by John H. Kelly (Fall 2016)

In March of this year, the First District Appellate Court had another opportunity to address and define the term “salary” as that term is used for pension purposes in Village of Chicago Ridge v. Chicago Ridge Firefighters’ Pension Board of Trustees, 2016 IL App (1st) 152089. This decision is another in the line of cases that has called into question contract and policy provisions that provide for salary increases at or near the time of retirement. These provisions, sometimes referred to as “salary spikes”, are designed to increase an employee’s final salary so that the calculation of his or her pension will be made on the basis of that increased salary number.
 
In the Chicago Ridge case, the Village and the Firefighters Union negotiated a collective bargaining agreement (CBA) that contained the following provision: “If a bargaining unit employee retires on his/her 25th anniversary year and is 50 years of age or over, he/she can retire with a 20% buyout (paid per hour only for the last day worked). He/she must retire on his/her 25th anniversary.”
 
In this case, the Firefighter David Bricker met the qualifications of the contract language and applied for his retirement pension. The Chicago Heights Firefighters’ Pension Board conducted a hearing on his application and determined that Bricker was eligible for a retirement pension calculation based on his annual salary including the 20% buyout provided by the CBA. Based on this determination, the Pension Board established his salary for pension purposes to be $110,277.61.
 
The Village of Chicago Ridge challenged this determination and filed a lawsuit in the Cook County Circuit Court. In its lawsuit, the Village argued that Bricker was not entitled to the 20% buyout and that his actual pensionable salary should have been $95,155.78.

The circuit court reversed the Pension Board’s finding and ordered that the case be sent back to the Pension Board so that the Pension Board could recalculate the appropriate pensionable salary without including the 20% buyout. The Pension Board then filed an appeal to the First District Appellate Court in Chicago.
 
In considering the case, the appellate court found that the only issue before it was “whether the 20% buyout as defined in the CBA should be included in Bricker’s pensionable salary.” The Pension Board argued that the buyout should be included because it was part of Bricker’s base pay, that it was longevity pay (which is considered salary), and that the Illinois Pension Code does not prohibit end-of-the-year longevity bonuses. The Village, in support of the circuit court decision, argued that the 20% buyout was a “one-time, one-day” award and was not longevity, and that any pensionable salary must be approved by an appropriations ordinance of the Village which did not happen in this case.

The Appellate Court looked closely at the definition of the term “salary” in Section 4-118.1(d) of the Pension Code. Section 4-118.1(d) defines the term “salary” as:

[T]he annual salary, including longevity, attached to the firefighter’s rank, as established by the municipality appropriation ordinance, including any compensation for overtime which is included in the salary so established, but excluding any “overtime pay”, “holiday pay”, “bonus pay”, “merit pay”, or any other cash benefit not included in the salary so established. (40 ILCS 5/4-118.1(d))

Additionally, the Appellate Court considered the provisions of the Illinois Administrative Code which further define and explain the term “salary” as used in Section 4-118.1(d). The Illinois Administrative Code consists of the rules and regulations developed by the various administrative agencies charged with enforcing various Illinois laws. Chapter 50 of the Administrative Code contains rules that apply to the Illinois Department of Insurance. Specifically, Section 4402.30 contains language that further develops the concept and definition of the term “salary.”

Like Section 4-118.1(d), Section 4402.30 defines the term “salary” as follows:

Salary, for the purposes of this Part, means any fixed compensation received by an employee of a municipality that participates in one of the pension funds established under Article 3 or 4 of the Illinois Pension Code, which has been approved through an appropriations ordinance of the municipality. Salary is received regularly and is attached to the rank or class to which the firefighter or police officer is assigned. (emphasis added) (50 Ill. Adm. Code 4402.30)

In making its ruling, the Appellate Court found that the case turned on whether or not the 20% buyout provision in the CBA was “approved through an appropriations ordinance of the municipality.” In this case, the court found that the Village of Chicago Ridge had not adopted an appropriation ordinance which contained the 20% buyout language as part of the salary calculation for firefighters. The Pension Board argued that because the Village Board had approved the CBA and the CBA contained the buyout language, that the Village had in fact met the requirement of the statute and the Administrative Code.
 
The Appellate Court found that the CBA was approved by resolution, not ordinance, and that this did not meet the requirements of the statute and the Administrative Code. The court specifically held that an appropriation involves setting aside a specific sum of public revenue for a specific purpose. The approval of the CBA did not rise to the level of an appropriation. In making its ruling in this case, the court looked to similar language in the Police Pension Act and found that in the case of Smith v. Board of Trustees of the Westchester Police Pension Board, 405 Ill. App.3d 626 (1st Dist. 2010), the court had applied the appropriation ordinance requirement in the same manner.

The lesson to be learned from the Chicago Ridge case for pension boards is to (1) verify the calculation of final pensionable salary with the village, city or district, but also (2) make sure that salary levels are set by properly adopted municipal appropriations ordinances.