The court unanimously overturned two legislative changes.

One had ended guaranteed minimum earnings on the pension accounts of workers who joined the system before 1996. The other revision suspended cost-of-living benefit adjustments for workers who retired between April 1, 2000, and April 1, 2004.

The court said both changes violated employees’ contract rights.

Even though the pension system may have to restore some money to retirees’ accounts, Gov. Ted Kulongoski said the overall ruling will not have an immediate impact on the state budget.

He said that’s partly because good investment earnings the past two years have allowed PERS to build a reserve fund of well over $1 billion to deal with potential problems.

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"This will not place a burden on the 2005-07 budget," the governor said at a news conference.

"It is clear that this decision brings certainty that our public pension system is now on a sustainable fiscal path which is critical to the long-term economic stability for Oregon’s future," the governor said.

Reaction from members of Southern Oregon’s delegation in Salem were uniformly positive.

Sen. Alan Bates, D-Ashland, said his first reaction to Tuesday’s ruling was "a sigh of relief."

"This leaves us enough reserves (in the PERS account) to cover the costs for the 2005-07 biennium," he said. "As a state with over $1 billion in reserves (in PERS), we’re in pretty good shape."

Sen. Jason Atkinson said the ruling is an endorsement of work legislators did in 2003.

"Anything that is going to add some certainty to PERS reform is a terrific endorsement of what we did last session, and what we hope to do in the future," said Atkinson, a Central Point Republican. "I think this also gives us leverage for further reforms. PERS was reformed last session, but a lot of people, including myself, believe it was PERS ‘lite.’ "

Rep. Dennis Richardson, R-Central Point, concurred, adding, "Today’s holding was very positive for Oregon, and PERS members as well."

There is, however, a similar challenge to the pension changes pending in federal court.

Foes are appealing, in the 9th U.S. Circuit Court of Appeals, a ruling by U.S. District Judge Michael Mosman that rejected claims that the revisions violate workers’ contract rights under the U.S. Constitution.

Lawyer Greg Hartman, who represented a coalition of unions in the case, lauded the state Supreme Court for protecting employees’ pension contract rights on the guaranteed earnings and cost- of-living issues.

"The court didn’t rule with employees in all cases, but they did say a deal is a deal," Hartman said.

Bill Gary, a Eugene lawyer who represented a number of local government employers, said the most significant long-term effect of the ruling was the judges’ rejection of the idea "that you can’t do anything to impact future benefits.

"The Supreme Court very clearly said that’s not the case," Gary said.

The court upheld a change, for instance, that shifted workers’ future pension contributions into new individual accounts in a move that will reduce benefits for many.

The 2003 Legislature passed the PERS reforms at the urging of Kulongoski to shave a projected deficit once estimated to be as high as $17 billion. The changes trimmed about $8 billion from the estimate.

Before the Legislature made changes, the 110,000 workers in the pension system before 1996 were assured that the portion of their accounts invested in stocks would get returns of 8 percent annually, even when stock values plunged.

The law was changed so PERS members would get average 8 percent earnings on their stock investments over their careers, reducing that benefit.

That change illegally impaired an "unconditional" right of employees to the minimum 8 percent annual return, the court said.

Kulongoski, in an interview, said the only year affected by that part of the ruling was 2003, when no earnings were paid to members’ stock accounts after PERS investments declined in value.

Earnings for 2004 haven’t yet been distributed to accounts.

The governor said the amount needed to give 8 percent returns to PERS members for 2003 hadn’t been immediately determined but that the figure would be covered by pension system reserves.

PERS Director Paul Cleary said the system has $1.2 billion in reserve and plans to add $650 million more.

Workers hired since 1995 have no guarantee of minimum earnings.

PERS spokesman David Crosley said it was too soon to know how the court’s 150-page decision would affect individual pension system members.

Although the change suspending annual cost-of-living adjustments for about 22,000 retirees also was overturned, the impact is unclear because another lawsuit pending in the high court affects that issue.

Legislative changes upheld by the Supreme Court include one that shifted future employee contributions to their pensions — 6 percent of their salaries — to separate accounts outside of PERS.

That will decrease some workers’ ultimate pensions by reducing the amount that employers would have to match in their PERS accounts — one of several options workers can choose at retirement.

The matching method had been lucrative as PERS members’ accounts swelled with hefty stock earnings, which gave some employees pension payments that were higher than the salaries they drew while working.

The ruling upholding the shift of employee pension contributions to new accounts was 4-3. The dissenting judges said that change also impaired contract rights.

The court also said the Legislature had authority to direct PERS to use updated life expectancy tables in determining benefits when a worker retires.

Outdated tables that had been used since the 1970s didn’t reflect today’s longer average life expectancies. That meant many employees’ pension accounts didn’t stretch long enough to last until their death, and taxpayers had to make up the difference so PERS could pay the added amount.