Last week while attending a meeting I had the chance to meet and listen to a presentation from Daniel C. Re, an attorney in Bend, Oregon. He specializes in estates and trusts and now devotes a portion of his time to a new creation: In RE The People, Inc. an Oregon non-profit, public benefit corporation. In RE The People, Inc. was formed to provide information regarding issues of social and civic importance to the People of Oregon.
The first issue to be addressed is the procedure under which the laws governing the Oregon Public Employees Retirement System (PERS) are made, enforced and judged and whether those procedures are fair. There is a little tongue in cheek with regard to Dan’s solution but, in fact, the concept is absolutely right. If it’s good enough for Oregon’s elected officials, it’s certainly good enough for its citizens — particularly it tax payers.
Following then is Dan Re’s presentation.
Whether something is fair or not is a subjective decision that each person makes based on his or her personal values, beliefs and experiences. In making decisions regarding fairness, people use whatever information they want to use. The following information may be relevant and useful to some persons.
The Rights Of The People. A basic principal underlying our constitutional rights is the notion of fundamental fairness. The Peoples’ constitutional right to procedural due process prevents the State from depriving a person of life, liberty or property unless the procedure the State uses to do that is fundamentally fair. Life may not be fair, but our constitution requires the State to treat a person fairly before it can take that person’s life, liberty or property.
The Obligation Of Public Officials. Service as a public official is a public trust. Members of the Legislative Assembly, the Governor, the Attorney General and Judges are all public officials. By holding a public office, each public official voluntarily assumes fiduciary obligations to the persons that the public official represents. A basic restriction imposed on fiduciaries is the prohibition against acting on a matter when the fiduciary’s personal interest is in conflict with the interest of the person the fiduciary represents.
The PERS Plan. The PERS Plan was created by the Legislature in 1945. Today, approximately 311,000 persons, 8% of Oregon’s population, are PERS members.
PERS Members. Under the current PERS laws, the following persons are eligible for PERS: Legislators; Judges; Elected Officials; state general service employees; police and fire employees; Public School Employees; some Oregon State System of Higher Education employees; and, some Portland public school employees. This, however, is not how PERS was originally set up. Under the original plan, neither Legislators nor Judges were PERS members.
Membership Classifications. In 1995 and in 2003, the Legislature changed PERS to create different membership classifications. There are now three classifications. The highest class is Tier One, made up of persons employed by the State before January 1, 1996. The next class is Tier Two, which consists of persons employed by the State after December 31, 1995 and before August 30, 2003. The last PERS class are persons employed by the State after August 29, 2003, except for Judges who must be in Tier One or Tier Two. Those employees are in the Oregon Public Service Retirement Plan (OPSRP). Generally, it is expected that Tier One members will receive the highest benefits, Tier Two members will receive lesser benefits than Tier One members and OPSRP members will receive the lowest benefits.
PERS Funding. The law provides that PERS retirement benefits are to be funded by contributions from both the public employee and that employee’s public employer.
Employee Contributions. The employee contribution for a non-Judge member is 6% of the member’s compensation. The employee contribution for a Judge member is 7% of compensation. However, the law then provides that the State must pick up the Judges’ 7% contributions and that a public employer may pick up the non-Judge employees’ 6% contributions. Currently, most employee contributions are picked up by the public employers. Member contributions are held in separate accounts for each employee and the account balances are available to the employee at retirement.
Employer Contributions. The public employer’s contribution amount is determined by the PERS Board. It is the actuarially determined amount that is necessary to fund a lifetime annuity for the employees at retirement. The contribution rate for each public employer is computed separately for each employer and is used for a two year period. For the 2009 — 2010 period, many public employers have a PERS contribution rate of over 20% of their payroll. This amount is in addition to employee contributions that the employer picks up and the employer contributions are expected to increase significantly in the 2011 — 2012 period.
The Taxpayers. Since the public employer’s primary source of revenue is tax receipts, all employer contributions, including picked up contributions, are paid by the taxpayers. As a result, all Oregon taxpayers fund PERS and most PERS members make no greater contribution to that funding than any other taxpayer.
The PERS Decision Making Procedure. All PERS decisions are made according to laws enacted by the Legislature, with the approval of the Governor, or according to laws enacted by the People, under their initiative power. Those laws are enforced by the Oregon Attorney General and if disputes arise regarding those laws, most disputes are decided in the Oregon courts. Except for questions based on federal rights, the Oregon Supreme Court is the final authority regarding all PERS laws. If a challenge to the validity of a PERS law goes to the Oregon Supreme Court, a majority of the seven Justices have the power to uphold the law or to invalidate it. As a result, persons who are or may be PERS members make most of the PERS laws, they enforce the PERS laws and they have the final say on every PERS dispute, unless that dispute is based on federal rights. The U. S. Supreme Court has the final say on federal rights.
The Original Procedure. The PERS decision making procedure was not originally designed to be controlled by PERS members. When PERS went into effect, in 1946, neither Legislators nor Judges were in PERS. It had apparently been assumed that members of the Legislative Assembly were not eligible for PERS membership and the Judges had their own retirement system. As a result, neither the Legislators nor the Judges had a conflict between their personal financial interests and the interests of the people they represented when making decisions on PERS matters. That original separation of interest remained in place for thirty years for Legislators and thirty-eight years for the Judges.
Addition of the Legislators. For the first seventeen years of PERS, no one questioned the ineligibility of Legislators to join PERS. In 1963, an inquiry regarding this issue was made to the Oregon Attorney General and in an informal opinion the Attorney General concluded that Legislators could not join PERS. In 1971, however, there was a new Attorney General and that issue was revisited. This time it was determined that Legislators could become PERS members, just as any other elected official. This opinion was based on the same PERS laws that had existed for the previous 26 years. The opinion also recognized that Legislators were employees under the PERS law and their employer was the state and its citizens. Based on that 1971 opinion, which was not binding on the courts, the 1975 Legislative Assembly enacted a special law that allowed its members, past and present, to join PERS. The Legislators passed this law with an Emergency Clause and it became effective July 1, 1975. The Emergency Clause stated that this law was necessary for the immediate preservation of the public peace, health and safety. The Emergency Clause also prevented the People from exercising their power to invalidate this special PERS exception for the Legislators by Referendum. In passing this law, the members of the 1975 Legislative Assembly deprived their employer, the citizens of Oregon, of independent representation on PERS matters which had existed for the prior 30 years.
Addition of the Judges. Prior to 1983, the Judges had a separate retirement plan and were not PERS members. This separation of the Judges from PERS protected the right of all Oregon citizens to have legal disputes involving PERS determined by Judges who had no personal stake in the outcome of the dispute. The Legislative Assembly, however, passed a new law in 1983, which became effective in August, 1993, that made the Judges PERS members. That law gave the Judges two unprecedented rights that no other PERS members had: (1) a higher personal contribution amount, 7% rather than 6%; and, (2) the State was required to pick up the Judges’ personal 7% contribution. Under their prior retirement plan, the Judges paid to pay their 7% contribution. Those two benefits gave the Judges a higher financial stake in the outcome of PERS disputes than other PERS members. This law was also passed with an Emergency Clause. With the Judges in PERS, PERS members achieved total control over all PERS decisions, except those based on federal rights.
It is important to point out that in 1983, the Judge’s separate Retirement Plan was under funded, it contained unfair provisions and it needed to be changed. Those changes could have been made, however, without including the Judges in PERS. The legislative history of the law which put the Judges in PERS shows no indication that the People’s right to independent judges for PERS disputes was ever taken into consideration.
Changes to Access to Public Records. Since 1862, Oregon’s policy has been that its citizens should have access to writings relating to the conduct of the people’s business. In 1983, however, the Legislature decided to prohibit the People’s access to certain PERS records, including whether a person was a members of PERS. This prohibition on disclosure really only applies to elected officials other than judges because judges and other non-elected public employees are mandatory PERS members, unless they exceed the maximum age requirement. PERS interprets this law as prohibiting disclosure of an elected official’s status as a PERS member. Under this interpretation, the Legislature has prevented the citizens of Oregon, their employer, from knowing if they have a personal financial interest in PERS decisions. This law was also passed with an Emergency Clause so that the People could not invalidate it.
Changes to PERS Enforcement Provisions. In 1989, the Legislature enacted new laws to make sure public employers paid their PERS contributions promptly. Those new laws provided that if a public employer did not pay its PERS assessment, it must pay interest on the delinquent amount and, after the deficiency is certified to the Oregon Department of Administrative Services by the PERS Board, all funds in the State Treasury that the delinquent public employer is legally entitled to must be withheld until the PERS deficiency is paid. That legislation made PERS funding Oregon’s highest financial priority, more important than public safety, public education, or any other service provided by the State. The Legislative Assembly told the People, in no uncertain terms, that a public employer’s PERS assessment must be fully paid before that public employer can spend any money on anything else.
Questions of Fundamental Fairness. The fact that most PERS laws are made, approved, enforced and judged by PERS members or persons who might be PERS members, raises questions concerning the fundamental fairness of those procedures. Those questions include, but are not limited to, the following:
1. Is it fundamentally fair that members of the Legislature, who are elected to represent the People and not themselves, have used the power entrusted to them by the People to:
a. change the original PERS laws to allow themselves to become PERS members, thereby creating a conflict between their personal financial interest and the interest of most the people they represent?
b. make their PERS membership status a secret that can not be disclosed?
c. make PERS funding, including the funding of their own PERS benefits, Oregon’s highest financial priority?
2. Is it fundamentally fair that the Legislative Assembly included the Judges in PERS, thereby preventing the People from having PERS cases decided by an independent judges?
PERS FOR ONE, PERS FOR ALL — WOULD THAT BE A FAIR SOLUTION?
For persons who believe that the current PERS decision making process may be unfair, PERS For One, PERS For All (PFO, PFA) is a solution. Under PFO, PFA, every Oregonian would be a fully vested, Tier One PERS member. As a result, all of the conflicts of interest that may in today’s PERS decision making system would no longer exist. Everyone would have the same interest in PERS. PFO, PFA would also eliminate the current State policy that makes PERS members the most important class of people in Oregon, since funding their benefits is the State’s highest spending priority. Finally, PFO, PFA would put an end to the discrimination that is inherent in the current PERS benefit classification system.
If you are in interested in learning more from Dan Re, you can contact him at:
In RE The People, Inc.,
86 SW Century Drive PMB 365,
Bend, OR 97702.