Oregon Supreme Court strikes down large portion of 2013 public employee pension cuts

The Oregon Supreme Court ruled Thursday that some of the 2013 cuts to public-employee retirement benefits are unconstitutional, wiping out much of the savings lawmakers were aiming for and likely raising pension costs for state and local governments.

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The justices said workers were promised an annual inflation increase of up to 2 percent, and the Legislature can't scale it back retroactively.

Cities and school districts said they're disappointed in the ruling and warned it will lead to larger class sizes and diminished government services. They called on the Legislature to find new Public Employees Retirement System cuts that might pass muster with the court.

"These reforms represented a reasonable means for government employers to manage expensive PERS obligations while still providing an adequate level of desired services to citizens," said Mike McCauley, director of the League of Oregon Cities.

After the Great Recession took a massive bite out of the pension system's investments, state and local governments faced a big hike in their employee pension costs. Former Gov. John Kitzhaber brokered a deal to cut benefits while raising taxes on mostly wealthy taxpayers and cutting them for certain businesses.

The pension cuts reduced the cost-of-living adjustment, or COLA, from a maximum of 2 percent to 1.25 percent on the first $60,000 in retirement payments and 0.15 percent on anything higher. Retirees living outside Oregon lost a supplemental payment intended to help cover income taxes.

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The justices ruled the supplemental tax payment was not a contractual guarantee so the Legislature was free to take it away. But the COLA could not be reduced for any work done before Oct. 8, 2013, when the law took effect.