Pisani v. City of Springfield, 4-16-0417

• Decision Date: 03 March 2017
• Docket Number: NO. 4-16-0417,4-16-0417
• Parties: Josephine ‘Jody’ PISANI, on Behalf of Herself and a Class of Persons Similarly Situated; International Brotherhood of Electrical Workers Local 193; International Union of Painters & Allied Trades Council 58; International Association of Machinists & Aerospace Workers District 9; Carpenters Local 270; and Plumbers, Steamfitters & Refrigeration Fitters Local 137, Plaintiffs, v. The CITY OF SPRINGFIELD, Defendant-Appellee (Josephine ‘Jody’ Pisani, on Behalf of Herself and a Class of Persons Similarly Situated; and International Brotherhood of Electrical Workers Local 193, Plaintiffs-Appellants).
• Court: United States Appellate Court of Illinois

2017 IL App (4th) 160417

73 N.E.3d 129

Josephine ‘Jody’ PISANI, on Behalf of Herself and a Class of Persons Similarly Situated; International Brotherhood of Electrical Workers Local 193; International Union of Painters & Allied Trades Council 58; International Association of Machinists & Aerospace Workers District 9; Carpenters Local 270; and Plumbers, Steamfitters & Refrigeration Fitters Local 137, Plaintiffs,

v.The CITY OF SPRINGFIELD, Defendant-Appellee (Josephine ‘Jody’ Pisani, on Behalf of Herself and a Class of Persons Similarly Situated; and International Brotherhood of Electrical Workers Local 193, Plaintiffs-Appellants).

NO. 4-16-0417

Appellate Court of Illinois, Fourth District.

March 3, 2017

Donald M. Craven (argued), of Donald M. Craven, P.C., of Springfield, for appellants.

James K. Zerkle (argued) and Nathan E. Rice, Corporation Counsel, of Springfield, for appellee.

OPINION

JUSTICE APPLETON delivered the judgment of the court, with opinion.

¶ 1 Plaintiffs are Josephine "Jody" Pisani and her union, the International Brotherhood of Electrical Workers Local 193. Defendant is the City of Springfield, Illinois. Pisani sues on behalf of herself and a class of defendant's employees who (1) are participants in the Illinois Municipal Retirement Fund (Fund) and (2) refrained from taking advantage of a vacation buyback provision in defendant's code of ordinances before the city council passed an amendment, in 2015, that repealed the provision.

¶ 2 Before its repeal, the provision allowed defendant's employees to cash in their unused vacation days several months before their retirement. The lump sum boosted their final rate of earnings, thereby boosting the amount of their retirement annuity, payable out of the Fund. Plaintiffs claimed that the elimination of this pension-spiking opportunity violated the pension protection clause (Ill. Const. 1970, art. XIII, § 5 ) and the contracts clause (Ill. Const. 1970, art. I, § 16 ). They sought a declaratory judgment to that effect as well as an injunction against the enforcement of the 2015 amendment.

¶ 3 The parties filed cross-motions for summary judgment. The trial court granted defendant's motion and denied plaintiffs' motion. Plaintiffs appeal.

¶ 4 We conclude that the trial court's rulings are correct because, instead of modifying the pension contract itself, the 2015 amendment to defendant's code of ordinances changed a vacation day policy—a change that had only an incidental, indirect effect on pension benefits. Changes in the terms and conditions of employment that indirectly affect the amount of a pension by affecting a number that is plugged into the pension formula are not "diminish[ments] or impair[ments]" of pension benefits, within the meaning of the pension protection clause. Ill. Const. 1970, art. XIII, § 5.

¶ 5 Did the amendment, however, violate the contracts clause? In their brief, plaintiffs do not explain why that clause would call for a different result. They argue only the pension protection clause, as if their theory of a violation of the contracts clause were redundant and added nothing. Therefore, our conclusion as to the pension protection clause disposes of both counts of the complaint, and we affirm the trial court's judgment.

¶ 6 I. BACKGROUND

¶ 7 In article 7 of the Illinois Pension Code (40 ILCS 5/7-101 et seq. (West 2014)), the General Assembly created the Fund, a statewide public-pension system, which is governed by a board of eight members (Board) (40 ILCS 5/7-174(a) (West 2014)). Defendant participates in the Fund. Participating municipalities and their participating employees contribute to the Fund (40 ILCS 5/7-172, 7-173 (West 2014)), and out of the invested contributions, the Board pays annuities and other benefits (40 ILCS 5/7-195 (West 2014) ).

¶ 8 Annuities are payable "during the life of the annuitant" (40 ILCS 5/7-119 (West 2014) ), and the amount of the annuity depends on what the employee's earnings were, among other factors. (Length of service is another factor.) Take the retirement annuity as an example. Section 7-142(a)(1)(b) of the Pension Code (40 ILCS 5/7-142(a)(1)(b) (West 2014)) provides a formula for calculating the monthly amount of the retirement annuity, and the final rate of earnings is a variable in that formula.

¶ 9 "Earnings" and "final rate of earnings" are variables, having no fixed numerical value in article 7 of the Pension Code. They have fixed meanings (40 ILCS 5/7-114, 7-116 (West 2012)) but no fixed numerical value—variables are variable. (Sometimes, in this opinion, we will cite the 2012 edition of the Illinois Compiled Statutes instead of the current, 2014 edition. The reason is that certain sections of article 7 as they appear in the 2014 edition include language added by Public Act 98-599, § 15 (eff. June 1, 2014), which the supreme court struck down, in its entirety, in In re Pension Reform Litigation , 2015 IL 118585, ¶ 96, 392 Ill.Dec. 1, 32 N.E.3d 1. Enacting an unconstitutional amendment to a statute leaves the statute as it was before the amendment—in this case, as it was in the 2012 edition of the Illinois Compiled Statutes. See People v. Gersch , 135 Ill.2d 384, 390, 142 Ill.Dec. 767, 553 N.E.2d 281 (1990).) Section 7-114(a)(1) of the Pension Code defines " ‘[e]arnings' " as "[t]he total amount of money paid to an employee for personal services or official duties as an employee * * *, including compensation, fees, allowances, or other emolument paid for official duties." 40 ILCS 5/7-114 (West 2012). In its amicus curiae brief, the Board tells us it has passed a resolution stating that money for unused vacation days meets the statutory definition of earnings. The Board, however, does not provide us a copy of this resolution, nor can we find this resolution on the Board's website. It does not matter, because the parties appear to agree that money for unused vacation days meets the statutory definition of " ‘[e]arnings.’ " Id.¶ 10 The definition of " ‘[e]arnings' " remains the same regardless of the type of benefit. Id. The definition of " ‘[f]inal rate of earnings,’ " by contrast, depends on the type of benefit. 40 ILCS 5/7-116(a), (b), (c) (West 2012). Again, we will use the retirement annuity as our example. For purposes of a retirement annuity, the " ‘[f]inal rate of earnings' " is "the monthly earnings obtained by dividing the total earnings received by the employee during the period of either (1) the 48 consecutive months of service within the last 120 months of service in which his total earnings were the highest or (2) the employee's total period of service, by the number of months of service in such period." 40 ILCS 5/7-116(a) (West 2012).

¶ 11 This definition of the " ‘[f]inal rate of earnings' " opens the door to a strategy known as "pension spiking." The Board explains:

"Generally speaking, the amount of a [Fund] retiree's pension is based upon the highest [4] years of their last [10] years of [Fund] employment (the ‘final rate of earnings'), and this typically is an employee's final [4] years of [Fund] employment. Pension spiking occurs when payouts are made in excess of a person's normal salary progression up to this period. Lump-sum payments made during the final[-]rate[-]of[-]earnings period are a common cause of pension spiking."

Such a lump-sum payment could be in the form of money for unused vacation days. In any event, regardless of what the lump sum is for, the objective is to make the final rate of earnings artificially large, so as to increase the amount of the annuity.

¶ 12 Because pension spiking, to quote the Board, "is likely one of the many causes of the serious underfunding problem * * * in Illinois," the General Assembly has passed laws that are calculated to prevent pension spiking. One such law is the 125% rule, which dates from January 1, 1964 (1963 Ill. Laws 2337). The 125% rule provides:

"(d) In computing the final rate of earnings: * * * (5) the earnings to be considered for each of the final three months of the final earnings period for persons who first became participants before January 1, 2012[,] and the earnings to be considered for each of the final 24 months for participants who first become participants on or after January 1, 2012[,] shall not exceed 125% of the highest earnings of any other month in the final earnings period * * *." 40 ILCS 5/7-116(d)(5) (West 2012).

For illustration, assume that an employee hired before January 2012 intends to retire at the end of December 2018. If, during the final three months of employment (October, November, and December 2018), the employee cashes in, say, 200 unused vacation days, the resulting artificially high earnings will be ignored, for purposes of the final rate of earnings, to the extent they exceed 125% of the employee's highest earnings in any other month during the final earnings period (the highest consecutive 48 months in the last 10 years). See id.

¶ 13 On September 30, 2003, defendant passed an ordinance that made possible an end run around the 125% rule. Springfield Code of Ordinances § 36.58(b)(13) (added Sept. 30, 2003). This ordinance, which we will call "the 2003 ordinance," allowed employees to collect a "lump[-]sum vacation buy back payment" before the final three months of the final earnings period:

"(13) Payment option at [Fund] Retirement : In lieu of a lump sum payment of accumulated vacation leave at the time of termination and upon [defendant's] receipt of an employee's written statement of intent to retire pursuant to [Fund] eligibility, either regular retirement or early retirement, an employee who provides at least four months advance written notice to [defendant] of the date the employee intends to retire may elect to receive a lump sum vacation buy back payment on the last paycheck in the month following the date of the written notice of intent to retire. The amount paid shall be based on the employee's current salary at the time of the payment." Id .

Thus, on August 31, 2008, for example,...