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Kerner v. State Employees' Retirement Sys.





APPEAL from the Circuit Court of Sangamon County; the Hon. PAUL C. VERTICCHIO, Judge, presiding.


This appeal involves the State pension rights of the late Otto Kerner, one-time governor of Illinois.

The essential facts are not in serious dispute. On September 28, 1965, Otto Kerner (herein for convenience referred to as "Kerner"), then Governor of Illinois, applied for membership in the State Employees' Retirement System (herein "System"). Under an option then existing, Kerner paid into the System $11,048.34, which included 4% compound interest, and obtained service credits retroactively to the date of his taking office, viz., January 9, 1961.

On May 19, 1968, Kerner resigned as Governor to become a judge of the United States Court of Appeals for the Seventh Circuit, and on May 2, 1969, applied for a retirement allowance. On June 16, 1969, the System granted the allowance retroactively to January 19, 1969, by paying $1,534.88, and thereafter monthly allowances of $335.08 each, through June 1973. At the time of the initial payment Kerner was notified that his contributions to the System, excluding interest, totaled $16,815.71. Payments were stopped commencing with the month of July 1973; three additional payments were made at various times thereafter, and Kerner's total payments from the System are agreed to be $18,927.82.

Kerner was convicted of one or more felonies under the United States Code in the United States District Court for the Northern District of Illinois, Eastern Division. These convictions were affirmed on appeal. They related to Kerner's service as an employee of the State of Illinois.

On October 3, 1975, Kerner filed a demand with the System for resumption of payments. A hearing was convened before a hearing officer, who rendered his decision on April 26, 1976, recommending such resumption. On May 3 and 5, 1976, the board of trustees of the System reviewed the hearing officer's report, held further hearings and overruled the hearing officer.

Kerner died in May 1976, and his representative filed an administrative review proceeding in the circuit court of Sangamon County, asking in effect that the finding of the System be reversed and Kerner's estate be awarded payments from July 1973, through May 1976, totaling $9,382.24. The circuit court reversed the System and this appeal ensued.

Fundamental and central to the solution of the problem presented is the construction of section 14-199 of the Illinois Pension Code (Ill. Rev. Stat. 1975, ch. 108 1/2, par. 14-199). Equally fundamental is the effect, if any, upon section 14-199 of article XIII, section 5, of the Illinois Constitution of 1970.

The statutory section in question, section 14-199, reads as follows:

"None of the benefits herein provided for shall be paid to any person who is convicted of any felony relating to or arising out of or in connection with his service as an employee.

This section shall not operate to impair any contract or vested right heretofore acquired under any law or laws continued in this Article nor to preclude the right to a refund.

All future entrants entering service subsequent to July 9, 1955 shall be deemed to have consented to the provisions of this section as a condition of coverage." Ill. Rev. Stat. 1975, ch. 108 1/2, par. 14-199.

This provision first appeared in 1955 as paragraph 216.2 of chapter 127, Ill. Rev. Stat., and became effective July 9, 1955. In 1963 the legislature codified various pension plans into what is now chapter 108 1/2, Ill. Rev. Stat., and the section was incorporated therein without change except to add to it the words, "subsequent to July 9, 1955."

• 1 Before proceeding further, we must lay to rest one matter raised in the briefs. Kerner's brief spends a considerable amount of time and space arguing the proposition that a pension is a contractual right, not a bounty. This is conceded by the System. Some early cases, decided when pension plans were much less common than today, contain language which at least look in the direction of bounty or grace-and-favor, alterable at the will of the sovereign. More recent authority has totally rejected such thinking and pensions are now acknowledged to be contractual in nature. (See Peterson v. Board of Trustees (1973), 54 Ill.2d 260, 296 N.E.2d 721.) Kerner's pension was a contract right and ...

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