by Vladimir Shuliga, Jr. (Spring 2016)
Throughout the Illinois Pension Code, there are mechanisms for transferring creditable service between various funds. The former Chief of Police for the Village of Oak Brook, Thomas Sheahan, attempted to do just that. Prior to becoming the Chief of Police in the Village, Sheahan accrued creditable service in the Deerfield Police Pension Fund and the Municipal Employees’ Annuity Benefit Fund of Chicago (MEABF). Sheahan attempted to transfer creditable service from Deerfield and MEABF around the same time that he was retiring from Oak Brook. Sheahan’s status in the Illinois Municipal Retirement Fund (IMRF) and compliance with several sections of the Illinois Pension Code became the subject of litigation in Village of Oak Brook v. Thomas Sheahan, 2015 IL App (2d) 140810.
Sheahan transferred his credit under MEABF in 2007. Special legislation had previously been passed that allowed individuals with MEABF credit to transfer such credit to IMRF. The special legislation created a six-month window to make the transfer. Pursuant to that legislation, MEABF would transfer the funds that it had on the books for the individual to IMRF. The individual was then required to pay any amount, plus interest, by which the contributions that would have been required if he or she had participated in IMRF during the period in question exceeded the amount transferred to IMRF by MEABF. In the case of Sheahan, the total amount that was required to transfer his MEABF credit was $103,996.41. That amount was equivalent to 77 months of service. It turns out that no one else applied for the transfer of creditable service during the window created by the special legislation; Sheahan was the only beneficiary.
MEABF transferred $80,759.18, which left Sheahan responsible for the remaining $23,237.23. Sheahan made the application to transfer the MEABF credit on November 16, 2007. IMRF notified him that all monies must be transferred by May 28, 2008. MEABF made its transfer of $80,759.18 which IMRF equated to 60 months of creditable service, but Sheahan never made his contribution. IMRF wrote Sheahan again in 2011 informing him that 17 months remained to be purchased, now at a cost of $30,662.73. Again, Sheahan did not make the payment.
In April 2011, Sheahan was preparing to retire as the Village’s police chief, so he contacted Deerfield about repurchasing creditable service from that fund. When Sheahan left Deerfield in 1988, he received a refund of his contributions; therefore, he forfeited his service credit. In order to repurchase the 152 months of service credit, Deerfield informed him that the cost was $101,895.60.
On April 29, 2011, Sheahan retired as police chief of the Village. On May 3, 2011, Sheahan repurchased his creditable service from Deerfield. IMRF deposited the check from Deerfield on May 5, 2011, and credited Sheahan with 152 months of service. Sheahan began receiving pension payments in May 2011. Six months later, IMRF notified the Village of Oak Brook that it had an unfunded liability of nearly $750,000 stemming from Sheahan’s retirement. The Village challenged the amount, claiming that the transfers of creditable service from MEABF and Deerfield were improper.
The initial challenge was held before the IMRF Board of Trustees’ Benefit Review Committee. The review committee recommended that the Board of Trustees uphold Sheahan’s transfers, which the Board did. The Village then filed suit seeking administrative review of the Board’s decision and seeking a declaratory judgment that the special legislation that allowed the MEABF transfer was unconstitutional. The trial court ruled that both transfers to IMRF were in violation of specific provisions in the Illinois Pension Code and therefore invalid. The appellate court agreed with the trial court and found that the transfers made by Sheahan were legally improper.
For the transfer from Deerfield, the issue was whether Sheahan was an “active member” of IMRF when the transfer was made. Section 7-139(a) allows the transfer of creditable service pursuant to Section 3-110.3 — the section relied upon by Sheahan for the Deerfield transfer — to “any active member of [IMRF] and to any inactive member who has been a county sheriff.” (40 ILCS 5/7-139(a)) Although “active member” was not defined in Article 7 of the Illinois Pension Code, the court concluded that active member was intended to be “a person who is employed by a participating municipality and making contributions to IMRF.” Once an individual stops contributing to IMRF and begins drawing a pension, that individual is no longer considered an active member.
Sheahan had retired on April 29, 2011, and made the transfer from Deerfield on May 3, 2011. Therefore, Sheahan was not an active member of IMRF when he made the Deerfield transfer. However, Sheahan argued further that IMRF rules allow one payment for past service credit after a member’s termination date. The court acknowledged that the IMRF rules allowed for such payment, but the court then ruled that IMRF exceeded its authority when it created such a rule. According to the court, the rule was in direct conflict with Section 7-139(a) 9, which only allowed transfers by inactive members if the inactive member was a county sheriff. Because Sheahan was not a county sheriff, Section 7-139(a) 9 precluded him from making a transfer once he became an inactive member.
With regard to the MEABF transfer, the Village argued that IMRF did not have the authority to grant a partial transfer of credit if the individual failed to pay his or her portion of the owed contribution. IMRF gave Sheahan 60 months of creditable service based on the amount of funds transferred from MEABF even though Sheahan never paid the additional amounts owed for the remaining 17 months of creditable service.
The court returned to the language of the statute and found that a transfer from MEABF required two things to happen: (1) the transfer of credits from MEABF pursuant to Section 8-226.7; and (2) payment by the member of the amount by which the cost of the IMRF credit exceeds the amounts transferred by MEABF. Part one was accomplished when MEABF made the transfer of $80,759.18, but Sheahan failed to fulfill the second part required by statute. The court held that without both things happening, the transfer in its entirety was invalid. IMRF did not have the authority to equate the contribution from MEABF to 60 months of creditable service.
It is important to note that IMRF did not participate in the appeal of this case; therefore, it was Sheahan rather than the IMRF that had to defend IMRF’s interpretation of Article 7 and its corresponding rulemaking authority. The court noted that Sheahan’s Deerfield and MEABF credits did not vanish; the credits remained with the funds from which they were improperly transferred.
This case provides a cautionary tale regarding combining and transferring creditable service. The retiree did not do himself any favors by missing simple deadlines when completing transfers of creditable service. This case serves as a reminder to pension funds that they are limited by the authority provided to them in the Illinois Pension Code. Promulgating rules allows a pension fund to operate more efficiently and more consistently, but those rules must be aligned with the letter and spirit of the Code’s provisions.