Oregon Supreme Court Upholds Pension Benefit Cuts

Oregon’s Supreme Court has struck down a challenge to state legislation passed last year that reduced public employee pension benefits in a move to tackle the state’s growing pension funding deficit.

Nine state employees sued Oregon last August in a bid to overturn two benefit reductions, one of which requires employees to share part of the cost of their pension benefits, while the other sets a $195,000 threshold on the final salary used in some benefit calculations. The plaintiffs argued that the changes made to the Oregon Public Employees Retirement System (PERS) by the legislation “impair their contractual rights” and therefore violate the state’s constitution.

In a unanimous decision, the court rejected the plaintiffs’ arguments and ruled that the changes made to Oregon PERS do not violate state or federal constitutional guarantees of contracts.

“The fact that an employee has accepted an offer of benefits by performing services does not necessarily prevent the employer from changing the terms of the offer for future work,” wrote Oregon Supreme Court Chief Justice Martha Lee Walters in the court’s ruling. “An offer for future work may be changed unless the offer is irrevocable.”

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The pension reform law channeled some of the required retirement contributions that employees make to an individual defined contribution (DC) account that supplements their pension benefits to support the pension fund.

The new law requires employees making more than $30,000 a year and hired on or before Aug. 28, 2003, to contribute 2.5% of their salary to support the pension, and another 3.5% to the individual account, rather than the entire amount going into the account. And employees hired after Aug. 28, 2003, who make more than $30,000 a year must contribute 0.75% of their salary toward the pension fund, with the remaining 5.25% of their salary going into individual accounts.

Jennifer James, a school secretary and lead plaintiff in the case, called the ruling “deeply disappointing” and said it will have long-term financial impacts for members of the state pension plan. “Workers are paying the price for the legislature’s unwillingness to keep their promises,” James said in a statement, according to the Oregonian newspaper.

Jim Green, executive director of the Oregon School Boards Association, called the ruling “a victory for students,” saying it will allow Oregon schools to invest more in the classroom. “The court recognized that we had taken fair and reasonable steps to reduce rising PERS costs,” Green said, according to the Associated Press.

According to the legislation, the employee pension payments will be suspended and the full 6% of salary will go back into the individual account program if the pension reaches 90% or higher. As of the end of 2019, the state pension’s funded status was 79%.

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Tags: Benefits Reductions, Jennifer James, Jim Green, Lawsuits, Martha Lee Walters, Oregon, Oregon Public Employees Retirement System (PERS), ruling, US Supreme Court

The High Court of England and Wales has ordered two companies and three directors to pay over £10.7 million ($14 million) in combined restitution to members of the public who were induced to transfer their pensions into self-invested personal pensions (SIPP).

The court ruled that Alexandra Associates of Warrington, England, trading under the name Avacade Future Solutions, and Manchester-based Avacade Limited made unapproved financial promotions through their websites, promotional material, and in telephone calls to consumers, and also made false or misleading statements.

The court also found that Craig Lummis and his son Lee Lummis, who were directors of both companies, and Raymond Fox, who was a director of Avacade Limited, “were knowingly concerned” in the illegal activities. Avacade Limited is currently in liquidation.

UK regulator the Financial Conduct Authority (FCA), which brought the case, alleged the two companies provided a pension report service and made misleading statements, which led consumers to transfer their pensions into SIPPs and then into risky investments such as tree plantations, Brazilian property developments, and office space available for rent.

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The FCA said more than 2,000 consumers transferred approximately £91.8 million from their pensions into SIPPs. Additionally, approximately £68 million of that was invested in products promoted by Avacade and approximately £905,000 was invested into the Paraiba bond, a fixed-rate bond relating to a Brazilian property development that was promoted by Alexandra Associates. The regulator said Avacade and Alexandra Associates earned commissions of approximately £10.8 million from these investments, many of which have failed or are in liquidation.

The court has ordered Avacade to pay restitution of £10 million, and Alexandra Associates to pay £715,000. It also ordered Craig Lummis and Lee Lummis to pay £2.5 million each, and Raymond Fox to pay £1.7 million. Alexandra Associates, the Lummises and Fox have also been banned from engaging in regulated activities in the UK without authorization and banned from making financial promotions and making false or misleading statements about regulated investments.

“The actions of those involved put the pension savings of thousands of people at risk,” Mark Steward, the FCA’s executive director of enforcement and market oversight, said in a statement. “Unregulated introducers, like Avacade, often try to skirt regulation by making false claims about the kind of service they provide. We urge consumers to avoid unregulated firms offering any kind of free pension review.”