BENNETT,
HARTMAN, MORRIS & KAPLAN, LLP
January 16, 2004
Via Facsimile (503) 725-5709
and Certified Mail
Chancellor Richard Jarvis
Office of the Chancellor
Oregon University System
P. O. Box 751
Portland, OR, 97207-0751
Re: Optional
Retirement Plan - Failure to Pay Wages
Our
File No.: 10086-00
Dear Chancellor Jarvis:
I.
Introduction
This
office represents the Association of Oregon Faculties (“AOF”) in
regard to recent changes by the Oregon University System (“OUS”) to
retirement account contributions of Optional Retirement Plan
(“ORP”) members. It appears that the OUS has reduced its employer
contribution to ORP members by as much as 7.44 percent. Please be advised
that this reduction in payments is in violation of ORS 243.800. Therefore, the OUS is currently failing
to pay wages due to its employees under ORS 652.120 et seq. We demand on behalf of all ORP members that the OUS
pay all amounts due to these members within fourteen days. Otherwise, we will pursue litigation
over this matter. Following is our analysis.
I.
Background
A. ORP
Contributions
The
legislature created the Optional Retirement Plan under ORS 243.800 for certain
academic and administrative higher education employees.[1] Under that provision, the Board of
Higher Education may create an Optional Retirement Plan as an alternative to
membership in the Public Employees Retirement System (“PERS”). The statute allows PERS members to make
an election to participate in the plan. ORS 243.800(9) requires the OUS to
contribute monthly to the Optional Retirement Plan, “a percentage of
salary of each employee participating in the plan equal to the percentage of
salary that would otherwise have been contributed as an employer
contribution, on behalf of the
employee to the Public Employees Retirement System if the employee had not
elected to participate in the Optional Retirement Plan.” (Emphasis added). Thus, contributions
under the Optional Retirement Plan are dictated by the employer contribution
that would have been made if the employee remained a member of PERS. The Optional Retirement Plan in effect
functions as a defined contribution plan, whereby that contribution is dictated
by the employer contribution required as if the employee were a member of PERS.
B.
Lump
Sum Unfunded Actuarial Liability (“UAL”) Payments
Under
OAR 459-009-0084, PERS has established procedures to allow for employers to
make lump sum payments to cover unfunded actuarial liabilities
(“UALs”). A UAL is the excess of the actuarial liabilities for
future retirees over the fair market actuarial value of employer contributed
assets. Employers, including the State, are allowed to make payments on those
liabilities before they are due through a “side account” mechanism.
In effect, this allows an employer to refinance this debt obligation through
its bonding powers. Under OAR 459-009-0084, any payment which is not regularly
scheduled, that is not paid as a percentage of salary, and that is made for the
express purpose of reducing the UAL, is considered a lump sum UAL payment. That
side account is held by PERS for the benefit of the employer and enjoys a preferential status in that it receives
earnings of the fund in general, but is only subjected to reductions for
administrative expenses and for reserve account payments. Payments are then
made out of this lump-sum account to the employer contribution account for that
employer once a year. The amount
of these payments is determined by the PERS actuary on an annual basis. Under
these rules, these payments are treated as pre‑funded contributions for
the payment of obligations of the employer under ORS Chapter 238. Thus, in
effect, these payments from the side account are treated as employer
contributions. The only difference between these contributions and ordinary
contributions is that the former is distributed from the employer’s lump
sum side account, while the latter come from the employer’s general fund.
The rule specifically provides that these payments are not to be treated as a
reduction of the employer’s contribution obligations but rather as a
contribution to satisfy that obligation.
C. Ballot
Measure 29
In
November 2003, the State of Oregon decided to take advantage of the lump-sum
UAL payments option. The legislature referred and the voters passed Measure
29. That measure allowed the
State of Oregon to borrow two billion dollars to fund the State’s
unfunded actuarial liabilities.
That two billion dollars was borrowed by the State of Oregon and placed
into a side account as a lump-sum payment to prepay unfunded actuarial
liabilities pursuant to OAR 459-009-0084.
As a result of this lump-sum payment, the additional funds required from
the State to satisfy its required contribution have been reduced. As a result,
the employer contribution rate has been reduced in an amount corresponding to
the amount that has been prepaid from this side account. According to the OUS,
it was notified by PERS that its employer contribution, which had been 11.31
percent for Tier One members, will be dropped to 3.71 percent. Similarly, Tier Two members whose rate
had been 11.71 percent of their salary would be 4.27 percent. According to OUS, because of this
prepayment contribution, and because the rate has dropped as a result of this
prepayment, it is only obligated to pay the rate required by PERS. In effect,
OUS has taken the position that the pre-payment amount is not to be considered
an “employer contribution” for purposes of ORS 243.800.
I.
Violation of ORS
243.800 and ORS 652.120
OUS
is under the impression that the two-billion dollar pre-payment by the State of
Oregon to PERS is not considered an “employer contribution” under
ORS 243.800. Therefore, according to OUS, it is only obligated to pay the
employer contribution rate as set by PERS, regardless of any prepayments. However, this position is contrary to
OAR 459-009-0084(10), which states that the UAL lump-sum payment “shall
offset any pooled, unfunded actuarial liabilities and shall be treated as pre‑funded
contributions and additional assets for the payment of obligations of the
employer under ORS Chapter 238, rather than as a reduction of those
obligations.” Thus, under
this regulation, the two-billion dollar contribution on behalf of state
employees must be treated as a pre-funded “employer contribution.”
The State of Oregon, in effect, has made a pre-payment on its obligations to
its employees. In no way has that
pre-payment changed the amount due for the benefits of its employees, as
expressed as a total percentage of the employer’s payroll. The source of
the monies which fund the employer contribution, ie. the side account versus
the general fund, is irrelevant to the determination of the amount of the
employer contribution.
Under
ORS 243.800, the ORP plan requires that the Board contribute the percentage of
salary of each employee participating in the plan, equal to the percent of
salary that would otherwise have been contributed as an employer contribution
on behalf of the employees to PERS. There can be no doubt that the OUS is
required to make the same proportional “employer contribution” to
ORP members as it has for PERS members. It has failed to do so.
Oregon
wage statutes require that all wages be paid in a timely manner. Pension
payments by an employer on behalf of an employee are considered wages for
purposes of the Oregon wage statute (ORS 652.120 et seq). OUS’s failure to pay these wages by the
designated monthly pay day constitutes a violation of this statute. We
therefore demand that back wages be paid and any earnings that would have
accrued on those wages also be credited to individuals’ accounts. Failure
of the OUS to comply with this demand within 14 days will subject the state to
penalty wages equal to full salary for all ORP members for 30 days from the
date the payment is not made. If litigation is necessary, we will also seek an
award of attorney fees.
I.
Conclusion
In
conclusion, based upon a reasonable interpretation of the applicable statutes
and regulations, the OUS is violating Oregon statutes by failing to pay the
full employer contribution rate for ORP members. If this office does not
receive confirmation that the OUS will being paying the same proportional
employer contribution to ORP members accounts as its has for PERS members, we
will have no choice but to seek the assistance of the courts.
Sincerely,
BENNETT,
HARTMAN, MORRIS & KAPLAN, LLP
Thomas
K. Doyle
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[1]This language has been left relatively unchanged since this provision was enacted in 1995 in HB 3395.