MAJID v. RETIREMENT BOARD OF POLICEMEN’S ANNUITY AND BENEFIT FUND

On May 22, 2015 the First District Appellate Court issued its Opinion in Majid v. Retirement Board of the Policemen’s Annuity and Benefit Fund of the City of Chicago, et al.  The plaintiff was receiving a disability pension.  The plaintiff was subsequently convicted of a felony for possession of an unregistered firearm.  The Pension Board suspended payment of the plaintiff’s disability pension pending a hearing.  Article 5 of the Pension Code provides for the termination of a disability pension if a person is convicted of any felony. The Pension Board ultimately terminated the plaintiff’s disability pension.  The trial court and the appellate court affirmed the Pension Board’s decision.

The appellate court noted that the plain language of the statute required divestiture if a police officer on disability is convicted of “any felony” as opposed to a felony with a nexus “relating to, arising out of, or connected with” service as a police officer.  The nexus requirement only applied to retired police officers.

The appellate court rejected the plaintiff’s argument that his hearing violated his right to procedural due process in violation of the U.S. constitution.  The appellate court noted that the only issues in the hearing were whether the plaintiff was on disability and whether he was convicted of any felony.  The Pension Board was not required to permit the plaintiff to present arguments regarding the “nexus” concept.  Furthermore, the appellate court rejected the plaintiff’s bias claim because he did not (1) raise it at the beginning of the hearing and (2) the plaintiff’s own testimony satisfied the divestiture elements.

The appellate court rejected the plaintiff’s argument that the statute in question violates the Equal Protection Clause of the U.S. constitution because it treats two similarly situated groups differently.  The court held that the different classifications were rationally related to a legitimate government interest.  Deterrence is not an issue for retired officers because they are no longer police officers.  Rather, deterrence is an issue for disabled police officers because they are subject to recall.

Article 3 and Article 4 of the Pension Code do not provide for the divestiture of disability pensions following the conviction of “any felony.”  Rather, there must be a nexus between the felony and police or fire service.

VILLAGE OF VERNON HILLS v. HEELAN

On May 20, 2015 the Illinois Supreme Court heard oral argument in the case of Village of Vernon Hills v. Heelan.  In its opinion, the Second District Appellate Court affirmed the trial court’s order that the police officer was catastrophically injured for purposes of the public safety employee benefits act (“PSEBA”) because the police pension board awarded him a line of duty disability pension.  The Village essentially challenged the Illinois Supreme Court’s holding in Krohe v. City of Bloomington that a pension board’s award of a line of duty disability pension satisfies the “catastrophic injury” requirement in PSEBA.

The Supreme Court questioned the Village’s attorney as to whether the Supreme Court would have to overrule Krohe in order to rule in the Village’s favor.  The Supreme Court noted that the legislature has had 12 years to amend the PSEBA statute in light of Krohe and has failed to do so.  The Supreme Court noted that two of the pension board’s trustees are appointed by the Village and that the pension board voted 4-1 to award a line of duty disability (both appointed trustees voted to grant the line of duty disability pension). The Supreme Court suggested that the Village may be trying to re-litigate the pension board’s decision to award the plaintiff a line of duty disability pension.  The Supreme Court also questioned the Village with respect to its failure to file a motion to intervene in the disability hearing.  Ultimately, the Village’s attorney argued that it should not be bound to a pension board’s decision made during a hearing to which it was not a party.

The Supreme Court questioned Heelan’s attorney as to whether Krohe creates an absurd result because certain public safety employees are not in article 3 pension funds and therefore those governmental entities are never bound, according to Krohe, by a pension board’s decision with respect to PSEBA. The Supreme Court asked Heelan’s attorney whether it was problematic that the Village did not have the opportunity to intervene in the disability hearing. Heelan’s attorney stated that the Village did have the opportunity to request intervention, but that it failed to file a motion to intervene.  Regardless, Heelan’s attorney also argued that the Village had an opportunity to file a complaint for administrative review pursuant to Karfs v. City of Belleville.  Ultimately, Heelan’s attorney argued that this case was a municipality’s fourth attempt to overturn Krohe and that the argument should be rejected.

 

MANNHEIM SCHOOL DISTRICT #83 v. TRS

On April 8, 2015 the Fourth District Appellate Court issued its Opinion in Mannheim School District #83 v. Teachers’ Retirement System of Illinois.  The plaintiff filed a complaint for administrative review after the Board of Trustees of the Teachers’ Retirement System rendered a final administrative decision adverse to the plaintiff.  The plaintiff only named the Teachers’ Retirement System (“TRS”) as the defendant and served the summons and complaint on the executive director of the TRS.  The trial court granted the defendant’s motion to dismiss the plaintiff’s complaint for failing to name the appropriate party and to serve summons with 35 days.  The appellate court affirmed.

The appellate court held that the Board of the TRS is the administrative agency that rendered the decision in the case.  The TRS is not the administrative agency.  If a plaintiff only names the retirement system as the defendant in an administrative review action, section 3-107 of the administrative review law does not permit amendment to name the administrative agency after the expiration of the 35 days.  The plaintiff’s failure to strictly comply with the administrative review law’s requirements were fatal to the plaintiff’s claim and prevented the plaintiff from invoking the court’s jurisdiction.

The appellate court unequivocally held: “It is the Board that must be named as a defendant in plaintiff’s administrative review complaint.”

SUPREME COURT FINDS PENSION REFORM LAW UNCONSTITUTIONAL

On May 8, 2015 the Illinois Supreme Court issued its Opinion in In Re Pension Reform Litigation.

Public Act 98-599 (SB-1) reduced pension benefits for members of the State Retirement Systems (Articles 2, 14, 15, and 16) hired before January 1, 2011.  The law (1) raised the retirement age for members under age 46; (2) capped pensionable salary; (3) abolished the fixed 3% COLA; (4) eliminated COLAs in particular years; and (5) altered how the base annuity is calculated for the money purchase formula.  The plaintiffs sued and argued that the law violated article XIII section 5 of the Illinois Constitution (pension protection clause), article I section 16 (the contract clause), article I section 17 (the takings clause), and article I section 2 (the equal protection clause – because the judges in Article 17 were not included).  The trial court entered judgment in favor of the plaintiffs and found the law unconstitutional.  The State filed a petition for leave to appeal and argued that it had the authority to reduce pension benefits pursuant to its reserved sovereign powers (police powers).  The Illinois Supreme Court rejected the State’s argument and affirmed the trial court’s decision that the law is unconstitutional.

The Supreme Court framed three issues: (1) Does PA 98-599 violate the pension protection clause? (2) If so, is the reduction of pension benefits a valid exercise of the State’s police power?  (3) If not, are the invalid provisions severable from other provisions in PA 98-599 (ie., does the funding mandate survive?).

The Supreme Court held that the issue of whether PA 98-599 violated the pension protection clause was “…easily resolved.”  The law did violate the pension protection clause.  The Supreme Court held that the protections afforded by article XIII, section 5 attach once an individual first embarks on employment and not when the individual retires. Subsequent changes to the Pension Code that reduce benefits cannot be applied to an individual after the individual is hired.  The Supreme Court held that retirement benefits are unquestionably a benefit of a contractually enforceable relationship resulting from membership in a pension fund.  Therefore, any reductions or changes that diminished benefits violated article 13, section 5.  The Supreme Court noted that the State essentially conceded that the law diminished pension benefits.

The Supreme Court held that the State’s argument that it could invoke its police power to reduce pensions because the State’s finances were “dire” also failed.  The Supreme Court held that “…departure from the law is impermissible unless justification for that departure is found within the law itself.  Exigent circumstances are not enough.  Neither the legislature nor any executive or judicial officer may disregard the provisions of the constitution even in case of a great emergency.”

The Supreme Court also rejected the State’s argument that it had the authority to modify or invalidate contracts when necessary to secure the State’s fiscal health and its citizens’ general welfare.  The Supreme Court noted that increased judicial scrutiny is required when the State wants to invalidate a contract to which it is a party.  Additionally, the Supreme Court held that impairment was not necessary to advance an important public purpose because the State created the financial problem by not properly funding pensions.  “The General Assembly may find itself in crisis, but it is a crisis which other public pension funds managed to avoid and, as reflected in the SEC order, it is a crisis for which the General Assembly itself is largely responsible.”  Additionally, the Supreme Court rejected the State’s argument that it could not select less drastic means of addressing the pension funding crisis. The Supreme Court instead described the law as an “expedient to break a political stalemate.”  The Supreme Court also noted that article XIII, section 5 does not contain “reservation of authority” language that allows the State to utilize its police powers to diminish or impair benefits.  However, such language is found in other State constitutional provisions.

The Supreme Court held that “accepting the State’s position that reducing retirement benefits is justified by economic circumstances would require that we allow the legislature to do the very thing the pension protection clause was designed to prevent it from doing. Article XIII, section 5 would be rendered a nullity.” Ultimately, the Supreme Court held that the sovereign and supreme power resides in the people.  The people approved the constitutional provision and the General Assembly does not possess sovereign power, let alone the sovereign power to exceed the constraints imposed by the constitution.   The Supreme Court held that if it accepted the State’s arguments, the State could create the very emergency conditions used to justify its suspension of the rights conferred and protected by the constitution.

Finally, the Supreme Court held that none of the provisions of the law were severable and that the entire law must be held unconstitutional.  Therefore, the funding mandate also failed.