A Sensible Construction of Public Employee Pension Promises

3 Pages Posted: 30 Aug 2013

Date Written: August 28, 2013

Abstract

Oregon's public employee pension system provides an example of the endemic underfunding of defined benefit plans in both the public and private sector. Two values clash yet must be reconciled: promises must be kept, but each generation's ability to determine public needs for the use of its tax dollars must be maximized.

Drawing today's tax dollars to pay for yesterday's work is inequitable on several levels: 1. it diverts needed tax dollars from schools, medical programs, roads and bridges, elder care , and other vital needs as determined by taxpayers through representative processes; 2. it forces these payments for past work on private sector taxpayers who as often as not have no pension system themselves; 3. even within a particular public employer's employee cohort, diversion of tax dollars to pay for yesterday's service imposes burdens that fall inequitably on younger and newer employees in the form of fewer positions, promotions, lower salaries, heavier workloads, unpaid furloughs, more medical cost sharing, and, ironically, lower pension benefits under policies that severely curtail pension benefits for "new hires."

The answer is to construe the pension contract with public employees more sensibly to apply to past and current work, but not to future work after notice of reductions in accrual rates. This would be sensible for three reasons: 1. it would bring public employee pensions in line with those in the private sector under ERISA which allows prospective changes in pension accrual rates, 2. it would align the pension portion of total compensation with all the other components like salaries, health benefits, paid leave entitlements, etc., which CAN be changed prospectively through appropriate processes, and 3. such a past/future service distinction would help to preserve each generations' ability to make its own decisions about the best use of revenues and tax dollars through democratic processes. For these reasons, recognition of the past versus future service distinction, as a strong presumption, provides the most logical and practical construction of Legislative intent in the establishment of the terms of the public employee pension contract.

Keywords: public employee pensions, public employee benefit plans

Suggested Citation

Drummonds, Henry, A Sensible Construction of Public Employee Pension Promises (August 28, 2013). Available at SSRN: https://ssrn.com/abstract=2317487 or http://dx.doi.org/10.2139/ssrn.2317487

Henry Drummonds (Contact Author)

Lewis & Clark Law School ( email )

10015 S.W. Terwilliger Blvd.
Portland, OR 97219
United States

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