A state appeals court in Springfield has affirmed cities and
other local governments have the right to modify workers’ employment and
compensation agreements to prevent “pension spiking” without running afoul of
the state constitution’s public worker pension protections.
On March 3, a three-justice panel of the Illinois Fourth
District Appellate Court upheld the ruling of Sangamon County Circuit Judge
Chris Perrin, finding the city of Springfield could constitutionally terminate
a city rule which had allowed workers to boost their pensions by essentially
cashing in unused vacation time a few months before retirement, taking an “end-run”
around state rules designed to prevent the practice.
“… A change in ‘salary’ is not a ‘ ‘diminish[ment] or
impair[ment]’ ‘ of pension benefits within the meaning of the pension
protection clause, even though the change ‘will affect the amount of the
pension,’” justices wrote. “The same
logic applies to a change in the final rate of earnings.”
Justice Thomas R. Appleton authored the court’s opinion,
with justices Lisa Holder White and James A. Knecht concurring.
The case had landed before the Fourth District court after
Perrin had sided with the city in the dispute introduced in Sangamon County
court in 2015.
In that lawsuit, named plaintiffs, Springfield city worker
Jody Pisani and her union, the International Brotherhood of Electrical Workers Local
193, had alleged the city of Springfield had violated the Illinois state
constitution’s so-called pension protection clause by enacting an ordinance
ending a city program allowing retiring city workers to count unpaid vacation
time against the pay that would be used to calculate their retirement pension.
According to court documents, the city had instituted the
program under a 2003 city ordinance intended to encourage certain workers to
take early retirement. In their opinion, the justices said the ordinance was
intended to create an “end run” around the state’s so-called 125 percent rule.
That rule states public employee retirement pensions cannot be calculated on a
value greater than 125 percent of the employee’s final earnings for the final
three months before retirement.
Under the city’s program, however, workers could essentially
cash in their accumulated unused vacation days – potentially worth hundreds of
hours or more of paid time off – “to collect a ‘lump-sum vacation buy back payment’
before the final three months of the final earnings period.”
“The employee’s final rate of earnings would be artificially
inflated, and so would the employee’s retirement annuity, which would be
payable for life,” the justices wrote.
After recognizing the program would cost the city at least
$44 million in “accelerated payments,” city officials moved to end the program
City workers responded with a lawsuit, saying the end of the
program illegally reduced their future pension earnings.
Judge Perrin and the appellate justices, however, said this
assertion did not hold up.
Citing precedent in the 1974 Illinois Supreme Court ruling
in Peters v. City of Springfield, the justices said Perrin rightly found the
pension protection clause – which otherwise prohibits actions by the state to “diminish”
or “impair” public workers’ pensions – does not apply “to a change in the terms
and conditions of employment, even though the change would cause the employee
to receive a smaller pension than he otherwise might have received.”
The pension protection clause is designed to protect the
formula under which worker pensions are calculated, not the amount workers are
paid, the justices said.
“In the present case … there was no change to the Pension
Code,” the justices said. “There was no change to the statutory formula by
which the monthly amount of the retirement annuity was calculated.
“Instead, there was a change to the terms and conditions of
employment, and this change had an incidental, indirect effect on the amount of
the retirement annuity.”
Further, justices said the city was free to eliminate the
vacation time buyback program because the city’s employment contracts with its
workers is not the same as the pension rules, established by the state through
its various retirement funds, such as the Illinois Municipal Retirement Fund,
through which Pisani and other Springfield city workers represented in the action
would receive their pension payments.
“The vacation buyback provision was not a benefit of
membership in the Fund, a pension or retirement system of the State,” justices
wrote. “If it were, all members of the Fund would have had the vacation buyback
option, simply by virtue of being members of the Fund - but they did not.
“Instead, it was uniquely a benefit of being an employee of
defendant, until the 2015 ordinance took that benefit away.”
According to Sangamon County court records, Pisani and the
union were represented in the action by attorney Donald Craven, of Springfield,
while the city was defended by attorney James Zerkle, of Springfield.