Carmichael v. Laborers' & Retirement Board Employees' Annuity & Benefit Fund of Chicago , 2018 IL 122793 ( 2018 )

2018 IL 122793IN THE
SUPREME COURT
OF
THE STATE OF ILLINOIS
(Docket Nos. 122793, 122822)
ROCHELLE CARMICHAEL et al., Appellees and Cross-Appellants, v. LABORERS’ &
RETIREMENT BOARD EMPLOYEES’ ANNUITY & BENEFIT FUND
OF CHICAGO et al., Cross-Appellees (The State of Illinois ex rel. Lisa
Madigan, Attorney General, Appellant and Cross-Appellee).
Opinion filed November 29, 2018.
JUSTICE THOMAS delivered the judgment of the court, with opinion.
Chief Justice Karmeier and Justices Kilbride, Garman, Burke, Theis, and
Neville concurred in the judgment and opinion.
OPINION
¶1 This case involves challenges to the applicability and constitutionality of Public
Act 97-651 (eff. Jan. 5, 2012), which altered articles 8, 11, and 17 of the Illinois
Pension Code (40 ILCS 5/arts. 8, 11, 17 (West 2012)). The individual plaintiffs are
nine retired or working employees (or in one instance a surviving spouse of a
deceased former employee) of the City of Chicago (City) or Chicago Board of
Education. These individual plaintiffs are all participants 1 in one of three public
pension funds—the Laborers’ and Retirement Board Employees’ Annuity and
Benefit Fund of Chicago (LABF), the Municipal Employees’ Annuity and Benefit
Fund of Chicago (MEABF), and the Public School Teachers’ Pension and
Retirement Fund of Chicago (CTPF). These three public pension funds, along with
their governing boards, are named as defendants (hereinafter also referred to
collectively as the Funds). Additionally three local labor organizations intervened
as union plaintiffs.
¶2 The parties eventually filed cross-motions for summary judgment in the circuit
court of Cook County. Plaintiffs challenged the constitutionality of three reforms in
Public Act 97-651 that modify the calculation of annuities. The Attorney General
appeared on behalf of the State of Illinois and intervened as a defendant to defend
the constitutionality of Public Act 97-651, while the Funds argued against
jurisdictional, declaratory, and equitable claims raised by plaintiffs. In the course of
granting in part and denying in part the competing motions for summary judgment,
the circuit court invalidated two distinct provisions of Public Act 97-651, ruling
that they violated the pension-protection clause of the Illinois Constitution (Ill.
Const. 1970, art. XIII, § 5). 2 The circuit court upheld the constitutionality of the
third reform of Public Act 97-651 challenged by plaintiffs. The parties appealed
directly to this court, and we consolidated the two appeals.
¶3 BACKGROUND
¶4 The Funds calculate pension annuities for their participants through a formula
established by the Illinois Pension Code in articles 8 (governing the MEABF), 11
(governing the LABF), and 17 (governing the CTPF). The inputs for the formula
are derived from the years of service of an employee, dictating the percentage of the
employee salary, multiplied by the highest average annual salary in the last few
years before retirement. See, e.g., 40 ILCS 5/8-138(g-1), 11-134(f-1), 17-116
(West 2010). Participants thus have incentives to serve as public employees for
1
Or, as is the case with one of the plaintiffs, a survivor of a participant.
2
Only one of the two provisions found unconstitutional by the circuit court is at issue in this
appeal.
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long stretches of their careers to obtain the highest percentage and to increase their
salaries to obtain a higher annuity. For decades, members in the three defendant
pension Funds had the right to contribute to the Funds to receive service time for
employment with private unions while on leaves of absence from their public
positions with the City or the Chicago Board of Education. Participants were also
able to apply their higher private union salary to the public annuity calculation.
¶5 Before Public Act 97-651, a teacher participating in the CTPF who wanted to
earn union service credit had to receive a leave of absence from the Chicago Board
of Education to work for a labor organization. Id. § 17-134(4). The teacher was also
required to make the statutory employee contributions to the CTPF based on the
percentage of the teacher’s salary earned from the labor organization. Id. If the
teacher’s union salary exceeded the salary he would have earned in his Chicago
Board of Education position but for the leave of absence, the labor organization
was required to contribute “to the [CTPF] the employer’s normal cost as set by the
[CTPF] Board on the increment.” Id. There was no limitation on when the teacher
had to begin his union leave of absence to earn union service credit.
¶6 The requirements for earning union service credit in the LABF and MEABF
differed somewhat from the CTPF. Before Public Act 97-651, LABF and MEABF
participants could receive credit for “[l]eaves of absence without pay *** during
which a participant is employed full-time by a local labor organization that
represents municipal employees.” Id. § 8-226(c); see also id. § 11-215(c)(3). To do
so, the participant, or the labor organization on the participant’s behalf, had to make
all of the “employee” and “employer” contributions to the Funds. Id. §§ 8-226(c),
11-215(c)(3). Those contributions were “based on his current salary with such
labor organization.” Id. The participant could earn union service credit only if “the
participant does not receive credit in any pension plan established by the local labor
organization based on his employment by the organization.” Id. As in the CTPF,
there was no restriction in the Pension Code regarding when the LABF or MEABF
participant had to begin his leave of absence in order to earn union service credit.
¶7 Following negative press coverage, the General Assembly made a number of
changes to these union service credit benefits, two of which are at issue in this
appeal.
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¶8 First, Public Act 97-651 (Act) (eff. Jan 5, 2012) eliminated a participant’s right
to contribute to the Funds and earn union service credit for a leave of absence
beginning after the effective date of the Act, January 5, 2012. Before the Act, there
was no restriction on when a participant had to begin a leave of absence in order to
contribute to the Funds to earn union service credit.
¶9 Second, the Act amended the LABF and MEABF articles to state that only a
salary paid by one of the defined public employers could be used to calculate the
“highest average annual salary” upon which participants’ pensions were based.
Applicable to LABF, the General Assembly added a new subsection (e) to section
11-217 of the Pension Code to provide as follows: “This Article shall not be
construed to authorize a salary paid by an entity other than an employer, as defined
in Section 11-107, to be used to calculate the highest average annual salary of a
participant. This subsection (e) is a declaration of existing law and shall not be
construed as a new enactment.” 40 ILCS 5/11-217(e) (West 2012). The Act made
an essentially identical amendment applicable to the MEABF. See id. § 8-233(e).
As defined by articles 8 and 11, an “employer” under the Pension Code only
includes public employers such as the City or the Chicago Board of Education. Id.
§§ 8-110, 11-107.
¶ 10 The legislative amendments ended the LABF and MEABF boards’
decades-long practice of calculating pensions using union salaries earned by the
participants on leaves of absence and upon which their contribution to the Funds
were based. In both systems, pensions are generally calculated by multiplying the
participants’ years of service credit by a statutory multiplier (2.4%) and by the
participants’ “highest average annual salary for any 4 consecutive years in the last
10 years of service.” 40 ILCS 5/8-138(g-1), 11-134(f-1) (West 2010); see also id.
§§ 8-138(b), 11-134(a). If a participant’s union salary from a leave of absence
during which he contributed to the Funds for union service credit was among the
highest consecutive 4 years in the last 10 years of service before retirement, the
LABF and MEABF boards calculated that “highest average annual salary” using
the union salary.
¶ 11 The legislature’s purported “clarification” of the law, in adding new
subsections (specifically, sections 8-233(e) and 11-217(e)) to provide that only a
salary paid by a defined public employer could be used to calculate “highest
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average annual salary,” required additional changes to the Pension Code as it
existed before Public Act 97-651. This is because a member on a leave of absence
working for a union in his last years of service before retirement does not earn a
salary from a public employer upon which a pension could be calculated under the
above-noted amendments without more. The void was filled by Public Act
97-651’s amendment to section 8-138(g-1) and section 11-134(f-1) to provide that
“final average salary” be calculated by using the salary before the leave of absence
and adding an adjustment for inflation based on the Consumer Price Index for each
year of the leave of absence. Pub. Act 97-651 (eff. Jan. 5, 2012) (amending 40
ILCS 5/8-138(g-1), 11-134(f-1)).
¶ 12 Thus, under the amendments, when a participant has union service credit, his
pension would not be based upon the salaries he actually earned and upon which he
contributed to one of the Funds in his last 10 years of service. Instead, the pension
would be calculated based on the salaries he earned before the leave of absence
began plus an inflation adjustment. In cases where the participant had been on an
extended leave, these salaries from before the leave of absence began would have
been earned by the participant years or even decades before his actual retirement.
Those pre-leave-of-absence salaries could, therefore, be substantially less than the
union salary the participant earned and upon which he contributed to the fund
immediately before retirement.
¶ 13 Plaintiffs filed a multicount complaint against the Funds, alleging that plaintiffs
worked for the City or Chicago Board of Education for years, or even decades,
before taking leaves of absence to work for their unions to represent their
coworkers in collective bargaining. Counts IA, IIA, and IIIA of plaintiffs’
complaint alleged that the amendments of Public Act 97-651 discussed above
unconstitutionally diminished and impaired their retirement-system benefits in
violation of the pension clause of the Illinois Constitution by (1) taking away the
benefit of earning service credit for a future union leave of absence and (2) taking
away the possibility of using a union salary to calculate “highest average annual
salary.” The complaint also alleged that the amendments violated the contracts and
takings clauses of both the Illinois and United States Constitutions. Unrelated to the
amendments accomplished by Public Act 97-651, plaintiffs also sought a
declaration that language in section 8-226(c)(3) of the Pension Code (40 ILCS
5/8-226(c)(3) (West 2012)), barring union service credit for any participant who
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receives credit in “any pension plan” established by a local labor organization, does
not apply to defined contribution plans.
¶ 14 The Attorney General on behalf of the State of Illinois intervened in the
litigation to defend the constitutionality of the amendments and, joined by the
defendant Funds, moved to dismiss plaintiffs’ constitutional claims. On November
27, 2013, the circuit court entered an order denying defendants’ motion to dismiss,
finding that the right to earn union service credit was a retirement system benefit
protected by the pension clause of the Illinois Constitution even if the participant
had not exercised the option to take a leave of absence and earn union service credit
before the amendments. The circuit court’s order also denied defendants’ motion to
dismiss with respect to the question involving “highest annual salary calculations.”
The State had argued that the amendments did not change the law and insisted that
pre-existing statutory definitions of “salary” had always limited salary to one paid
by a public employer. Rejecting that argument, the circuit court held that the
definitions of “salary” in the Pension Code did not foreclose the use of the local
labor organization salary in the calculation. The court concluded that, before the
Act, the language of the statutes established that the legislature intended that LABF
and MEABF members could calculate a pension based on the union salary that the
participant actually earned during the leave of absence and upon which he
contributed to the Funds. Thus, the Act’s amendments changed the law,
unconstitutionally diminishing plaintiffs’ retirement system benefits.
¶ 15 The State filed a motion to reconsider the circuit court’s rulings of
unconstitutionality. On February 14, 2014, the circuit court denied the State’s
motion to reconsider its rulings with respect to the Act’s amendments that
eliminated the right to earn union service credit for leaves of absence after the
effective date of the Act. In an order entered on September 29, 2014, however, the
circuit court granted the State’s motion to reconsider with regard to the
amendments governing the calculation of “highest average annual salary.” The
court ruled that long-standing definitions of “salary” found in articles 8 and 11 of
the Pension Code that preexisted Public Act 97-651 did indeed limit a “salary” to
one paid by a public employer. Thus, despite decades of application of the statutes
by the LABF and MEABF before the amendments to include the union salary in the
calculation, the circuit court concluded that a highest average annual salary could
not be calculated by using a salary paid by a local labor organization. Accordingly,
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the circuit court dismissed plaintiffs’ claims challenging the “highest annual
average salary” clarification by the legislature.
¶ 16 Following discovery and the filing of a first supplemental complaint by
plaintiffs, the parties filed cross-motions for summary judgment. In a final order
dated July 14, 2017, the circuit court ruled on the parties’ motions. The court
granted summary judgment for plaintiffs on count IA, IIA, and IIIA, which stated
the pension clause challenges to the amendments eliminating the right to earn union
service credit for leaves of absence beginning after the effective date of the Act.
The State appeals directly to this court the judgment for plaintiffs on those counts.
¶ 17 In their supplemental complaint, plaintiffs alleged two new declaratory
judgment counts (counts XIII and XIV) seeking to bar retroactive application of the
amendments so that they would not impact the long-standing interpretation of the
LABF and MEABF to allow use of a union salary in the “highest average annual
salary” calculation. Plaintiffs alleged that, given members’ reasonable detrimental
reliance on the LABF and MEABF boards’ decades-long application of those
statutes, equity required a prospective-only application of the court’s new and
unanticipated interpretation of the Pension Code prohibiting the practice. Plaintiffs
asked the court to declare the Funds’ practice, combined with the participants’
contributions to the Funds based on their union salaries (rather than the lower salary
of their former public jobs), creates enforceable contractual rights that inform the
interpretation and restrict the application of the “highest average annual salary”
rules that are now being said to apply because of the amendments. Plaintiffs also
asked the circuit court to declare that the LABF and MEABF were equitably
estopped from applying the new interpretation based on the amendments to
individuals who were members of the system before the Act. The circuit court
granted summary judgment in favor of defendants on these supplemental counts
XIII and XIV and denied plaintiffs’ cross-motion for summary judgment, finding
that the relief requested was barred by the court’s earlier interpretation of the
“highest average annual salary” rules, despite the Funds’ 20-year practice to the
contrary. The court also rejected plaintiffs’ argument for prospective-only
application. Plaintiffs appeal all of those rulings directly to this court, including the
dismissal of their claims alleging that the change in the law denying a union salary
in the calculation of “highest average annual salary” violated the pension clause of
the Illinois Constitution.
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¶ 18 With respect to plaintiffs’ request for a declaration that section 8-226(c)(3) did
not apply to defined contribution plans, in contrast to defined benefit plans, the
circuit court rejected plaintiffs’ argument and granted summary judgment for the
Funds on this issue (counts X and XII of plaintiffs’ complaint). Section 8-226(c)(3)
provides that a participant may only earn union service credit in the MEABF if “the
participant does not receive credit in any pension plan established by the local labor
organization based on his employment by the organization.” Id. Plaintiffs argued
before the circuit court that in a defined benefit plan, such as the MEABF, a
participant receives a fixed regular payment of a pension based on the participants’
years of service credit and other factors such as salary and age. In a defined
contribution plan, however, the participant is not guaranteed a fixed and regular
pension payment based on years of service. Rather, the participant receives only the
value of contributions and investment returns in his individual account. The circuit
court rejected plaintiffs’ argument, placing great weight on the modifier “any” and
concluding that plaintiffs were “not seeking a mere liberal construction of an
ambiguous provision, but the outright insertion of limiting terms to the otherwise
clear and general phrase ‘any pension plan.’ ”
¶ 19 The State appealed directly to this court pursuant to Illinois Supreme Court
Rule 302(a) (eff. Oct. 4, 2011), seeking reversal of the circuit’s order granting
summary judgment for plaintiffs on counts IA, IIA, and IIIA, which found that the
statutory amendments eliminating the right to earn union service credit for leaves
of absence beginning after the effective date of the amendments violates the
pension clause of the Illinois Constitution. Plaintiffs also sought direct appeal in
this court pursuant to Rule 302(b) (which we granted), seeking review of the circuit
court’s denial of their claims (1) challenging the amendment disallowing the use of
union salary in the calculation of “highest average annual salary” and (2) seeking a
declaration that the “any pension plan” language of section 8-226(c)(3) of the
Pension Code does not include a defined contribution plan. We have consolidated
the parties’ appeals and will address the State’s appeal first.
¶ 20 ANALYSIS
¶ 21 Summary judgment is warranted where there is no genuine issue of material
fact and the moving party is entitled to judgment as a matter of law. 735 ILCS
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5/2-1005(c) (West 2012). By filing cross-motions for summary judgment, the
parties extend an invitation to the court to decide the questions presented as a
matter of law. Nationwide Financial, LP v. Pobuda, 2014 IL 116717, ¶ 24. We
review summary judgment rulings de novo. Bremer v. City of Rockford, 2016 IL
119889, ¶ 20.
¶ 22 I. Elimination of Union Service Credit for Leaves of Absence
¶ 23 Before this court, the State argues that the circuit court erred in finding that the
future ability to earn service credit for private employment in a labor organization
is protected by the pension clause of the Illinois Constitution. According to the
State, the drafters of the constitution and the voters that ratified it could not have
intended to offer constitutional protection to such a benefit where the benefit is not
actually based on public service and does not encourage future public service.
¶ 24 We note that statutes are presumptively constitutional and the party challenging
the validity of a statute bears the burden of rebutting this presumption by
establishing a clear constitutional violation. McElwain v. Office of the Illinois
Secretary of State, 2015 IL 117170, ¶ 14. We will uphold the constitutional validity
of a statute whenever reasonably possible. Id. It is well established, however, that,
where there is any question as to the legislative intent and clarity of the language of
a pension statute, it must be liberally construed in favor of the rights of the
pensioner. Kanerva v. Weems, 2014 IL 115811, ¶ 55. This rule applies “with equal
force” to interpretations of the provisions of the pension protection clause of our
state constitution. Id. Thus, to the extent that there may be any lingering doubt
about the meaning or effect of the provisions at issue in this case, we must resolve
that doubt in favor of the members of this State’s public retirement system. Id.¶ 25 Here, the circuit court held Public Act 97-651 unconstitutional to the extent that
it took away a retirement benefit that the legislature had previously granted—the
right to claim union service credit—in violation of the pension protection clause.
Article XIII, section 5, of the Illinois Constitution sets forth the pension clause as
follows:
“Membership in any pension or retirement system of the State, any unit of
local government or school district, or any agency or instrumentality thereof,
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shall be an enforceable contractual relationship, the benefits of which shall not
be diminished or impaired.” Ill. Const. 1970, art. XIII, § 5.
Under this language, if something qualifies as a benefit of the enforceable
contractual relationship resulting from membership in one of the pension or
retirement systems of any unit of local government or school district of the State,
“ ‘it cannot be diminished or impaired.’ ” In re Pension Reform Litigation, 2015 IL
118585, ¶ 45 (Heaton) (quoting Kanerva, 2014 IL 115811, ¶ 38). This includes all
pension benefits that flow directly from membership. Kanerva, 2014 IL 115811,
¶ 40. The benefits protected by the pension protection clause include those benefits
attendant to membership in the State’s retirement system, such as subsidized health
care, disability and life insurance coverage, and eligibility to receive a retirement
annuity and survivor benefits (see Jones v. Municipal Employees’ Annuity &
Benefit Fund, 2016 IL 119618, ¶ 36; Kanerva, 2014 IL 115811, ¶¶ 39, 41), along
with the right to purchase optional service credit in the state pension system for past
military service (see Buddell v. Board of Trustees, 118 Ill. 2d 99, 105-06 (1987)).
¶ 26 The protections afforded by our constitution to such benefits attach once an
individual begins employment in a position covered by a public retirement system,
not when the employee ultimately retires. Heaton, 2015 IL 118585, ¶ 46.
Therefore, once a person commences to work and becomes a member of a public
retirement system, any subsequent changes to the Pension Code that would
diminish the benefits conferred by membership in the retirement system cannot be
applied to that person. Id. Heaton further emphasized that
“[a]dditional benefits may always be added, of course [citation], and the State
may require additional employee contributions or other consideration in
exchange [citation]. However, once the additional benefits are in place and the
employee continues to work, remains a member of a covered retirement system,
and complies with any qualifications imposed when the additional benefits
were first offered, the additional benefits cannot be unilaterally diminished or
eliminated.” Id. ¶ 46 n.12.
¶ 27 It is undisputed that, when plaintiffs began their employment and became
members of the public pension system, they had the statutory right to count time
spent on leave of absence with their local labor organization in their annuity
calculations. The benefit plaintiffs seek to enforce is their right that existed in the
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Pension Code before the amendments of Public Act 97-651 to purchase, if they so
choose, service credit during a leave of absence in the future to work for a local
union. If that benefit is part of the contractual relationship resulting from
membership in the public retirement system, it is protected by the pension clause
even if the participant had not yet exercised the option before the amendments of
the Act took effect. See Buddell, 118 Ill. 2d at 105-06 (under the pension clause, a
statute creating a new deadline for purchasing military service credit could not be
applied to a current participant who had not yet exercised the option to purchase
service credit by the time of the amendment).
¶ 28 The only real question presented by the State’s appeal, then, is whether the right
to earn service credit on a leave of absence from a public employer to work for a
local labor organization is a “benefit” within the meaning of the pension clause.
The State concedes that a statutory right to union service credit was created but
argues that the right is not one entitled to constitutional protection because the
framers of the constitution did not intend it to be entitled to such protection. In so
arguing, the State merely relies upon the general justification for a public pension
system, which is to reward past public service, to provide a form of compensation
for past public service, and to encourage continued public service.
¶ 29 We find nothing in the case law, in the text of the pension clause, or in the
constitutional debates on the clause that would support the State’s argument that
the particular benefit conferred here is not entitled to protection. Kanerva held that
the text of the pension clause places no limits on the kind of “benefit” that is
protected by the clause so long as the benefit is part of the contractual relationship
“derived from membership” in the retirement system. Kanerva, 2014 IL 115811,
¶¶ 41, 54. The participants at issue here are members of their retirement systems
entirely due to their government employment. Each plaintiff was either working in
his public job when the option to earn union service credit was added as a benefit or
started public employment and joined the retirement system after the benefit was
already in place. The benefit was clearly a “benefit” within the meaning of the
pension clause, and the State’s argument must therefore be rejected.
¶ 30 The State’s contention that the delegates and voters did not intend that the
benefit at issue would be protected by the pension clause is pure speculation and
appears to be manifestly inaccurate, as the right to earn service credit on a leave of
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absence working for a teacher labor organization was one of the retirement system
benefits in the Pension Code for many years prior to and at the time the Illinois
Constitution was debated by the drafters and then ratified by the voters (see Ill.
Rev. Stat. 1969, ch. 108½, ¶ 17-134), just like the right to purchase the past military
service credit involved in Buddell. Thus, it was the public policy of the State at the
time our constitution was adopted to grant a path to such service credit as a benefit
of participation in at least one of the public retirement systems. Similar to a
legislature that is presumed to act with knowledge of all prior legislation, the
drafters of the constitution are presumed to have acted with full knowledge of
existing statutory law and the public policy of this state. Kanerva, 2014 IL 115811,
¶ 41. If the drafters had intended to prevent any benefit related to service credit in
connection with work done for a labor organization while on a leave of absence,
they could have so specified, especially where union service credit was already part
of the existing pension statute to some extent. But they did not. Rather, the drafters
chose “expansive language” that broadly defines the range of benefits
encompassed.
¶ 31 Plaintiffs have offered a public policy rationale for the union-service benefit,
arguing that it encourages public employees who do go to work for their unions to
take a leave of absence rather than quitting their public jobs altogether, thereby
increasing the likelihood that they might return to their public employment.
Plaintiffs also maintain that the benefit furthers the State’s labor relations policies
by promoting experienced public employees familiar with public service contracts
and priorities to serve as management counterparts in collective bargaining. The
State, on the other hand, argues that the benefit in question actually encourages
public servants to discontinue active government employment.
¶ 32 We find that, regardless of the purpose of the benefit and the merits of the
suggested utility of the benefit, it was a matter for the legislature to decide. And, as
Kanerva noted, “[w]e may not rewrite the pension protection clause to include
restrictions and limitations that the drafters did not express and the citizens of
Illinois did not approve.” Id. Accordingly, we hold that the circuit court correctly
determined that Public Act 97-651 was unconstitutional to the extent that it
eliminated as a pension benefit for current participants the ability to earn union
service credit previously bestowed by the legislature.
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¶ 33 II. Calculation of “Highest Average Annual Salary”
¶ 34 We turn now to plaintiffs’ appeal and first address the issue of whether the
amendments of Public Act 97-651 purporting to “clarify” that only public salaries
may be used in calculating the “highest annual average salary” violate the pension
clause of our constitution. Plaintiff’s argument requires this court to construe a
number of provisions of the Pension Code.
¶ 35 We note at the outset that the primary goal in construing a statute is to ascertain
and give effect to the legislature’s intent, and the best indicator of that intent is the
language of the statute itself. Slepicka v. Illinois Department of Public Health, 2014
IL 116927, ¶ 14. But a court will not read language in isolation; it will consider it in
the context of the entire statute. Id. It is also proper to consider not only the
language of the statute but the reason for the law, the problem sought to be
remedied, the goals to be achieved, and the consequences of construing the statute
one way or another. Chicago Teachers Union, Local No. 1 v. Board of Education of
the City of Chicago, 2012 IL 112566, ¶ 15. Additionally, we must presume that the
legislature did not intend to produce absurd, inconvenient, or unjust results. Board
of Education of Springfield School District No. 186 v. Attorney General, 2017 IL
120343, ¶ 25.
¶ 36 A statute is ambiguous if it can fairly be understood by reasonably
well-informed persons in two or more different ways. People ex rel. Birkett v. City
of Chicago, 202 Ill. 2d 36, 46 (2002). Furthermore, whenever there is any question
as to the legislative intent and clarity of the language of a pension statute, it must be
liberally construed in favor of the rights of the pensioners. Kanerva, 2014 IL
115811, ¶ 36.
¶ 37 Before Public Act 97-651 was enacted, both the LABF and the MEABF
calculated pensions based on the participants’ “highest average annual salary for
any 4 consecutive years in the last 10 years of service.” 40 ILCS 5/8-138(g-1),
11-134(f-1) (West 2010); see also id. §§ 8-138(b), 11-134(a). As was the case with
some of the individual plaintiffs in this lawsuit, when a member took a leave of
absence to work for a local union and contributed to the Funds for union service
credit, they may have done so for years and ultimately retired while still on a leave
of absence. In such cases where the salaries earned by the member from the union
job were among his highest 4 consecutive years in the last 10 years of service, the
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LABF and MEABF used those salaries to calculate the “highest average annual
salary.” This was consistent with the provision enacted in 1991, requiring that the
contributions by the participant for union service credit while on leave of absence
be “based on his current salary with such labor organization.” Id. §§ 8-226(c),
11-215(c)(3). Thus, according to the LABF’s and the MEABF’s interpretations, the
salary base for contribution purposes and for pension-calculation purposes was the
same.
¶ 38 Public Act 97-651 eliminated this possibility of using a salary paid to the
member while on leave of absence to work for a union in calculating the “highest
average annual salary” for pension purposes. In that regard, the Act added a new
subsection (e) to both section 8-233 and section 11-217. These subsections now
provide as follows:
“This Article shall not be construed to authorize a salary paid by an entity other
than an employer, as defined in [section 8-110 or section 11-107], to be used to
calculate the highest average annual salary of a participant. This subsection (e)
is a declaration of existing law and shall not be construed as a new enactment.”
40 ILCS 5/8-233(e), 11-217(e) (West 2012).
“Employer,” as defined in sections 8-110 and 11-107 and referred to in subsection
(e) quoted above, is limited to large cities and certain public entities and boards and
does not include local labor organizations. See id. §§ 8-110, 11-107.
¶ 39 Public Act 97-651 also amended section 8-138(g-1) by clarifying the meaning
of highest average annual salary as shown in part in the italicized portion as
follows:
“For purpose of calculating this annuity, ‘final average salary’ means the
highest average annual salary for any 4 consecutive years in the last 10 years of
service. Nothwithstanding [sic] any provision of this subsection to the contrary,
the ‘final average salary’ for a participant that received credit under
subsection (c) of Section 8-226 means the highest average salary for any 4
consecutive years (or any 8 consecutive years if the employee first became a
participant on or after January 1, 2011) in the 10 years immediately prior to
the leave of absence, and adding to that highest average salary, the product of
(i) that highest average salary, (ii) the average percentage increase in the
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Consumer Price Index during each 12-month calendar year for the calendar
years during the participant’s leave of absence, and (iii) the length of the leave
of absence in years, provided that this shall not exceed the participant’s salary
at the local labor organization. For purposes of this Section, the Consumer
Price Index is the Consumer Price Index for All Urban Consumers for all items
published by the United States Department of Labor.” Pub. Act 97-651 (eff.
Jan. 5, 2012) (amending 40 ILCS 5/8-138(g-1)).
The legislature made a similar amendment to the LABF article. See 40 ILCS
5/11-134(f-1) (West 2012).
¶ 40 Plaintiffs argue that the above-quoted amendments changed the law by
eliminating the possibility of using salary paid to a member by a union to calculate
highest average annual salary. Plaintiffs maintain that the changes diminished their
preexisting retirement system benefits by limiting the salary base for their
pensions. They contend that the text of articles 8 and 11 of the Pension Code before
the amendments permitted a union salary to be used in the highest average salary
calculation and that, even if the Pension Code was ambiguous in this respect before
Public Act 97-651, the legislature could not simply declare their amendments to be
a “declaration of existing law” in order to clear up the ambiguity and circumvent
the protection of the pension clause.
¶ 41 In response, the State argues that the amendments of Public Act 97-651 did not
change the meaning of the Pension Code because it always unambiguously
required that the salary to be used for calculating the pension was to be the salary
attached to the government position in which the employee actually worked or
from which he was on leave of absence. To support its argument, the State relies
upon a link between the definitions of “salary,” “present employee,” and
“employer” under the Pension Code. The State first notes the definition of “salary”
in section 8-117 of the Pension Code, which states in relevant part:
“ ‘Salary’: Annual salary of an employee as follows:
***
(b) If appropriated, fixed or arranged on an annual basis, beginning July,
1957, the actual sum payable during the year if the employee worked the full
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normal working time in his position, at the rate of compensation, exclusive of
overtime and final vacation, appropriated or fixed as salary or wages for service
in the position.
(c) If appropriated, fixed or arranged on other than an annual basis,
beginning July 1, 1957, the applicable schedules specified in Sections 8-233
and 8-235 shall be used for conversion of the salary to an annual basis.”
(Emphasis added.) 40 ILCS 5/8-117 (West 2010).
The State further notes that the Pension Code at all times defined “present
employee” as “[a]ny employee of an employer” (id. § 8-114(a)) and the word
“employer” has always referred to certain government entities, such as the City or
the Chicago Board of Education. As did the circuit court, the State also believes the
statutory references to “appropriated” reinforce the notion that the salary for
purposes of the calculation was meant to be the one set by the public employer.
¶ 42 We find the Pension Code prior to the amendments to be ambiguous on the
question of whether the union salary while on leave of absence could be used as a
basis for calculating the pension and find the State’s argument to the contrary to be
unpersuasive. The State places great weight on the definitions of “salary,”
“employee,” and “employer” found in the Pension Code. But it must be kept in
mind that the Pension Code specifically provided that the salary base for pension
purposes was the “highest average annual salary for any consecutive 4 years in the
last 10 years of service.” (Emphasis added.) Id. § 8-138(g-1). Work done on a
union leave of absence is indisputably a “period of service.” Nothing in the statute
before the amendment specifically stated that a union salary paid to an employee
during his last 10 years of service could not be used in the calculation. We do not
deduce a legislative intent with the definition of “salary” in the Pension Code to
define a limited class of payers of a salary. Rather, the purpose of the definition
seems to be to provide directions about such matters as whether overtime could be
included in annual salary and how to convert an hourly wage to an annual salary.
¶ 43 The Pension Code’s definitions of “employee” and “employer” do not clear up
the ambiguity. All the parties to this lawsuit concede that an employee on leave of
absence from his public job retains his status at all times as an employee of his
public employer and continues to be a “participant” for pension purposes. 40 ILCS
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5/8-113(a) (West 2012). The question that was left unanswered was whether the
union salary could be used in the calculation.
¶ 44 We also do not find controlling the legislature’s use of the term “appropriated.”
While that term does suggest a governmental appropriation, the statute also uses the
terms “fixed or arranged,” which are placed in the disjunctive in section 8-117(b)
and could be read consistently with the setting of a salary by a private employer. At
any rate, we note that the meaning ascribed to a term defined in the Pension Code,
such as “salary,” can differ when “the context otherwise requires.” Id. §§ 8-102,
11-217(b). Here, the context requires otherwise. The legislative intent of the
above-noted definitions to set rules for calculating the amount of a salary rather
than to limit the class of payers of a salary is evident in that these provisions have
not been materially changed since the Pension Code was adopted in 1963. It was
not until 1987 that the legislature adopted union service credit in the LABF and
MEABF. In 1963, there was no service credit for any period of union service. The
only salaries the employees would have been earning or upon which they would
have been contributing to the pension fund were government salaries. Four years
after the 1987 amendment allowing union service credit, the legislature made
another amendment, this time to provide that an employee’s union service credit
contributions had to be “based on his current salary with such labor organization.”
40 ILCS 5/8-226(c)(1), (2), 11-215(c)(3)(A), (B) (West 2010). It seems more likely
than not that the legislature intended the salary base for contribution purposes to be
the same as for pension calculation purposes following the 1987 and 1991
amendments, but as noted above, we find the statute to be ambiguous on whether
the legislature intended the union salary to be used in the calculation. It seems that
if it had intended to exclude the union salary from the calculation of the pension
base but not for contribution purposes, it would have clearly stated so at the time of
the 1987 or 1991 amendments.
¶ 45 Moreover, it would arguably create an absurd result to interpret the statutory
scheme as it existed prior to Public Act 97-651 to exclude the union salary from the
calculation of the “highest average annual salary for any 4 consecutive years in the
last 10 years of service.” Id. §§ 8-138(g-1), 11-134(f-1); see also id. §§ 8-138(b),
11-134(a). If before the Act the highest average annual salary could not be
calculated using the union salary the participant was actually earning during his
leave of absence, a conflict with sections 8-138 and 11-134 would arise whenever a
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member retires while on a leave of absence lasting more than six years. In such
cases, members would not have 4 years of (or any) salaries paid by the public entity
in the last 10 years of service from which to calculate a pension. For some
members, such as two of the plaintiffs in this case, limiting the “salary” for the
highest annual salary calculation to a public salary would result in the absurd result
of their having no eligible salaries for calculating their pensions. In construing a
statute, we must presume that the legislature did not intend an absurd result. See
People v. Fort, 2017 IL 118966, ¶ 35.
¶ 46 Given the arguably absurd and unjust result of having no eligible salaries for
calculating the pension, Public Act 97-651 amended sections 8-138(g-1) and
11-134(f-1) to create a new method for calculating the highest average annual
salary only applicable to participants with union service credit. Instead of using
salaries from within the last 10 years of service as with every other LABF and
MEABF member, the statute postamendment now requires that the highest annual
average salary be based on salaries before the leave of absence, no matter how long
ago. The amendments then ameliorate the harshness of not including the union
salary in the calculation by now including an inflation adjustment.
¶ 47 In response to the argument that, under the pre-Public Act 97-651 version of the
law, there might be no salaries to calculate the highest average annual salary if the
union salary could not be used, the State contends that a hypothetical salary should
be used to make the calculation based on what the employee would have earned had
he continued in his public job. The State points to the relevant definition of “salary”
referring to “the actual sum payable during the year if the employee worked the full
normal working time in his position, at the rate of compensation, exclusive of
overtime and final vacation, appropriated or fixed as salary or wages for service in
the position.” 40 ILCS 5/8-117(b), 11-116(a) (West 2010). The State maintains
that, based on this language, the pensionable salary does not have to be tied to an
amount actually received or paid by the public employer.
¶ 48 Again, we find this language to be ambiguous. The “position” referred to in the
portion of the statute noted by the State could just as well refer to a participant’s
position with the union. And again, it also appears that with the use of the word “if”
and the phrase “normal working time in his position,” the legislature was concerned
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with giving directions for assessing the amount of the salary rather than who could
be a payer of a salary.
¶ 49 The State argues that, even if the statutory scheme with respect to whether a
union salary can be considered in the calculation is ambiguous, the legislature
properly clarified that it was always intended to mean the salary for the employee’s
position with the public employer. In support of its stance, the State cites general
case law for the proposition that an amendment may be applied retroactively if its
purpose is to clarify an existing law that is ambiguous.
¶ 50 There are a number of reasons why the State’s argument is faulty and cannot be
applied to the circumstances here. First, the legislative intent that controls the
construction of a public act is the intent of the legislature that passed that act, not
the intent of the legislature that amends the act many years later. O’Casek v.
Children’s Home, 229 Ill. 2d 421, 441-42 (2008). Here, we have already
determined that the language is ambiguous and the legislative intent unclear.
Second, because it was a pension statute that was found to be ambiguous, the rule
applies that, where there is any question as to legislative intent and the clarity of the
language, “it must be liberally construed in favor of the rights of the pensioner.”
Kanerva, 2014 IL 115811, ¶ 55. If the legislature had the power to “clarify” the
intent of an ambiguous pension statute against the rights of the participants, it
would essentially negate the protections of the pension clause and override the
proviso from Kanerva about the court’s duty to liberally construe pension statutes
in favor of the rights of the pensioners.
¶ 51 For the reasons noted, we hold that the ambiguous statutory framework prior to
the amendment of Public Act 97-651 must be construed as allowing the right to use
a union salary from a leave of absence under section 8-226(c) or 11-215(c)(3) to
calculate the highest average annual salary. The amendments effected by Public
Act 97-651 necessarily changed the law and thereby diminished plaintiffs’
retirement system benefits in violation of the pension-protection clause of the
Illinois Constitution. The circuit court therefore erred in granting the State’s motion
to dismiss the counts of plaintiffs’ complaint that raised this issue.
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¶ 52 III. Whether “Any Pension Plan” Includes
a Defined Contribution Plan
¶ 53 Plaintiffs next raise an issue of statutory construction unrelated to the two
constitutional issues resolved above. They argue that the circuit court erred in
denying their motion for summary judgment with respect to counts X and XII of
their complaint, which sought a declaration that the “any pension plan” language of
section 8-226(c)(3) of the Pension Code does not apply to defined contribution
plans. In that regard, section 8-226(c)(3) provides that an MEABF member may
receive service credit for time spent on a leave of absence working for a local labor
organization, provided “the participant does not receive credit in any pension plan
established by the local labor organization based on his employment by the
organization.” 40 ILCS 5/8-226(c)(3) (West 2012). Plaintiffs concede that the
phrase “receive credit in any pension plan” clearly applies to a defined benefit plan
established by a local labor organization, but they contend that the phrase was not
intended to include a defined contribution plan, such as a 401(k) plan. The
difference between the two kinds of plans is significant. Defined benefit plans, such
as the MEABF, provide a fixed, regular payment upon retirement determined by a
formula giving the participant credit for years of service and other factors such as
age and salary. See id. §§ 8-138, 8-226; Jones, 2016 IL 119618, ¶ 4 (“[T]he City
pension funds provide traditional defined benefit plans under which members
receive specified annuities upon retirement generally based upon the member’s
salary, years of service, and age at retirement.”); see also In re Marriage of
Blackston, 258 Ill. App. 3d 401, 402 (1994). By contrast, in a defined contribution
plan the participant is not entitled to any guaranteed, fixed, and regular payments
upon retirement. Instead the participant is entitled only to the accumulated value of
contributions at the time of any withdrawal. 40 ILCS 5/8-138, 8-226 (West 2012).
The way section 8-226(c)(3) is interpreted will have a significant impact for a few
of the plaintiffs in this case who are in jeopardy of losing significant amounts of
service credit in the Funds for having contributed to a defined contribution plan
through their union job while on a leave of absence from their government
employment.
¶ 54 Plaintiffs note that section 8-226(c)(3)’s prohibition only applies if the
participant “receives credit” in a pension plan. Plaintiffs claim that the statute is
referring to receiving service credit based on a period of employment. They
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maintain that this phraseology supports their construction because only in a defined
benefit plan does a participant receive credit for years of service toward a pension.
Bandak v. Eli Lily & Co. Retirement Plan, 587 F.3d 798, 801 (7th Cir. 2009).
Plaintiffs further argue that the purpose of the statute is fulfilled by barring receipt
of service credit in a defined benefit plan but that purpose does not require barring
members from accumulating retirement savings in some other way, such as a
401(k).
¶ 55 The Funds as defendants argue, on the other hand, that the term “any pension
plan” is clear and unambiguous. They point out the expansive nature of the
modifier “any” and rely on the circuit court’s conclusion that “pensions come in all
shapes and sizes, ranging from defined benefit to defined contribution to hybrid
plans in between.” Defendants also disagree with plaintiffs’ contention that the
phrase “receives credit” means credit for years of service based on employment.
According to defendants, “credit” simply means “the balance in an account,” and
thus the word is consistent with a defined contribution plan.
¶ 56 Whether section 8-226(c)(3) applies to defined contribution plans in addition to
defined benefit plans is a question of statutory interpretation. We again note that
our primary objective in construing a statute is to determine the intent of the
legislature, and the most reliable indicator of that intent is the plain and ordinary
meaning of the statute itself. The Pension Code does not define the phrase “pension
plan.” When a statute fails to define a term, it is entirely appropriate to look to the
dictionary to ascertain the meaning of the term. People v. Chapman, 2012 IL
111896, ¶ 24.
¶ 57 Black’s Law Dictionary defined “pension” (at the relevant time when the
statutory section at issue was enacted in 1987) as a “[r]etirement benefit paid
regularly (normally, monthly), with the amount of such based generally on length
of employment and amount of wages or salary of pensioner.” Black’s Law
Dictionary 1021 (5th ed. 1979). It also defined “pension plan” in relevant part as
“[a] plan established and maintained by an employer primarily to provide
systematically for the payment of definitely determinable benefits to his
employees, or their beneficiaries, over a period of years (usually for life) after
retirement. Retirement benefits are measured by, and based on, such factors as
years of service and compensation received by the employees.” Id.- 21 -
¶ 58 Plaintiffs argue that these dictionary definitions are consistent with what a
participant in the Funds would commonly understand a “pension plan” to be. A
person with only a 401(k) defined contribution plan, for example, would not likely
think of himself as having a “pension,” given that the amount to be received upon
retirement is not guaranteed and not “definitely determinable.” Nor is it based on
any factors such as years of service or salary. Instead, he would be much more
likely to think of himself as having a retirement savings plan. Only someone in a
defined benefit plan would be likely to think of himself as having a pension.
¶ 59 The defendant Funds also cite dictionary definitions for “pension” dating to the
time period when the statute was enacted. But those definitions actually support
plaintiffs’ argument that the legislature may have intended only defined benefit
plans, not defined contribution plans, when it used the phrase “any pension plan.”
For example, the Funds cite Webster’s New World Dictionary: Second Concise
Edition (1982), which defines “pension” as “a regular payment, not wages, to one
who has fulfilled certain requirements, as of service, age, disability, etc.” Similarly,
the Funds rely on an online version of a Merriam-Webster dictionary that defines
“pension” as “a fixed sum paid regularly to a person.” Merriam-Webster’s Online
Dictionary, http://www.merriam-webster.com/dictionary/pension (last visited
Nov. 8, 2018) [https://perma.cc/LPG8-9Z6F]. But these definitions speak of a
“fixed sum,” “paid regularly,” based on such factors as “service” and “age,” and
would thus be consistent with a traditional defined benefit plan but not a defined
contribution plan. A defined contribution plan guarantees only the value of the
contributions to the plan that survive the variables of market performance, and
there is no fixed, determinable, guaranteed amount based on service and age. See
In re Marriage of Blackston, 258 Ill. App. 3d at 402.
¶ 60 The only definition that solidly supports the Funds’ broad definition is found in
the federal Employee Retirement Income Security Act of 1974 (ERISA), which
defines a “pension plan” as follows:
“any plan, fund, or program, which was heretofore or is hereafter established or
maintained by an employer or by an employee organization ***
(i) [that] provides retirement income to employees, or
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(ii) results in a deferral of income by employees for periods extending to
the termination of covered employment or beyond,
regardless of the method of calculating contributions made to the plan, the
method of calculating the benefits under the plan or the method of distributing
benefits from the plan.” (Emphases added.) 29 U.S.C. § 1002(2)(A) (2012).
The Funds note that, because this definition of “pension plan” is so broad,
“virtually any contract that provides for some type of deferred compensation will
also establish a de facto pension plan” under ERISA. Modzelewski v. Resolution
Trust Corp., 14 F.3d 1374, 1377 (9th Cir. 1994). The Funds argue that “it is a
stretch” to think that the Illinois General Assembly was not aware of this ERISA
definition when it enacted the language of section 8-226(c)(3) of the Pension Code
in 1987 because the ERISA definition of “pension plan” was firmly in place by
then.
¶ 61 We note that the existence of alternate dictionary definitions of a word or
phrase, each making some sense under the statute, leads to the conclusion that the
term in question is ambiguous. Poris v. Lake Holiday Property Owners Ass’n, 2013
IL 113907, ¶ 50. Here, the broad definition of “pension” found in ERISA contrasts
with the more common understanding of “pension” found in the dictionary
definitions quoted above. The ERISA definition alone is obviously not controlling
of the outcome here where the Pension Code makes no reference to it. Moreover,
the purpose of the ERISA definition of “pension plan” seems to be to have a wide
sweep to protect the expected benefits of plan participants (see Sly v. P.R. Mallory
& Co., 712 F.2d 1209, 1211 (7th Cir. 1983)), while the purpose of section
8-226(c)(3) is to prohibit a member from receiving credit toward a pension for the
same period of time he is receiving credit in a pension of a local labor organization.
But absent from section 8-226(c)(3) is any obvious intent to prohibit an employee
from accumulating retirement savings in some other way, such as a defined
contribution plan account. Assuming that it would be a worthy public policy benefit
at all to allow a union leave of absence like the ones involved in this case, it would
seem that deterring such forms of retirement savings, especially where they might
not involve any employer contributions at all, would be an unlikely public policy.
¶ 62 The Funds focus on the word any in the “any pension plan” language of the
statute. But if a defined benefit plan is a pension plan and a defined contribution
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plan is not a pension plan under the commonly understood meaning of “pension
plan” in 1987 when the provision was enacted, then defendants’ argument must be
rejected. At any rate, to the extent that there are competing definitions of “pension”
or “pension plan,” some that would and some that would not include defined
contribution plans, it means only that the term as used in section 8-226(c)(3) “does
not have a single plain meaning but is ambiguous.” See Landis v. Marc Realty
L.L.C., 235 Ill. 2d 1, 11 (2009).
¶ 63 Because the term “pension plan” in section 8-226(c)(3) is ambiguous in this
respect, it must be liberally construed in favor of the rights of the pensioners so as
to apply to a defined benefit plan only and not to defined contribution plans. See
Kanerva, 2014 IL 115811, ¶ 55. Accordingly, we reverse the circuit court and hold
that the term “receive credit in any pension plan” as used in section 8-226(c)(3)
does not include defined contribution plans.
¶ 64 CONCLUSION
¶ 65 Our resolution of the foregoing issues renders it unnecessary to address the
alternative arguments raised by the parties in their briefs. For the foregoing reasons,
we affirm the circuit court’s judgment granting plaintiffs’ motion for summary
judgment and denying defendants’ cross motions for summary judgment on the
counts of plaintiffs’ complaint raising a pension-clause challenge to the elimination
of the right to earn service credit for a union leave of absence. We find that the
circuit court properly held that, with respect to participants who were already
members on the effective date of Public Act 97-651, the denial of the future ability
to earn service credit on leave of absence for labor organization employment
violated the pension clause of the Illinois Constitution. We reverse the circuit
court’s judgment dismissing the portions of plaintiffs’ complaint that alleged a
violation of the pension clause of the Illinois Constitution related to Public Act
97-651’s change in the law to deny the use of a union salary under section 8-226(c)
or 11-215(c)(3) to calculate the “highest average annual salary.” We also reverse
the circuit court’s rulings on the parties’ cross-motions for summary judgment that
resulted from the circuit court’s construction of section 8-226(c)(3) to include
defined contribution plans within the definition of “any pension plan.” We remand
the cause to the circuit court of Cook County for further proceedings consistent
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with this opinion.3
¶ 66 Circuit court judgments affirmed in part and reversed in part.
¶ 67 Cause remanded.
3
Our holding striking down the specific provisions of Public Act 97-651 mentioned in this case
of course applies only to the specific provisions discussed herein. The rest of the provisions of
Public Act 97-651 are subject to principles of severability, as section 1-105 of the Pension Code
specifically provides that “[t]he invalidity of any provision of this Code shall not affect the validity
of the remainder of this Code.” 40 ILCS 5/1-105 (West 2012). Similarly, section 98 of Public Act
97-651 provides that “[t]he provisions of this Act are severable under Section 1.31 of the Statute on
Statutes.” Pub. Act 97-651, § 98 (eff. Jan. 5, 2012). We therefore make no ruling here on other
provisions of Public Act 97-651, amending the Pension Code, that are not before us.
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