Court orders Portland to negotiate changes in pension formula

PORTLAND, OR &#8211 Shortly after Portland voters approved reforms to the city’s unique public safety pension and disability fund, a newly appointed board that oversees Portland police and firefighter pensions changed how officers’ and firefighters’ pensions are calculated.

The board found that the former fund administrator had misinterpreted the City Charter that governs the fund, and in May 2007 and September 2008 made two significant changes to bring the pension calculations in line with the charter. The result: Retirement benefits dropped in most cases.

But now those changes could unravel, and the city’s general fund could be on the hook for what could be thousands of dollars potentially owed to at least 260 police and firefighters who have retired since the changes were adopted.

A Court of Appeals ruling this month found in favor of the Portland Police Association, which had challenged the changes to retirees’ pensions.

The police union argued that the city had to negotiate any changes to its members’ pensions because the fund’s pension recalculations had violated the “existing standards” clause of its contract that governs wages and benefits. In an unfair labor complaint, the union urged the fund to restore the past practice and retirees be “made whole” by the city for all lost benefits.

The city countered that the public safety fund’s board is independent, and its decisions are not subject to arbitration. The city argued that the Portland Fire and Police Disability and Retirement Fund is essentially like the Public Employees Retirement System, and employers do not arbitrate every benefits change PERS makes. The city argued that the fund’s board made the changes in “good faith,” and the fund is not the employer of union members. The city also pointed out the union never challenged a pension fund decision until this case.

In 2010, a three-member panel of the Employee Relations Board ruled in favor of the union, and the city appealed the ruling to the Oregon Court of Appeals.

“An arbitrator might reasonably conclude that the grievances do not challenge the fund’s authority to reduce benefits; instead, they assert that if the Fund reduces benefits, as it did here, then the city is contractually obligated to hold employees harmless from the reduction, even if the City did not cause the reduction,” the Employee Relations Board found.

The Employment Relations Board said its conclusion wasn’t based on whether the fund’s new calculations were appropriate, but that both sides needed to negotiate the dispute.

Now, the Oregon Court of Appeals has agreed with the state’s Employee Relations Board, finding that changes in pension calculations should have been negotiated. It orders that the dispute be argued before a state arbitrator.

Attorney William Aitchison, who represented the police union before the Employee Relations Board, said the Court of Appeals ruling validated what’s been Oregon law for more than 20 years.

“Changes in retirement benefits have to be negotiated,” Aitchison said. “This is basically a reminder that the city does need to comply with the law.”

Portland city Commissioner Dan Saltzman, who helped push through voter-approved reforms to the public safety fund, called the ruling “disappointing.”

“The Legislature set up FPDR as a totally separate fund,” Saltzman said. He said he’s concerned the decision could affect the city’s general fund. “It’s a very disappointing ruling, in terms of potential exposure to our general fund,” he said. ” I think it should be worrisome to voters, taxpayers.”

In 2007, the fund’s new board reviewed the method the fund administrator had been using to calculate an employee’s “final pay.

The board found that the administrator’s determination of a member’s highest 12-month year of pay was flawed.

Reversing a long-standing practice, the fund’s board voted in 2007 to no longer include a retiree’s last month’s pay in the calculation of a member’s final pay, because the City Charter governing the fund expressly says not to. The charter says the 12-month period ends in the “month preceding” an employee’s retirement date.

For example, if a sergeant with 25 years of service planned to retire May 15 of this year, the 12-month period for determining final pay should be May 1, 2011 to April 30, 2012, and the final annual pay would be $87,843, the board found.

That’s about $914 less than if the 12-month look-back period included the last day worked, from May 16, 2011 to May 15, 2012, as the past administrator had done. Under this method, the sergeant’s final pay would be $88,757.

The change reduces the pension benefits for most retirees. Yet pension benefits, under the new calculation method that adheres to City Charter, actually would increase for members who time their retirement to occur when the final 12-month period includes 27 pay dates, versus the usual 26 pay dates.

Portland police and firefighters have taken notice.

There have been a record number of retirements so far this fiscal year, which has 27 pay dates

Forty-five FPDR members have retired so far this fiscal year, including 25 police and 20 firefighters.

That compares with 41 retirements in the past two fiscal years combined.

The second change to pension calculations came in September 2008, revising a decades-long practice of bumping up final pay calculations by adding salary increases from union contracts ratified after a member retired.

The board stopped that practice, and began following the charter that specifies that the final pay for pension calculations is what’s been “received,” the actual gross in the member’s paycheck.

From The Oregonian.

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