Mark Meister began employment in a Public Employees Retirement System (PERS) covered position on September 1, 1991, and retired February 1, 2020. On January 31, 2020, for the pay period of January 16 to 31, he received a lump-sum payment for accrued vacation and compensatory time totaling $21,945.07. He also received a paycheck for time worked in January 2020, totaling $14,073.52. On January 1, 2020, a new law went into effect that established a salary cap for purposes of calculating a member’s final average salary, providing: “‘Salary’ or ‘other advantages’ does not include for years beginning on or after January 1, 2020, any amount in excess of $195,000 for a calendar year. If any period over which salary is determined is less than 12 months, the $195,000 limitation for that period shall be multiplied by a fraction, the numerator of which is the number of months in the determination period and the denominator of which is 12.”
In calculating Meister’s final average salary, PERS capped his January 2020 salary at $17,255.04, citing the new salary cap and his last 36 months of salary. Meister disputed this, arguing that the cap should not apply to his lump-sum payment because the underlying work was performed before January 1, 2020. He asserted that applying the salary cap to his final paycheck improperly excluded his lump-sum payment from the calculation of his final average salary. After a review, PERS determined Meister’s benefits would be decreased by $16.49 per month, and that his January 2020 salary was required to be capped at $16,249.94. The Circuit Court of Lincoln County entered judgment in favor of the Public Employees Retirement Board.
Meister appealed, arguing that PERS improperly applied the salary cap to the lump-sum payment for his accrued vacation leave and comp-time because he had earned that leave before the effective date of the salary cap.
The Court of Appeals of Oregon held that the provision of the PERS statute which defined “salary” as “remuneration paid an employee in cash” did not include accrued vacation leave and compensatory time that had not been paid out in cash. The Court also held that PERS was required to include the lump-sum payment for accrued vacation leave and compensatory time that the member received upon his retirement in determining his final average salary. Lastly, the Court held that the newly imposed statutory salary cap did not retrospectively impair contractual obligations in violation of the Contract Clause of the state constitution.
“The plain text of the definition of ‘salary’ in ORS 238.005(26)(a) does not support Meister’s assertion that ‘salary’ included his accrued vacation leave and comp-time. Instead, the definition of salary includes only ‘renumeration in cash.’ That definition of salary has been in place since before Meister’s hire date in 1991. When Meister accepted the offer of the PERS contract by working, he was accepting the offer that any renumeration in cash that he received for his public service would be ‘salary.’ At no time did the statutory definition of salary contain a contract offer to Meister that his accrued vacation leave and comp-time would be considered salary before they were paid out in cash to him. That is, Meister’s accrued leave itself was not a retirement benefit.”
“Having identified the contract term, we turn to identifying the precise obligation that term imposes, because ‘it is those obligations that set the conditions that the legislature may not in the future alter without consequences.’ Here, the obligation is straightforward based on the foregoing discussion: PERS was obligated to include Meister’s January 2020 lump-sum payment as ‘salary’ in calculating his final average salary. PERS did that. However, Meister argues that the salary cap cannot apply, because the lump-sum payment was attributable to work he performed before January 1, 2020.
“The problem with Meister’s argument is that it does not grapple with the precise contours of the PERS contract term at issue here, which was that Meister was entitled to have lump-sum payments for accrued leave (that was paid to him during the relevant time) included as salary for purposes of calculating his retirement benefits. There was no salary to include in the calculation until Meister earned the salary – that is, until he earned the lump-sum payment – by terminating his employment while he had accrued unused leave that his employer had agreed would be paid out to Meister upon termination. The employer here fulfilled that agreement with Meister and paid out that leave on January 31, 2020.”
Meister v. Pub. Emps. Ret. Bd., 334 Ore. App. 725 (Or. Ct. App. 2024).