PUBLIC ACT 100-544

On November 9, 2017 the Illinois Senate voted to override the Governor’s veto of HB-688. Public Act 100-544 amends Articles 3, 4, and 6 of the Illinois Pension Code as follows:

  1. The Act creates section 3-110.12 and opens a 6 month window that allows an active member of an Article 4 firefighters’ pension fund to transfer up to 6 years of creditable service accumulated in an Article 3 police pension fund administered by the same unit of local government if the active member was not subject to disciplinary action when he or she terminated employment with the police department.  In order to take advantage of this transfer, the firefighter must make application within the 6 month window.
  2. Upon application, the Article 3 fund must transfer the following amounts to the Article 4 fund:  (1) the firefighters’ accumulated employee contributions, (2) an amount representing employer contributions that is equal to the amount calculated in number 1, and (3) any interest paid by the applicant in order to reinstate creditable service.  If the firefighter previously took a refund of his or her Article 3 contributions, the firefighter can reinstate creditable service with the Article 3 fund by repaying his or her refund plus interest at 6% per year compounded annually from the date of refund to the date of payment.
  3. Once these amounts are transferred, this time will count as creditable service for the firefighter pursuant to 40 ILCS 5/4-108(c)(8).
  4. Additionally, an active Chicago firefighter can now transfer up to 10 years of creditable service accumulated in an Article 4 pension fund.  The Chicago firefighter has a 6 month window to apply for the transfer.   The Article 4 fund is required to transfer the amounts as listed in number 2 above.
  5. Once these amounts are transferred, this time will count as creditable service for the Chicago firefighter pursuant 40 ILCS 5/6-227.  There may also be a true cost component that a Chicago firefighter must pay the Chicago Fireman’s Annuity and Benefit Fund.

ORRICO v. OAK LAWN FIREFIGHTERS’ PENSION BOARD

On June 28, 2017 the First District Appellate Court issued its Rule 23 Order in Orrico v. Board of Trustees of the Oak Lawn Firefighters’ Pension Fund.  The plaintiff was a fire lieutenant for the village of Oak Lawn.  A car struck the plaintiff and the plaintiff received a line of duty disability pension.  When the plaintiff was approximately 60 years old, he accepted a job as the assistant fire chief for a fire department in Texas.  The plaintiff signed certain employment documents affirming that he could perform certain physical tasks associated with fire suppression and fire rescue activities.  The plaintiff signed certain employment documents indicating that he would be able to receive a Texas firefighter certificate.  The plaintiff was assigned turnout gear and a SCBA.  Although it was not the plaintiff’s primary function to perform fire rescue or fire suppression activities as the assistant chief, the Texas fire chief testified that the plaintiff could have found himself inside a burning building and directing other firefighters.  Pursuant to section 4-112 of the pension code, the pension board held a hearing to determine whether the plaintiff had recovered from his disability.  Because the plaintiff was over 50 years old, the pension board did not have the authority to send the plaintiff for a medical examination.  See Hoffman v. Orland FPD Firefighters’ Pension Board.  The pension board, in a split vote, determined the plaintiff had recovered from his disability despite no medical evidence to support the conclusion.  The trial court reversed the pension board’s decision and the appellate court affirmed the trial court.

The appellate court ultimately determined that the pension board did not have “satisfactory proof” for purposes of section 4-112 that the plaintiff had “recovered from his disability.” The appellate court noted that the employment documents contained boilerplate language that did not accurately define the job duties for the plaintiff and that the record did not support the pension board’s conclusion that the plaintiff would be called upon, as the assistant fire chief, to perform fire rescue and fire suppression activities.  Interestingly, in dicta, the appellate court agreed with the pension board that section 4-112 did not require medical evidence to establish “satisfactory proof” of recovery from disability.  The appellate court also agreed with the pension board’s refusal to re-open proofs to allow the plaintiff to introduce his own hearsay medical examination report.

PGM attorney Jeff Goodloe represented the pension board before the trial court and the appellate court.

HOUSE BILL 418

The Illinois Legislature approved House Bill 418.  The bill amends article 3 of the pension code.  The bill provides that on or after January 1, 2019 a person may not elect to participate in the IMRF as Chief of Police of a municipality unless the person was already a participating employee in the IMRF prior to January 1, 2019.  The bill also requires each municipality to create a defined contribution (“DC”) plan for certain police officers.  If a police officer with more than 10 years of creditable service enters active service with another municipality, the police officer may elect to participate in the DC plan.  A police officer electing participation in the DC plan may rescind that election and enter the defined benefit plan, but the contributions made to the DC plan remain in the DC plan.

The bill also amended the re-entry provision (section 3-124.1 of the pension code).  If a police officer who first becomes a member on or after January 1, 2019 is receiving pension payments and re-enters active service with any Article 3 municipality, that police officer may continue to receive pension payments, but must participate in the DC plan and may not obtain any additional creditable service in an Article 3 fund.

PENDING ARTICLE 4 SENATE AND HOUSE BILLS

Senate Bill 1335 would require secondary employers of firefighters to pay a certain amount each year to a firefighter’s primary employer’s Article 4 pension fund.

House Bill 688 would open a 6 month window for firefighters to transfer up to 10 years of creditable service in a downstate firefighters’ pension fund to the Chicago Firemen’s Annuity and Benefit Fund.

Both of these bills are in committee and on their second or third reading in each respective chamber.

VILLAGE OF NORTH RIVERSIDE V. BORON

On December 19, 2016 the First District Appellate Court issued its Opinion in Village of North Riverside v. Boron.  Mr. Boron is the director of the Illinois Department of Insurance. The Village failed to properly fund its police and firefighter pension funds.  The DOI held a noncompliance hearing pursuant to section 1A-113 of the Pension Code.  The DOI held that the Village had not shown “good and sufficient cause” for its noncompliance.  The Village argued that it had mitigating circumstances for its noncompliance and that it intended to take remedial action in future years.  The Village argued that the recession in 2008 and 2009 resulted in decreased tax revenues.  The Village also argued that its largest source of tax revenue, a restaurant supply company, left the Village in 2012.  The Village also argued that is tax-capped as a non-home rule municipality.  However, the DOI noted that there were six years between 2000 and 2011 in which the Village did not make any contributions to its fire and police pension funds.  However, the Village fully contributed to the IMRF because the IMRF has an “enforcement provision.”  Additionally, the evidence showed that tax receipts actually doubled between 2000 and 2012.  The Village also continued to subsidize garbage collection and water services.  The DOI held that the Village did not offer “good and sufficient cause” for noncompliance and ordered the Village to comply.  The Village filed a complaint for administrative review.  The trial court affirmed the DOI’s decision.  The Village appealed.  The appellate court affirmed.

The appellate court rejected the Village’s argument that the “good and sufficient cause” standard was too vague and therefore unconstitutional.  The appellate court held that the breadth of the provision actually inured to the Village’s benefit because it could produce almost any mitigating evidence it wanted.  The appellate court noted that the Village was simply unsuccessful in meeting its burden to show “good and sufficient cause” to underfund its pension funds.  Whether the Village presented “good and sufficient cause” is a mixed question of law and fact and the court will not reverse the agency’s decision unless it is clearly erroneous.  In this case, the DOI’s decision was not clearly erroneous.

The appellate court accepted the DOI’s conclusion that the “Village had simply made choices to allocate funds elsewhere in derogation of its statutory duties.”  Additionally, many of the violations actually occurred before the recession.   The Village’s admission that it fully funded the IMRF showed “…a conscious choice in the Village’s allocation of resources and acknowledges a deliberate effort to allocate resources in places other than the police and firefighter pension funds.”  The Village continued to divert new tax many away from the pension funds and it continued to subsidize garbage pick up and water services.  The appellate court held that the Village “…spent its money on discretionary endeavors its prioritized more than contributing to the police and firefighter pensions.  That is a violation of the Pension Code….”

SENATE BILLS 3454 and 3455

On November 29, 2016 State Senator Michael Hastings introduced Senate Bill 3454 and Senate Bill 3455.

Senate Bill 3454 would amend the intercept/enforcement provisions in section 3-125 and 4-118 of the Pension Code.  Senate Bill 3454 would permit a pension board to intercept payments of state funds based on the current schedule (beginning in FY 2016) if the fund’s assets in trust do not exceed 5 years of current liabilities of the pension fund.  However, under the amendment, if the fund’s assets in trust exceed 5 years of current liabilities, then the pension board could not intercept payments of state funds until FY 2021.  In FY 2021 the pension board could intercept one-tenth of payments of state funds.  In FY 2022 the pension board could intercept one-fifth of payments of state funds.  In FY 2023 the pension board could intercept three-tenths of payment of state funds.  In FY 2024 the pension board could intercept two-fifths of payments of state funds.  In FY 2025 and each fiscal year thereafter, the pension board could intercept one-half of payments of state funds.

Senate Bill 3455 would consolidate all Article 3 and Article 4 pension fund assets.  The bill essentially mirrors much of Senate Bill 3317 that was introduced by former representative Dan Duffy on February 19, 2016.  The main exception is that the assets would be transferred to the Illinois Municipal Retirement Fund (“IMRF”) for management rather than the State Board of Investment.  Under the bill, the IMRF shall not be held liable by any annuitant or beneficiary for nonpayment of benefits by the eligible pension fund.  The IMRF would be required to report to each pension board at least annually the financial information on the invested assets and earnings attributable to each pension fund.

The pension board would have to transfer assets once it receives a certified investment asset list from the DOI or within 18 months after the effective date of the statute, whichever occurs first.  The certified investment list would be created following an audit paid for by the pension board.  The pension board would then be allowed to maintain 3 months worth of reserves in the pension fund to pay beneficiaries and administrative costs.  In accordance with rules set forth by the IMRF, the pension board would then make written application to the IMRF if it needed money to maintain the 3 month reserve.  The DOI would be responsible for mediating any disputes between the IMRF and the pension board regarding the 3 month reserve.  Each quarter, the pension board would transfer available funds that exceed the 3 month reserve to the IMRF for investment.