Blogging Employee Benefits

October 24, 2006

Oregon PERS Amendment Not Unconstitutional

Filed under: Litigation, PERS — Fuguerre @ 3:24 pm

No State shall . . . pass any . . . Law impairing the Obligation of Contracts.

That makes for a reasonably interesting blogging afternoon, to be able to quote from that legal document that starts out, “We the People of the United States, in Order to form a more perfect Union, . . .” In this case, from Art I §10 cl 1, the Contract Clause, sometimes raised by states’ public employees dissatisfied with changes made to a public employee retirement system. In a sense, like the ultimate authoritative version of what private pension plans face under IRC §411(d)(6), not only with respect to previously accrued benefits, but with respect to any future accruals or benefit rights to which the public employees felt they had been granted contractual rights by their state employer.

And on several notable occasions, the employees have prevailed, particularly when the issue of whether a contractual relationship existed was not the issue in dispute. Frequently, though, the employees run up against a long-standing presumption expressed by the U.S. Supreme Court in National Railroad Passenger Corp. v. Atchinson Topeka and Santa Fe Railway Co., quoting from its own earlier decision in Dodge v. Board of Education, maintaining that –

[A]bsent some clear indication that the legislature intends to bind itself contractually, the presumption is that “a law is not intended to create private contractual or vested rights but merely declares a policy to be pursued until the legislature shall ordain otherwise.

In Robertson v. Kulongoski (No. 04-35898), the 9th Circuit Court of Appeals today ruled that although the Oregon Public Employee Retirement System had been expressed in prior state litigation as “a contract between the state and its employees,” there exists no clear indication that the Oregon legislature intended to promise its employees a perpetual, immutable right to contribute to specific accounts under the terms of its retirement system. So although the U.S. Constitution prohibits a state from impairing its contracts, the “contours” of the pension contract between Oregon and its public employees may be open to amendment. Granting due deference to the Oregon Supreme Court’s detailed analysis in Strunk v. Public Employees Retirement Board [OR Sup.Ct., SC S50593, 3/8/05], the 9th Circuit has ruled that Oregon’s 2003 legislation modifying terms of OPERS does not violate the Constitution’s Contract Clause, affirming district court summary judgment in favor of the state. Although as previously blogged here, other aspects of the plan amendment remain in dispute.

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