Appeal from Circuit Court of Sangamon County. No. 92MR15. Honorable Leo J. Zappa, Judge Presiding.
Released for Publication July 25, 1994. As Corrected September 6, 1994. Petition for Leave to Appeal Denied October 6, 1994.
Honorable James A. Knecht, J., Honorable Robert W. Cook, J., Honorable Frederick S. Green, J.
The opinion of the court was delivered by: Knecht
JUSTICE KNECHT delivered the opinion of the court:
Plaintiffs, Neil MacGregor, Robert Procunier, Richard Short and Richard Carrabine, brought this action under the Administrative Review Law (Ill. Rev. Stat. 1991, ch. 110, par. 3-101 et seq.) in the circuit court of Sangamon County to review a decision of the defendant, Board of Trustees of the Teachers' Retirement System of the State of Illinois, denying them earnings credit under the Illinois Teachers' Retirement System for contributions made to trust accounts by their employers known as "rabbi trusts." The decision of defendant was affirmed by the circuit court. We also affirm.
Plaintiffs, at the time their rabbi trusts were established, were school administrators and contributing members of the Teachers' Retirement System of the State of Illinois (TRS). TRS is a statewide pension plan for public school teachers and administrators outsidethe City of Chicago governed by the provisions of articles 1 and 16 of the Illinois Pension Code (Pension Code). Ill. Rev. Stat. 1991, ch. 108 1/2, pars. 1-101 et seq., 16-101 et seq.
Each of the plaintiffs was the beneficiary of a rabbi trust set up for them in 1988 their respective school districts, intending to defer a portion of their compensation. Rabbi trusts are trusts set up in an employee's name to which an employer makes an annual contribution for the benefit of the employee. Features of the trust include:
(1) contributions to the trust are not income currently taxable to the employee;
(2) interest accruing to the trust is not income currently taxable to the employee;
(3) assets in the trust are available only for eventual distribution to the employee except they are treated as assets of the employer and can be reached by the employer's creditors in case of insolvency; and
(4) assets are income taxable to the employee upon distribution to him.
Additionally, receipt of the compensation in plaintiffs' trusts is contingent on the future performance by them of "substantial services."
Whether contributions made to a given rabbi trust are eligible for tax deferral is a determination ultimately made by the Internal Revenue Service. In the instant case, TRS accepts for purposes of appeal the contributions made to plaintiffs' trusts are tax-deferred.
The school districts employing plaintiffs began reporting their contributions to the plaintiffs' rabbi trusts to TRS as creditable earnings for pension purposes in 1988. In 1990 plaintiffs discovered the TRS staff was not allowing such contributions to be reported as earnings for purposes of pension credit. Plaintiffs requested an administrative review by the defendant of the staff decision. Defendant held a hearing and on December 18, 1991, issued its written decision denying creditable earnings treatment to plaintiffs' rabbi trust contributions. Plaintiffs maintain defendant's denial of creditable earnings treatment for their rabbi trust contributions represents a departure from the clear and unambiguous language of article 16 of the Pension ...