Whether lawmakers went too far last year in changing the public-pension system to reduce its future obligations is now in the hands of the Oregon Supreme Court.

The seven justices heard arguments Tuesday from public retirees and the public employee unions challenging the changes — and from local and state governments defending them. There is no deadline for the court to act, although decisions are usually released six to nine months after oral arguments.

This is the third major public pension case in recent years upon which the Supreme Court has been asked to rule, following decisions in 2005 and 2015 that challenged legislative changes made in 2003 and 2013. 

As part of their continuing effort to rein in Oregon’s public pension liability — estimated at $24 billion at the end of last year — lawmakers in 2019 redirected some of the money going into individual account plans, which were created for all public employees in August 2003, to defined-benefit plans that serve pre-August 2003 retirees. Individual account plans blend contributions from employees and about 900 member public employers.

Public employee unions and retirees have challenged that planned diversion in Senate Bill 1049 as a breach of contract under the Oregon and U.S. constitutions. They also argue that the diversion constitutes a “taking” of private property for public use without just compensation, although the state says that argument has no merit.

“A promise was made to these members at the time other benefits were taken away from them,” said Aruna Masih, a lawyer for the Portland firm of Bennett Hartman, which represents the unions. “That promise is attributable to service performed on or after a particular date (August 2003).

“So this is a going-forward promise: We are taking away these benefits and we are promising you going forward that you will get this (individual account plan) account and you will not have to contribute.”

Most of the 225,000 current public employees were hired after August 2003, but most of the system’s liability is owed to employees hired before then. Virtually all of the 150,000 active recipients in the Public Employees Retirement System accrued all or most of their benefits before August 2003.

Masih said there could be a distinction between the pre-August 2003 employees and retirees — known as Tiers 1 and 2 — and those hired after the 2003 changes.

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