA blended rate and the tax
exemption in ORS 238.364(5). It also provides a higher level of protection
for the vast majority of PERS participants, who consistent with the PERS
Actuary assumptions (see e.g. App-130 and 139; ER-31), continue to see
an increase in their salary through their final three years of employment as
recognized by the definition of “Final Average Salary.” ORS 238.005(9)(a)
and ORS 238A.130(1)(b). PERS’ rules adopted pursuant to SB 1049 fail to
13
comport with a “segmented service” approach and must be set aside as
unconstitutional.
III. STATUTORY ARGUMENTS
The Answering Briefs have no good response for the fact that in
ORS 238.200(4), the legislature expressly promised Tier 1 and Tier 2
members that they would not be “required to make employee contributions
to the fund for service performed on or after January 1, 2004” or that for all
Tier 1 and Tier 2 employees, the “pension” component of the “service
retirement allowance” benefit under ORS 238.300 has always been an
“employer-contribution” funded obligation. Respondents’ arguments also
fail to acknowledge that unlike the diversion from “regular account” to the
“IAP” approved by the court in Strunk, the diversion from the “IAP” to the
“EPSA” (1) comes with no new individual benefit for members and (2)
instead, just passes on an employer pension cost and risk of investment
loss on to employees without any actuarial strengthening of the existing
plan—employers just get an offset on their payments. The Answering Briefs
also do not appear to dispute that the “investment losses” are primarily
attributable to “retirees” and the Benefits-in-Force (BIF) reserve.4 In Strunk,
4 The Amicus Brief appears to acknowledge that the legislature acted
to address these investment losses. See Brief, p. 10.
14
338 Or at 191, this court recognized that this risk of “investment losses”
was intended to fall squarely on employers, and in Arken, 351 Or at 162,
the court acknowledged that current employee funds may not be diverted
for the benefit of retirees. The fact that the money is held in the EPSAs
versus the BIF or the OPSRP employer account does not alter the fact that
it is ultimately money intended to reduce “employer-contribution”
obligations as a result of a system UAL attributable primarily to benefits
owed to retirees. Finally, with regard to the “salary cap,” Respondents fail
to acknowledge that the only cap under which Tier 2 and OPSRP members
have participated is the IRS cap and that Tier 1 members have not even
been subject to that cap. The definition of salary is a “core” part of the “Full
Formula” benefit floor recognized in Strunk to be “material” and “primary.”
A. The legislature promised that Tier 1 and Tier 2 members would not have to contribute to the Fund “for service performed on or after January 1, 2004.”
Can the legislature exhibit any clearer intent to capture “future
benefits” than use of the terminology “for service performed on or after
January 1, 2004” which appears in ORS 238.200(4)? The State appears to
implicitly acknowledge this and therefore, argue only that the “Fund”
referenced in ORS 238.200(4) should be limited to the “regular account.”
State Brief, p. 25. However, the PERS statutes have a more expansive
15
definition of that term in ORS 238.005 (12) and the EPSAs are still a part
of the “Fund” within the definition of that term. SB 1049 Section 3.
Petitioners’ claims that that they are now being required to contribute to
the Fund for service performed on or after January 1, 2004, therefore, is
valid.
Local Respondents, on the other hand, argue that even after the
enactment of ORS 238.200(4), employee contributions have funded
“service retirement allowances.” Local Respondents Brief, pp. 26-27. This
argument fails to recognize that the only contributions funding those
“service retirement allowances” are contributions “for service performed
before January 1, 2004.” In other words, the legislature made an
intentional choice in the 2003 PERS Legislation to move toward an
“employee contribution”-fund IAP and an exclusively “employer
contribution-funded” service retirement allowance or pension. 5 Moreover,
as shown below, even before the 2003 PERS Legislation, the “pension”
component of the service retirement benefit for Tier 1 and Tier 2 members
has always been an employer-contribution funded obligation, and the
5 The OPSRP pension created by the 2003 PERS Legislation was an
exclusively “employer contribution” funded benefit. ER-104 ¶14. Any change to that pension benefit can only be made in compliance with the “segmented service” approach incorporated into ORS 238A.470.
16
change effected by SB 1049 is different than the 6% IAP diversion allowed
by Strunk.
B. The “pension” component benefit has always been funded by employers who must bear the full risk of investment losses.
Contrary to Respondents’ contentions, SB 1049 is neither “merely the
mirror image of the redirection that this court upheld in Strunk” (State
Respondents Brief, p. 28) nor a “partial ‘about face’” (Local Respondents
Brief, p. 17). As this court explained in Strunk, 338 Or at 160-61, the
“service retirement allowance” for Tier 1 and Tier 2 members under ORS
238.300 consists of two-components: (1) a “refund annuity” component
composed of the actuarial equivalent of the member’s account balances6
and (2) a “pension” component “funded by the employer.” In Strunk, the
court was only presented with movement of 6% employee contributions
from the “member account” refund annuity component of the “service
retirement allowance” to the “IAP account” refund annuity. It did not
implicate the “pension” component of the ORS 238.300 “service retirement
allowance” which has always been funded by “employer contributions” until
SB 1049.
6 Those account balances now consist only of employee
contributions made before January 1, 2004 and earnings on those pre-2004 contributions. ER-102 ¶6.
17
In addition to the fact that “member contribution” rates toward the
“refund annuity” component had changed over the course of the Plan’s
existence, the “employer funding” component of the Full Formula pension
benefit was critical to the court’s determination in Strunk that movement of
the “employee contributions” to the IAP did not breach the “core benefit”
promise in ORS 238.300.
In fact, this court went to great lengths to distinguish the “pension”
component” of ORS 238.300, particularly as it relates to the Full Formula
which was intended to be and now is the primary method under which Tier
1 and Tier 2 members retire. ER-104 ¶11. Relying on the text, context, and
legislative history of ORS 238.300, the court found it be “unambiguously
promissory” and exhibiting a legislative intent “to provide a minimum level
below which the pension component should not fall” (338 Or at 185-186)
and that this change was “material” and intended to “provide members with
a formula under which the investment earnings loss fell—and continues to
fall—squarely on employers.” 338 Or at 191.
SB 1049 now reduces this core “employer funded pension benefit”
component of ORS 238.300 below the legislatively promised “minimum
level” in multiple ways. First, it uses the EPSAs to relieve the employer of
its obligation to fully fund the pension component of the service retirement
18
allowance and “continue to shoulder” the risk of “investment losses”
related to retirees. Second, it changes the definition of “salary” so as to
reduce the “final average salary” used to calculate this benefit attributable
to service provided before and after the change and to the amount going
into the IAP account between the date of the change and retirement.
C. The creation of the individual EPSAs does not change the application of the holdings in Strunk and Arken.
Respondents maintain that because the EPSAs are held in individual
accounts to pay for each members’ own pension costs for service provided
after July 1, 2020,7 they do not violate the “trust” provisions recognized by
this court to be contractual in Arken, 351 Or at 162-163. See State
Respondents Brief, p. 30; Local Respondents Brief, p. 30-31. As the court
recognized in Arken, however, where moneys are placed within the system
is a “zero-sum” matter. If they sit in the IAP account, they produce an
increased “IAP” annuity benefit for Petitioners. If they sit in the EPSA
7 While only discussed in passing Respondents also appear to rely
on provisions in SB 1049 which require amounts to be refunded to employees that exceed the amounts necessary to pay for their post-July 1, 2020 pension benefit. See e.g. Local Respondents Brief, p. 18. Based on the “normal cost” of the “pension” benefit, it is highly unlikely that any member would receive a refund of their EPSA balance. See e.g. ER-25 Moreover, withdrawal of the EPSA account balance has substantial detrimental impacts on even vested OPSRP members and their pre-withdrawal creditable service. See APP-3 (SB 1049, Section 8).
19
account, on the other hand, they simply relieve employers of their
contractual obligation to fund the same “minimum level” of “pension
benefit” which this court in Strunk recognized was “continuous” and
“unambiguously promissory.” The fact that the money is held in the EPSAs
before it is transferred to the BIF or the OPSRP employer account does
not alter the fact that it is ultimately money intended to reduce “employer-
contribution” obligations as a result of a system-wide UAL attributable
primarily to benefits owed to retirees. It attempts to cloak with an
appearance of “exclusive benefit” its actual diversion of active member
assets to ease the burden on employers of retiree UAL. The court must not
allow such a sleight of hand to stand.
D. The “salary” provisions may not be changed and/or the singular examples devised by Respondents do not require the court to abandon the “segmented service” approach previously used and recognized as acceptable by the courtˆ.
With regard to the changes to “salary” Respondents rely heavily on a
combination of the “serial unilateral contract” and private sector “accrued
benefit” “proxy” final average salary approach. State Respondents Brief,
pp. 35-39; Local Respondents Brief, pp. 36-41. Petitioners incorporate by
this reference their discussion above regarding the “reexamination” of the
Taylor case and the application of that narrower reading to the PERS
contract in Moro.
20 In addition, Respondents devise singular examples of employees
whose actual pay is lower between the effective date of the legislative
amendment and retirement. See e.g. Local Respondents Brief, pp. 44-45.
Even though “final average salary” is calculated as the higher of the last
three years or 36 months of employment or the highest three years of
service (ORS 238.005 (9) and ORS 238A.130), based on the actual
experience of the system, the PERS Actuary assumes that members’
salary will increase annually by 3.5%8 and perhaps more. See e.g. App-
130 and 139; ER-31. Therefore, the segmented service approach is the
one which better protects the vast majority of actual PERS participants.
Moreover, the “segmented service” approach finds support in the
PERS statutes (ORS 238.364 and ORS 238A.470) and the majority’s
approach in Moro, 357 Or at 232 n. 36. In Moro, without adopting it
expressly, the court recognized that a constitutionally valid approach to
protecting benefits attributable to service already provided included the
approach taken in the tax exemption repeal statute ORS 238.364(5).
Under that statute, the number of years of service provided before the
8 See “Comprehensive Annual Financial Report” for the Fiscal Year
Ended June 30, 2018. p. 113 in February 15, 2019 Meeting Materials located at https://olis.leg.state.or.us/liz/2019R1/Committees/JWMCC/2019-02-15-12-00/MeetingMaterials
21
change is divided by the total number of years of creditable service during
which the pension is earned. PERS incorporated this approach for
calculation of the COLA blended rate in OAR 459-005-0510 (2015). The
court should now expressly adopt this approach for OPSRP members
under ORS 238A.470 and for Tier 1 and Tier 2 member to the extent the
court determines there is insufficient legislative intent of “express or
implied” irrevocability.
This court’s application 8% guaranty analysis in Strunk also supports
Petitioners’ argument that the court should take into account the years
between the plan change and the effective date of retirement when
protecting benefits attributable to service provided before an amendment.
In that part of its analysis, this court expressly noted that although
members did not have the right to earn more than the system’s assumed
earnings rate, “the 2003 PERS Legislation took what was before an
unconditional right of Tier One members to have their regular accounts
credited in an amount not less than the assumed earnings rates and
changed that right to a conditional one.” 338 Or at 204. Therefore, the
court held that to protect the unconditional promise with regard to the
account balance that existed before the amendment, PERS would be
required to credit those balance with “no less than the assumed earnings
22
rate [***] until retirement.” 338 Or at 204-05. Implicit in this ruling is the
court’s rejection of the approach proposed by Respondents here that the
court pretend that the plan terminated on the date of the amendment and
disregard any increases attributable to that prior benefit based on the
years between the amendment and actual retirement.
IV. TAKING ARGUMENTS
Other than the arguments related to property rights arising out of the
PERS provisions discussed above, Respondents fail to address the
alternative argument that SB 1049 takes for “public purpose” “salary”
and/or “PERS pick-up” provisions negotiated by PERS members either in
individual or collectively bargained agreements. Local Respondents
maintain only that the amounts diverted to the EPSAs are used to pay for
members’ own pension benefits. See Brief p. 47. However, this ignores the
argument that but for the SB 1049 diversion, that salary or picked-up
amount would have gone into the IAP account and provided Petitioners a
greater retirement benefit than what they will be receiving under SB 1049.
Moreover, none of the Respondents even attempt to address the many
citations to legislative history provided by Petitioners in which legislators
repeatedly recognized that they were taking IAP contributions from current
active employees to essentially reduce employers’ burdens associated
23
with a UAL cost attributable primarily to retirees. They recognized that a
few were being asked to carry a burden which should have been borne by
the public as a whole. Only Amici admit that, “the Legislature through SB
1049 took one more step it believed necessary [***] to deliver a modicum
of financial risk mitigation to the Fund so that the PERS system can
continue to exist and flourish for itself, its beneficiaries and Oregon
taxpayers.” Brief, p. 10. Ironically, however, by simply offsetting amounts
owed by employers with amounts to be paid by employees in the EPSA
did not improve the actuarial soundness of the plan at all. It just shifted an
existing public obligation onto active employees only.
IV. CITY OF PORTLAND AND MULTNOMAH COUNTY ARGUMENTS
Finally, the court should reject the requests for dismissal filed by
Respondents City of Portland and Multnomah County. According to these
Respondents, this is a “direct appeal” filed under SB 1049 and they are not
appropriate or necessary parties for purposes of this direct appeal under
Section 65. However, the language of Section 65 (1) expressly envisions
claims for breaches of “any contract between members of the Public
Employees Retirement System and their employers.” The fact Section 65
requires service of the complaint on at least the PERS Board, the Attorney
General, and the Governor does not mean that the legislature intended to
24
preclude service and claims against Local employers. Similarly, the fact
that Section 65 allows “public employers” in general to intervene in the
case does not mean that Petitioners are precluded from naming their own
employers who offered them the PERS Contract. As this court pointed out
in Stovall, 324 Or at 124, “Regardless of the reason that led local
defendants to participate in PERS, local defendants, as participating PERS
employers, themselves promised plaintiffs that plaintiffs would receive, at a
minimum, the retirement compensation provided in the PERS statutes.
Plaintiffs accepted that term by working for their employers.” In fact,
employers have been named as Respondents in the other direct appeals
in Strunk and Moro under similar direct appeal language. Therefore, the
court should not dismiss City of Portland and Multnomah County employee
Petitioners from their ability to similarly request direct review by this court.
V. CONCLUSION
For the foregoing reasons and those discussed at greater length in
Petitioners’ Opening Brief, the court should find that the “employee salary,”
“employer contribution”-funded pension, and “employee contribution”-
funded IAP benefit statutes are terms of the PERS contract which implicate
“core benefits” which are either “expressly or impliedly irrevocable” or
subject only to change consistent with a “segmented service” approach.
25
The challenged sections of SB 1049 impair or breach that obligation and/or
effect a taking of private property for public use without just compensation.
Therefore, the challenged sections of SB 1049 are unconstitutional and
must be voided in whole or in part, or in the alternative, Petitioners are
entitled to damages and an award of costs and reasonable attorney fees
under the public purpose or common fund doctrine like petitioners in Strunk
and Moro notwithstanding Section 65(8). See e.g. Swett v. Bradbury, 335
Or 378, 385, 67 P3d 391, 394 (2003)(noting that the courts “that grew out
of the Anglo–American legal tradition have exercised such an inherent
power to award attorney fees); Gilbert v. Hoisting & Portable Engineers,
Local Union No. 701, 237 Or 130, 137, 384 P2d 136, 139 (1963)(The
authority of a court of equity to award attorneys' fees is not derived solely
from the statutes. Equity may require an award in some circumstances).
Dated this day of April 29, 2020.
BENNETT HARTMAN, Attorneys at Law, LLP
s/Aruna A. Masih Aruna A. Masih, OSB 973241 Gregory A. Hartman, OSB 741283 Bennett Hartman, Attorneys at Law, LLP 210 SW Morrison St., Suite 500 Portland, OR 97204 Telephone 503-227-4600 Email [email protected] Email [email protected] Of Attorneys for Petitioners
26
CERTIFICATE OF COMPLIANCE WITH ORAP 5.05(2)(d) Brief length I certify that (1) this brief complies with the word-count limitation in
ORAP 5.05(1)(b) as amended by Petitioners’ pending Motion for Leave to File a Combined Reply Brief not exceeding 8,000 words; and (2) the word-count of this brief (as described in ORAP 5.05(1)(a)) is 5692 words.
Type size I certify that the size of the type in this brief is not smaller than 14
point for both the text of the brief and footnotes as required by ORAP 5.05(3)(b)(ii).
Dated this day of April 29, 2020.
BENNETT HARTMAN, LLP
s/Aruna A. Masih Aruna A. Masih, OSB 973241 Gregory A. Hartman, OSB 741283 Bennett Hartman, Attorneys at Law, LLP 210 SW Morrison St., Suite 500 Portland, OR 97204 Telephone 503-227-4600 Email [email protected] Email [email protected]
Of Attorneys for Petitioners
CERTIFICATE OF FILING I certify that, I directed the PETITIONERS’ COMBINED REPLY BRIEF to be electronically filed with the Appellate Court Administrator, Appellate Court Records Section, by using the court’s electronic filing system pursuant to ORAP 16 on April 29, 2020.
CERTIFICATE OF SERVICE I certify that service of a copy of this PETITIONERS’ COMBINED REPLY BRIEF will be accomplished on the following participant(s) in this case, who is a registered user of the appellate courts' eFiling system, by the appellate courts' eFiling system at the participant's email address as recorded this date in the appellate eFiling system:
Ellen Rosenblum OSB 753239 Benjamin Gutman OSB 160599 Oregon DOJ, Appellate Division 1162 Court St NE Salem, OR 97301 Of Attorneys for State Respondents
Tracy Reeve OSB 891123 Robert L. Taylor OSB 044287 Daniel Simon OSB 124544 City of Portland 1221 SW 4th Avenue, Ste 430 Portland, OR 97204 Of Attorneys for Respondent City of Portland
Jenny Madkour, OSB 982980 County Counsel, Multnomah County 501 SE Hawthorne Blvd, Room 500 Portland, OR 97214 Of Attorneys for Respondent Multnomah County
Sharon A. Rudnick OSB #830835 William F. Gary OSB #770325 J. Arron Landau OSB #094135 Harrang Long Gary Rudnick PC 497 Oakway Rd Ste 380 Eugene, OR 97401 Of Attorneys for Respondents City of Salem, Oregon Health & Science University, Mount Hood Community College and Molalla River School District
DATED this day of April 29, 2020. BENNETT HARTMAN, Attorneys at Law, LLP
s/Aruna A. Masih Aruna A. Masih, OSB 973241
Of Attorneys for Petitioners
