Sundermier v. State

ORS 238.364 provides a remedy meant to approximate a rebate of income tax paid, and not a windfall in excess of what a member would have received if the benefit had been tax exempt.

Sundermier appealed the trial court’s grant of summary judgment for PERS. On appeal, he challenged the trial court’s decision which determined that PERS correctly calculated the portion of Sundermier’s retirement benefits under ORS 238.364. It was not disputed that that statute was enacted to compensate those receiving retirement benefits from PERS for a change in Oregon law that required such PERS members (members) to pay state income tax on their retirement benefits. The dispute arose from the language of the statute, which -- in order to increase net benefit amounts by about 9% -- directs PERS to ultimately increase benefits by 9.89% so that, factoring in income tax on that additional 9.89%, members will experience a net increase in benefits of about 9%. The language of ORS 238.364(4)(b), however, directs PERS to multiply a member’s original benefit by using the formula “1 divided by .91,” which produces the number 1.0989, or 109.89%, then use that amount “to determine the amount of increase in benefits.” Sundermier contended, however, that the language of the statute requires that 109.89% of a member’s original benefit amount be the amount of the increase in benefits, as opposed to being a base amount from which a member’s original benefit amount would be subtracted in order to calculate the amount of the increase. The Court agreed with PERS, finding that the Oregon Supreme Court has construed the statute as providing a remedy meant to approximate a rebate of income tax paid, and not a windfall in excess of what a member would have received but for the income tax. The Court held that PERS correctly generated a “multiplier” in accordance with the statute. Affirmed.