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Mattis v. State Universities Retirement System

May 20, 2004

[5] BRIAN MATTIS, INDIV. AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, APPELLEE AND CROSS-APPELLANT,
v.
THE STATE UNIVERSITIES RETIREMENT SYSTEM ET AL., APPELLANTS AND CROSS-APPELLEES.



[6] The opinion of the court was delivered by: Chief Justice McMORROW

[7]  Docket Nos. 96012, 96114 cons.-Agenda 15-November 2003.

[8]  On February 16, 1995, appellee Brian Mattis, a retired law professor, brought suit in the circuit court of Champaign County against the State Universities Retirement System (SURS) and the members of the SURS executive committee: William Norwood, Emil Haeflinger and Stanley Rives. Count I of Mattis' complaint sought administrative review of the executive committee's denial of Mattis' administrative claim against SURS. In this claim, Mattis had argued that, following his retirement from his position as a law professor at Southern Illinois University (SIU) in 1994, SURS calculated his retirement annuity based on an incorrect interpretation of certain provisions of article 15 of the Illinois Pension Code (40 ILCS 5/15-101 et seq. (West 1992)). According to Mattis, because of SURS's misconstruction of the statute, his retirement benefits were considerably lower than they should have been. Mattis asked SURS to rectify the situation, but SURS declined, maintaining that its interpretation of the statute was correct.

[9]  The remaining counts of Mattis' complaint were based on this same alleged misinterpretation of the statute. In these counts, Mattis sought common law and civil rights relief not only on his own behalf but also on behalf of a purported class of similarly situated individuals.

[10]   The circuit court dismissed all counts in Mattis' complaint other than the administrative review claim (count I). Subsequently, the court granted summary judgment in favor of defendants on count I, finding that SURS's administrative "decision is not against the manifest weight of the evidence and is not contrary to law." Mattis appealed, and the appellate court reversed, holding that SURS misconstrued the statute. Mattis v. State Universities Retirement System, 296 Ill. App. 3d 675 (1998). In addition to reversing the circuit court's judgment on count I, the appellate court also reversed the dismissal of four other counts in Mattis' complaint. Following remand to the circuit court, the relevant provisions of the Pension Code were amended by the legislature. These amendments, which took effect on July 6, 2000, supported SURS's interpretation of the statute. The circuit court declared the amendments unconstitutional, and remanded to SURS "for a recalculation of plaintiff's pension benefits consistent with the language of the Mattis Appellate Court opinion." The circuit court ultimately ruled in favor of Mattis on his administrative claim against SURS. The court also awarded Mattis attorney fees and expenses. However, the remaining counts in Mattis' third amended complaint were dismissed.

[11]   Given the circuit court's invalidation of the Pension Code amendments, defendants appealed directly to this court. 134 Ill. 2d R. 302(a). Defendants' appeal was docketed in this court as cause No. 96012. Mattis appealed to the appellate court. Upon motion by defendants, Mattis' appeal was transferred to this court and consolidated with defendants' appeal. Mattis' appeal was docketed as cause No. 96114.

[12]   BACKGROUND

[13]   On June 17, 1993, Mattis elected to retire from SIU under the early retirement provisions of section 15-136.2 of the Pension Code (40 ILCS 5/15-136.2 (West 1992)). Mattis' retirement began on May 15, 1994, when he was 55 years and 8 months old. If he had retired at this point without electing the early retirement option (ERO), his retirement annuity under Rules 1 and 3 of section 15-136 of the Pension Code would have been reduced by ½ of 1% for each month that he was under age 60. 40 ILCS 5/15-136(b) (West 1992). However, under section 136.2, which is titled "Early retirement without discount," Mattis could "avoid the early retirement reduction in retirement annuity specified under subsection (b) of Section 15-136" if, at the time of his application for retirement, he elected "to make a one time employee contribution to the System." 40 ILCS 5/15-136.2 (West 1992). The amount of this employee contribution was equal to 7% of the employee's highest annual salary multiplied by the number of years the employee was less than age 60. Section 15-136.2 also provided that if an employee elected to make an ERO contribution to the system, the employer was obligated to make a lump sum contribution to the system. The amount of the employer contribution was equal to 20% of the employee's highest annual salary multiplied by the number of years the employee was under 60.

[14]   Under a temporary amendment to the ERO provisions of section 15-136.2 in effect from July 1, 1993, to June 30, 1994, Mattis did not make an employee ERO contribution, as would normally have been required. Instead, Mattis' employer, SIU, made both the employee and employer contributions under section 15-136.2. SIU's one-time, lump sum payment to SURS totaled $122,928.60.

[15]   Section 15-136(a) of the Pension Code sets forth four formulas, or rules, by which the amount of a participant's retirement annuity is determined. The statute provides that "[t]he amount of the retirement annuity shall be determined by whichever of the following rules is applicable and provides the largest annuity." 40 ILCS 5/15-136(a) (West 1992). In the case at bar, the parties agree that only Rules 1 and 2 are relevant. Under Rule 1, the retirement annuity is calculated based on the number of years of service and the final rate of earnings. As noted, if a participant retires before age 60 without electing the ERO, the annuity calculated under Rule 1 is reduced by ½ of 1% for each month the participant is under age 60. Under Rule 2, the calculation is based on the participant's contributions, rather than on years of service and rate of earnings. Because the Rule 2 calculation is based on contributions rather than years of service, there is no discount for early retirement under Rule 2 as there is with Rule 1.

[16]   SURS calculated Mattis' retirement annuity under both Rule 1 and Rule 2. Under Rule 1, with the SIU lump sum payment taken into account, SURS determined that Mattis' annuity was $2,815.98 per month. Without the SIU payment taken into account, Mattis' annuity under Rule 1 would have been $2,097.91 a month. The difference is attributable to the early retirement discount, which Mattis avoided by electing the section 15-136.2 ERO. Under Rule 2, SURS determined that Mattis' annuity was $2,586.37 per month. In making this calculation, SURS did not take the one-time SIU payment into account. Because Mattis' annuity as calculated under Rule 1 was greater than the annuity under Rule 2, SURS began paying the Rule 1 annuity amount to Mattis upon his retirement on May 15, 1994. The first payment was made on June 1, 1994.

[17]   Mattis objected to SURS's calculations, arguing that SIU's lump sum payment of $122,928.60 should have been taken into account in determining his Rule 2 annuity amount. According to Mattis, if this had been done, his Rule 2 annuity would have been approximately $3,500 per month. Because this amount was greater than the $2,815.98 monthly annuity calculated by SURS under Rule 1, Mattis argued that it was this Rule 2 annuity amount that should have been paid to him.

[18]   On August 29, 1994, Mattis presented his claim before a hearing of the SURS claims committee. The committee recommended that Mattis' claim be denied and that his retirement annuity remain at the amount calculated under Rule 1. In its findings and conclusions, the claims committee noted that the Rule 2 formula is based on "accumulated normal contributions" (40 ILCS 5/15-136(a)(i), (a)(ii) (West 1992)), and the committee questioned whether the legislature "considered a payment such as the $122,929.00 paid by Southern Illinois University under Section 5/15-136.2 [sic] to be an `accumulated normal contribution' which must be included in calculating [Mattis'] retirement annuity under the money purchase formula [Rule 2]." The committee pointed to the definition of "normal contributions" in section 15-114, noting that this definition "stated that normal contributions are `specified under Section 15-157.' " The committee noted further that section 15-157, which is titled "Employee contributions," deals only with employee contributions and "does not include contributions made by the employer."

[19]   The committee saw "no indication that one[-]time employer contributions under Section 136.2 are to be considered normal contributions." Accordingly, the committee concluded that "the Legislature did not intend to define Section 136.2 one[-] time early retirement contributions as `normal' contributions such that they could be used in calculating a retirement annuity under the money purchase formula (40 ILCS 5/15-136(a) Rule 2)." The claims committee's recommendation to deny Mattis' claim was forwarded to the SURS board of trustees executive committee, which consisted of William Norwood, Emil Haeflinger, and Stanley Rives, the three individual defendants named in Mattis' initial complaint in the case at bar. The executive committee affirmed the claims committee's recommendation. This decision was forwarded to Mattis on January 13, 1995.

[20]   On February 16, 1995, Mattis filed his complaint in the circuit court of Champaign County against SURS and the individual members of the executive committee. As noted, in count I of the six-count complaint, Mattis sought administrative review of SURS's denial of his claim. The remaining counts were brought on Mattis' own behalf and on behalf of all those similarly situated. Counts II through V were common law claims brought under the circuit court's original jurisdiction, and count VI was a civil rights claim under 42 U.S.C. §1983, also brought under the court's original jurisdiction. All of the claims challenged SURS's refusal to include the ERO payment in calculating the Rule 2 annuity amount.

[21]   The parties filed briefs on the statutory interpretation question, which the circuit court considered "the ultimate issue in the case." The court found in favor of defendants on this question, concluding that ERO payments were not to be taken into account in making Rule 2 calculations. Mattis was allowed to amend his complaint to state additional facts and add equal protection claims to counts I, II and IV. He also added count VII, a claim for economic duress.

[22]   On April 29, 1996, the circuit court allowed count I to stand. However, based in part on the court's previous resolution of the statutory interpretation question, the remaining counts were dismissed. On August 6, 1997, the circuit court denied Mattis' motion for judgment on the pleadings and granted defendants' motion for summary judgment on count I. The court confirmed SURS's decision on the administrative review claim, stating that "the agency's decision is not against the manifest weight of the evidence and is not contrary to law."

[23]   On appeal, the appellate court reversed. Mattis, 296 Ill. App. 3d 675. With regard to count I, the court concluded that SURS's interpretation of the Pension Code provisions was incorrect and that the one-time ERO contribution from the employer had to be taken into account when calculating a retirement annuity under Rule 2. According to the appellate court, if the ERO contribution were not taken into account, SIU's $122,000 contribution would be as much as $90,000 in excess of what SURS needed to fund Mattis' pension under Rule 1. The question, the court asserted, was "what should be done with excess funds after the one-time contribution has been made." (Emphasis in original.) Mattis, 296 Ill. App. 3d at 681. The court stated:

[24]  
"Did the legislature intend all contributions on plaintiff's behalf under the early retirement statute be attributed to the plaintiff's retirement? On the other hand, did the legislature intend any excess funds be used to fund the System?" Mattis, 296 Ill. App. 3d at 681.

[25]   To answer this question, the court focused in particular on section 15-185 of the Pension Code (40 ILCS 5/15-185 (West 1992)), which deals essentially with protecting a participant's retirement benefits from creditors. The first sentence of section 15-185 states: "The accumulated employee and employer contributions shall be held in trust for each participant and annuitant, and this trust shall be treated as a spendthrift trust." (Emphasis added.) 40 ILCS 5/15-185 (West 1992). The court interpreted this statement as evidence that the legislature intended any excess funds to be used for the participant's retirement and not to fund the system. The court stated:

[26]  
"The existence of section 15-185, requiring employer contributions be held in trust for each annuitant, coupled with the absence of any statutory authority permitting the System to use the funds for its own purpose, mandates all of the funds contributed on plaintiff's behalf pursuant to the ERO be used for plaintiff's benefit. To do so in this case requires the computation of plaintiff's retirement annuity according to the formula in Rule 2." Mattis, 296 Ill. App. 3d at 682.

[27]   With regard to the remaining counts in Mattis' complaint, the court concluded that two of them had been abandoned, and the court reversed the dismissal of the four remaining counts. The cause was remanded to the circuit court.

[28]   Defendants sought review of the appellate court decision in this court, but their petition for leave to appeal was denied. Mattis v. State Universities Retirement System, 179 Ill. 2d 587 (1998) (order). The cause was returned to the circuit court for further proceedings.

[29]   On October 8, 1999, the circuit court granted Mattis' motion for class certification. The court certified a class consisting of all persons who elected to retire under section 15-136.2 through February 1, 2000. The court later modified the class definition to move the end date of the class to November 1, 2001.

[30]   On December 13, 1999, Mattis filed his third amended complaint. Counts I and II were brought by Mattis individually, and the remaining counts were brought on Mattis' own behalf and on behalf of the class. As was the case previously, count I sought administrative review of SURS's decision regarding the calculation of Mattis' retirement annuity. Count II was for economic duress. Counts III and IV sought an accounting and a constructive trust, respectively, and count VI was for restitution and quasi contract. Count V, which was subsequently amended, was a civil rights claim under 42 U.S.C. §1983. All of the counts were based on SURS's alleged misinterpretation of the statute and SURS's alleged miscalculation of retirement annuities.

[31]   While the case was going forward in the circuit court, Public Act 91-887 was enacted by the General Assembly and signed into law by the Governor. Sections 20, 25 and 90 of Public Act 91-887, which took effect on July 6, 2000, are relevant to the case at bar. Section 20 amended sections 15-136, 15-136.2, and 15-185 of the Pension Code to reflect SURS's interpretation of these provisions, i.e., that ERO payments are not to be taken into account when calculating retirement annuities under Rule 2. Section 20 amended Rule 2 of section 15-136(a) to state:

[32]  
"The amount of a retirement annuity calculated under this Rule 2 shall be computed solely on the basis of the participant's accumulated normal contributions, as specified in this Rule and defined in Section 15-116. Neither an employee or employer contribution for early retirement under Section 15-136.2 nor any other employer contribution shall be used in the calculation of the amount of a retirement annuity under this Rule 2." Pub. Act 91-887, §20, eff. July 6, 2000.

[33]   Section 15-136.2 *fn1 of the Pension Code was amended in a similar fashion to make the same point:

[34]  
"Employee and employer contributions under this Section shall be used only to eliminate the reduction for early retirement under Rules 1 and 3 of Section 15-136 and shall not be used in calculating annuities under Rules 2 or 4 set forth in Section 15-136." Pub. Act 91-887, §25, eff. July 6, 2000.

[35]   In addition, section 15-185 of the Pension Code was amended to state:

[36]  
"This Section is not intended to, and does not, affect the calculation of any benefits under this Article or dictate how or to what extent employee or employer contributions are to be taken into account in ...

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