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Kraus v. Bd. of Trustees

OPINION FILED MAY 22, 1979.

JOHN KRAUS, PLAINTIFF-APPELLEE,

v.

BOARD OF TRUSTEES OF THE POLICE PENSION FUND OF THE VILLAGE OF NILES, DEFENDANT-APPELLANT.



APPEAL from the Circuit Court of Cook County; the Hon. ARTHUR L. DUNNE, Judge, presiding.

MR. PRESIDING JUSTICE STAMOS DELIVERED THE OPINION OF THE COURT:

Defendant, the Board of Trustees of the Police Pension Fund of the Village of Niles, Illinois (the Board), appeals from the denial of its motion to reconsider an order of the circuit court of Cook County wherein that court reversed a decision of the Board regarding pension benefits payable to John Kraus (plaintiff). The issue is whether the trial court erred in holding that under section 5 of article XIII of the 1970 Illinois Constitution, plaintiff was entitled to receive a pension based on a section of the Pension Code in effect at the time of his entry into the pension system and at the time the constitutional provision became effective, although the section was subsequently repealed and replaced prior to the time plaintiff retired or became eligible to retire.

On June 1, 1956, plaintiff was appointed a patrolman on the police force of Niles, Illinois. On October 1, 1967, plaintiff was placed on disability, at which time he ceased making contributions to the Police Pension Fund and began receiving a disability pension.

On July 7, 1976, plaintiff had reached the age of 50 years and was credited with having served slightly more than 20 years with the police force, consisting of approximately 11 years of active service plus 9 years on disability. Six days later, on July 13, 1976, plaintiff advised the Board of his intent to retire on a regular pension pursuant to section 3-114 of the Illinois Pension Code (Ill. Rev. Stat. 1971, ch. 108 1/2, par. 3-144), which reads, in relevant part, as follows:

"Whenever a policeman becomes physically or mentally disabled to an extent which necessitates the suspension of his duty on, or retirement from, the police force, he shall be paid a pension of 1/2 of the salary attached to his rank on the police force for 1 year immediately prior to the time of suspension of duty or retirement. * * * If the disability continues for a period which, when added to his period of active service equals 20 years, the policeman shall, if he is age 50 and if he elects to then retire from the police force, be paid a regular pension in lieu of such disability pension."

The regular pension in effect then, as now, was equal to one-half of the salary attached to the rank held for 1 year immediately prior to retirement. Ill. Rev. Stat. 1971, ch. 108 1/2, par. 3-111.

Plaintiff contends that pursuant to the foregoing sections, as interpreted in People ex rel. Anastasia v. Civil Service Com. (1973), 10 Ill. App.3d 583, 295 N.E.2d 127, he was entitled to elect to be paid a regular pension, in lieu of his disability pension, equal to one-half of the salary attached to his rank the year preceding his retirement on regular pension.

The Board responds by citing the repeal of section 3-114, accomplished shortly after the decision in Anastasia, and the passage of section 3-116.1, effective October 1, 1973, in its stead. Section 3-116.1 (Ill. Rev. Stat. 1975, ch. 108 1/2, par. 3-116.1) reads, in relevant part, as follows:

"A policeman who completes 20 years of service and is age 50 or more, and who is on the disability pension roll under the foregoing Sections, may, at his option, * * * continue to receive, in lieu of any amounts which otherwise would be payable to him under Section 3-111 of this Article, a retirement pension for the remainder of his life, of 1/2 of the salary attached to his rank on the police force at the date of his retirement on disability. * * *"

The Board contends that this section applies in place of the repealed statute. Under section 3-116.1, plaintiff's regular pension would be equal to one-half of the salary attached to his rank at the date of his retirement on disability pension. Since the salary attached to the rank of patrolman presumably rose during the nearly eight years between the date plaintiff went on disability (October 1, 1967) and the year prior to his retirement on regular pension (July of 1975), plaintiff stands to gain a higher pension under old section 3-114 than under the newer section 3-116.1; hence, the present controversy.

The Board asserts that the legislature has the power, as necessity requires, to enact Pension Code modifications which directly diminish the benefits to be received by pre-existing members of the pension system, so long as they do not affect the rights of those who are already eligible to retire or have retired. The Department of Insurance and its Director, Richard L. Mathias, essentially join in this position as amici curiae.

Plaintiff responds by citing section 5 of article XIII of the 1970 Illinois Constitution, which provides:

"Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."

Plaintiff asserts that under this provision, which became effective July 1, 1971, he acquired a vested right to pension benefits as computed as of the time he became a member of the pension system, or at least as of the effective date of the constitutional provision. Therefore, plaintiff argues, the legislature's subsequent repeal of section 3-114 cannot constitutionally apply to him because it would amount to a diminution or impairment of his benefits.

At this point it is appropriate to note that the term "vesting" may be used in two senses in referring to pension benefits. Vesting in a functional sense refers to a provision in a retirement plan whereby the member's right to a benefit becomes effective upon fulfillment of specified qualifying conditions, such as service for a certain period of time, which right is not forfeited by separation from service prior to the prescribed age for retirement. Vesting in a legal sense, on the other hand, refers to a contractual right to and interest in a pension that may be upheld at law. (See Report of the Illinois Public Employees Pension Laws Commission 102, 166 (1973).) As used herein, the word "vesting" is employed only in its contractual sense.

Resolution of the issues presented requires a brief inquiry into the nature of pension rights under Illinois law prior to the adoption of the pension provision in the Illinois Constitution of 1970. (See generally Cohn, Public Employee Retirement Plans — The Nature of the Employees' Rights, 1968 U. Ill. L.F. 32 (hereinafter Cohn); Comment, Public Employee Pension Rights and the 1970 Illinois Constitution: Does Article XIII, Section 5 Guarantee Increased Protection? 9 J. Mar. J. Prac. & Proc. 440, 440-49 (1976) (hereinafter Comment).) Traditionally, the status of pension rights in Illinois has depended on whether the employee's participation in the pension plan was compulsory or optional. If compulsory, participation in the plan was held to confer no vested or contractual rights. (Bergin v. Board of Trustees (1964), 31 Ill.2d 566, 202 N.E.2d 489; Keegan v. Board of Trustees (1952), 412 Ill. 430, 107 N.E.2d 702.) This stemmed from the somewhat archaic characterization of pension benefits in mandatory plans as mere gratuities, in the "nature of a bounty springing from the appreciation and graciousness of the sovereign * * *." (Blough v. Ekstrom (1957), 14 Ill. App.2d 153, 160, 144 N.E.2d 436; see, e.g., Pecoy v. City of Chicago (1914), 265 Ill. 78, 106 N.E. 435.) The result was that the pension plans could be amended, changed, or repealed as the legislature saw fit (e.g., Bergin v. Board of Trustees (1964), 31 Ill.2d 566, 574, 202 N.E.2d 489), apparently, it has been suggested, even to the extent of terminating or recalling benefits altogether. (Pecoy v. City of Chicago (dicta); Cohn, 1968 U. Ill. L.F. 32, 52.) However, no case that we have found has gone so far and there is some dicta to the contrary. See Londrigan v. Board of Trustees (1972), 7 Ill. App.3d 572, 575, 288 N.E.2d 125 (rights become vested as to payments accrued and payable, even in compulsory plans).

On the other hand, where participation in the pension plan was optional, the plan was characterized as a contractual relationship and the employee's rights to benefits were held to be contractual rights, vested from the time the employee began contributing to the pension fund. (Bardens v. Board of Trustees (1961), 22 Ill.2d 56, 174 N.E.2d 168; Raines v. Board of Trustees (1937), 365 Ill. 610, 7 N.E.2d 489.) Thus, in Bardens, a voluntary participant in a pension plan was held entitled to a pension based on the statute in effect at the time he entered the pension system, rather than the statute as amended prior to his retirement.

Although it has not been without critics (see, e.g., Cohn, 1968 U. Ill. L.F. 32), and although it has not always been maintained with uniform precision, the compulsory-optional distinction has consistently been adhered to whenever the validity of reduction or termination of pension benefits has been challenged in Illinois. (Comment, 9 J. Mar. J. Prac. & Proc. 440, 448 (1976).) Perhaps the greatest test of the tenacity of the distinction was posed in Keegan v. Board of Trustees (1952), 412 Ill. 430, 107 N.E.2d 702, wherein the court was confronted with a plan in which participation was mandatory, but the legislature had declared the annuities and benefits of the plan to be vested rights. The court reaffirmed the traditional rule that rights in compulsory plans were not contractual, decided that the legislature could not have intended to change the rule, and then held that the rights, though vested, remained non-contractual. Thus was created "a vested right * * * in the participant to share in the fund in the manner and on such terms as the legislature may, from time to time, determine best serves ...


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