SALEM (AP) - A Multnomah County judge ruled that the state pension fund can't retroactively reduce the retirement benefits of retired public employees.

Judge Henry Kantor's decision Wednesday derails the Oregon Public Employees Retirement System's plan to retrieve money from 38,000 workers who retired between April 1, 2000, and March 31, 2004.

Those public employees are considered to have excessive pensions because the pension board credited their accounts with 20 percent interest earnings for 1999, rather than the 11 percent called for under pension rules.

“I believe that this is in fact a substantial victory for public employees who worked hard for many years for the citizens of Oregon and then retired with the expectation that the state would pay the retirement benefits promised to them,” said Gene Mechanic, an attorney for retirees.

But the ruling is a defeat for 200,000 Oregon public employees who will get reduced pensions when they retire because the state has no other legal way to recover $800 million worth of overpayments. The Legislature rewrote the rules for the public employee retirement plans in 2003 to try to deal with runaway costs for public employers.

The 2003 law gives the state two ways to recoup overpaid pensions: Cancel the overpaid retirees cost-of-living adjustments or make future retirees bear the cost. After that law passed, the Oregon Supreme Court ruled that canceling cost-of-living adjustments was illegal.

That left the state with just one choice: Make younger public employees take smaller pensions so the public employees who mistakenly got extra-large pensions can keep them.

A separate law gives the retirement system other ways to get back overpayments to retirees. For retirees who took a lump sum payment upon retirement, the retirement system requested they pay back an average of $28,000.

But the 2003 law outweighs the other law in this case, Kantor ruled.

“I'm delighted,” said former Portland Water Bureau employee Michael Arken, one of the retired workers who filed the lawsuit.

Arken got a letter from PERS earlier this year telling him how much he owed, and notifying him how much his pension checks would be reduced in the future. His pension payments were reduced starting this spring, Arken said.