Appeals court: Cities can cut vacation time buybacks, other programs, to end pension spiking

By Jonathan Bilyk | Mar 3, 2017

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 in 2015.

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. 

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Organizations in this Story

City of Springfield, IL. Donald M. Craven, P.C. Illinois Fourth District Appellate Court Illinois Supreme Court International Brotherhood of Electrical Workers

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