by Ryan R. Morton (Winter 2018)

Attorneys are paid to be creative. Clients expect their lawyers to come up with clever arguments to win their cases. For instance, where an Illinois statute plainly establishes the law, an advocate might argue that a federal court case should preempt the state statute, even if the state law seems clear. It is the responsibility of judges, then, to see through such distracting arguments and uphold the law.

That basically explains how a recent appeal was handled on the issue of surviving spouse pension benefits. In Chicago Police Sergeants’ Association, Policemen’s Benevolent & Protective Association, Unit 156A v. John Pallohusky, 2017 IL App (1st) 162822, the Association argued that a United States Supreme Court decision allowed creditors to reach the pension benefits of a police officer’s late wife. The appellate court, however, decided Illinois law clearly prohibited that practice, so the Supreme Court case had no bearing.

John Pallohusky and his wife, Mary O’Toole, both served as Chicago police officers for nearly two decades. When she died in 2010, Pallohusky received a “widow’s annuity” of about $780 per month, after taxes and insurance. The widow’s annuity under Article 5 of the Illinois Pension Code (40 ILCS 5/5-101) goes to the surviving spouses of police officers who retire or die while in service. The annuity continues for the life of the surviving spouse, but it cannot be withdrawn in a lump sum nor accessed outside of monthly disbursements.

In 2013, the Association obtained a court judgment against Pallohusky based on unrelated claims, wherein Pallohusky owed the Association nearly $700,000. Hoping to collect on its judgment, the Association filed a motion to force Pallohusky to turn over his widow’s annuity. Pallohusky argued that those funds could not be touched to satisfy a debt, under both the Illinois Pension Code and the Illinois Code of Civil Procedure.

The Association, on the other hand, contended that his wife’s pension was not his own retirement benefit, so those funds should not be exempt from collection. The district court ruled in favor of the Association, and Pallohusky appealed.

The appellate court agreed with Pallohusky and overturned the lower court’s decision, based solely on statutory analysis. The Illinois Pension Code provides, “[A]ll pensions, annuities, refunds or disability benefits granted under this Article, and every portion thereof, are exempt from attachment or garnishment process and shall not be seized, taken, subjected to, detained or levied upon by virtue of any judgment.” (40 ILCS 5/5-218) Note that similar provisions exempting pension benefits from garnishment are found in both Article 3 (40 ILCS 5/3-144.1) and Article 4 (40 ILCS 5/4-135) of the Illinois Pension Code.

Additionally, the Illinois Code of Civil Procedure states that a debtor who has an annuity due to him under the Pension Code cannot have that annuity reduced because of a judgment (735 ILCS 5/12-1006(a)). The court determined both statutes clearly provided that pensions and annuities are exempt from collection.

To support its position, the Association tried to convince the court that the widow’s annuity was more like an individual retirement account (IRA) than a public pension retirement fund. The Association cited Clark v. Rameker, 134 S.Ct. 2242 (2014), in which the U.S. Supreme Court determined that an inherited IRA does not have the characteristics of a retirement account, so it could be garnished.

Similarly, Pallohusky’s annuity payments are not from his pension and are being disbursed pre-retirement. Therefore, the Association argued, those payments were not designed for retirement, which makes them non-exempt.

The appellate court rejected the Association’s interpretation of Clark. The Supreme Court held that inherited IRAs are not exempt from garnishment because those accounts allow withdrawal at any time and for any purpose. The widow’s annuity, however, cannot be withdrawn in full, and it terminates when the surviving spouse dies.

More importantly, in Clark, the court was considering a type of retirement account that did not clearly fall within an exemption. The ambiguity required a judicial determination. In this case, however, two statutes explicitly stated that public pension payments could not be accessed through collection. The appellate court had no reason to look for other interpretations of relatively clear laws.

Although the Association’s attorneys made a decent argument that the widow’s annuity should be accessible by creditors, Illinois statutes already prohibited such a practice.

Thanks to this case upholding the statutes as written, public pensioners – and future recipients – can rest assured that their benefits will not be touched through garnishment or collection, at least until those funds are disbursed.