Prazen v. Shoop

2013 IL 115035

IN THE

SUPREME COURT

OF

THE STATE OF ILLINOIS

(Docket No. 115035)

JOSEPH E. PRAZEN, Appellee, v. MARVIN SHOOP, JR., as

President of the Illinois Municipal Retirement Fund, et al.,

Appellants.

Opinion filed October 18, 2013.

JUSTICE THOMAS delivered the judgment of the court, with

opinion.

Chief Justice Kilbride and Justices Garman, Karmeier, and Theis

concurred in the judgment and opinion.

Justice Freeman dissented, with opinion, joined by Justice Burke.

OPINION

¶1 The Illinois Municipal Retirement Fund (IMRF) Board of

Trustees (Board) determined that plaintiff, Joseph E. Prazen, forfeited

his early retirement incentives (ERI), which amounted to

$307,100.50, by returning to work for an IMRF employer in violation

of section 7-141.1(g) of the Illinois Pension Code (Pension Code) (40

ILCS 5/7-141.1(g) (West 2010)). In reaching that determination, the

Board found that the plaintiff’s corporation was created as a “guise”

to avoid the return-to-work prohibitions contained in the statute. On

administrative review, the circuit court of Sangamon County

confirmed. The appellate court reversed, however, finding that the

Board did not have the authority to determine that plaintiff’s actions

were a guise for circumventing the forfeiture provisions found in

section 7-141.1(g). 2012 IL App (4th) 120048, ¶ 37.

¶2 The Board filed a petition for leave to appeal with this court (Ill.

S. Ct. R. 315 (eff. Feb. 26, 2010)), and we allowed the petition. For

the reasons that follow, we affirm the appellate court’s judgment.

¶3 BACKGROUND

¶4 On December 31, 1998, plaintiff retired from his position as

superintendent of the electrical department of the City of Peru, Illinois

(City), under the early retirement incentive plan (ERI plan) that had

been adopted by the City pursuant to section 7-141.1 of the Pension

Code. Prior to his retirement, plaintiff purchased five years of age

enhancement credit that boosted his years of service to 32.833. At the

time of retirement, his annual salary was $82,284.20.

¶5 Three years earlier, in 1995, plaintiff formed a business known as

Peru Development Land Trust (PDLT) with the then-mayor of Peru,

Donald Baker. The purpose of PDLT was to renovate and convert real

estate. In 1995, PDLT purchased a vacant building with the intention

of turning it into condominiums. The renovation required extensive

electrical upgrades and modifications. Plaintiff planned to perform

this work through his business, Electrical Consultants, Ltd. (ECL),

which at that time was not yet incorporated.

¶6 On December 18, 1998, approximately two weeks before his

retirement from his job with the City, plaintiff incorporated ECL. At

the time of incorporation, he was the secretary and president of the

corporation. Plaintiff’s wife later took over as secretary and president.

¶7 On December 21, 1998, three days after ECL’s incorporation and

10 days prior to plaintiff’s retirement, ECL and the City entered into

a management and supervision agreement for operation of the

electrical department (the Agreement) to begin on January 1, 1999,

one day after plaintiff retired. According to the affidavit of Mayor

Donald Baker, who signed the Agreement on behalf of the City, it

was the City’s intent in entering the Agreement to buy itself more

time to find a replacement for plaintiff. It was also the intent of the

City to have the liability for performance of the Agreement to be

placed with ECL and not plaintiff personally.

¶8 Under the Agreement, ECL was to provide a full-time person to

perform the contractor’s duties for the City for a term of three years,

with the first year of compensation set at $89,816.74 to be paid on a

biweekly basis to ECL. The Agreement stated that “[a]ll work,

services, and other functions furnished or to be performed by [ECL)

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for the City *** shall be in [ECL’s] position as an independent

contractor and to no extent and in no manner shall either [ECL] or

any of its personnel *** be regarded as an employee, servant, or agent

of the City.” The Agreement gave the City the right to terminate it

“upon reasonable cause determined within the City’s sole discretion”

following a 30-day written notice to ECL. There was no

corresponding right on the part of ECL to terminate, and the initial

term of the Agreement was for a three-year period. The Agreement

between ECL and the City was extended eight times following its

initial execution. It was not until the parties executed an eighth rider

to the Agreement in August 2008 that ECL was also given the right

to terminate the Agreement with a 30-day written notice.

¶9 Once prior to the execution of the Agreement between ECL and

the City and twice afterwards, plaintiff’s attorney, Douglas

Schweickert, who was also outside legal counsel for the City,

contacted IMRF on plaintiff’s behalf to inquire about any impact the

structure of the Agreement might have on plaintiff’s IMRF pension.

Schweickert documented these conversations with the IMRF in three

letters that he wrote to plaintiff.

¶ 10 The first letter—dated September 15, 1998, which was over two

months before ECL’s incorporation and plaintiff’s retirement from

the City—stated that an IMRF representative had advised

Schweickert that “a former employee who elected the Early

Retirement Incentive may work for a non-IMRF employer.” It was

explained to Schweickert that the City could contract with a

corporation for certain services even though the corporation employs

a former City employee who elected the early retirement incentive.

According to Schweickert, the IMRF representative also told him that

“a former City employee may also contract with an IMRF employer

as an independent contractor.”

¶ 11 In the second letter dated March 21, 2002, Schweickert informed

plaintiff that he had again contacted IMRF at plaintiff’s request. This

time an IMRF representative confirmed that everything in the

September 1998 letter still applied and that there had been no changes

in IMRF regulations.

¶ 12 In the last letter dated November 19, 2002, Schweickert explained

to plaintiff as follows:

“[The IMRF representative] confirmed that a retired ‘early

out’ IMRF employee may work for a separate corporation

which is then contracted to do work for the City from which

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the IMRF employee retired. I specifically questioned whether

that retired IMRF employee may be an owner of the

corporation contracting with the City. She stated that was

permiss[i]ble, but she added that the corporation cannot just

be a guise to avoid the IMRF regulations. Specifically, if the

corporation hires itself out to the general public in addition to

the municipality for which it has contracted, that would be

fine.”

Schweickert suggested to plaintiff that he should advertise to expand

ECL’s visibility and hire other employees, even if only for brief

assignments.

¶ 13 ECL employed three people during its existence—plaintiff, his

wife Diane, and their daughter Natalie. The City paid ECL biweekly,

as called for by the Agreement. ECL then paid its employees.

Plaintiff, Diane and Natalie received W-2 forms from ECL for each

year they worked for the corporation.

¶ 14 On February 17, 2009, ECL informed the City in writing that it

would be terminating the Agreement effective March 18, 2009, as

allowed by the eighth rider extending the Agreement. ECL was

voluntarily dissolved on November 30, 2009. After the Agreement

between the City and ECL was terminated, the City continued to rely

upon independent contractors to perform the duties described in the

Agreement.

¶ 15 On November 5, 2010, nearly one year after ECL was dissolved

and almost 12 years after plaintiff retired, general counsel for IMRF

notified plaintiff by letter that the IMRF made a staff determination

that plaintiff’s continued “relationship” with the City after his 1999

retirement violated the provisions of section 7-141.1(g) of the

Pension Code. Subsection (g) of section 7-141.1 prohibits an

annuitant who has received any age enhancement or creditable service

under ERI from later either accepting “employment with” or entering

into a “personal services contract with” an IMRF employer. 40 ILCS

5/7-141.1(g) (West 1998). Attached to the letter were new

calculations based on plaintiff’s retirement at 27.333 years and

showing a $307,100.50 overpayment as a result of plaintiff’s ERI

violation. The letter did not state how IMRF would collect the

overpayment from plaintiff.

¶ 16 Plaintiff timely appealed the staff determination to the IMRF

benefit review committee. The IMRF benefit review committee

conducted hearings on June 23, 2011, and July 21, 2011. The findings

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and conclusions of the IMRF benefit review committee stated in part

as follows:

“The ability of the Board to determine whether or not

[plaintiff] is an employee is irrelevant to this proceeding

because no such determination is being made.

***

Under the facts of this appeal, [plaintiff] violated the

provisions of Section 7-141[.1](g) because EC[L] was created

as a guise to avoid the return to work prohibitions contained

therein. More specifically, [plaintiff’s] actions are contrary to

the intent of the return to work prohibitions, which were

enacted to offer an [sic] mechanism to allow individuals who

are at least age 50 with 20 years of service to purchase service

time and thus retire with a higher benefit at an earlier age. ERI

was created as a financial incentive to employers (they could

either not replace the retiree or hire younger employees at a

lower salary). Allowing an employee to retire with a higher

benefit and yet return to work under a contract was exactly

what the General Assembly was trying to avoid when it

enacted the ERI statute with the return to work prohibitions.

Specifically the Committee took the following into

consideration when making this determination:

[1] The timing surrounding the creation and dissolution of

EC[L].

[2] The timing surrounding the Agreement with the City

as it relates to [plaintiff’s] retirement.

[3] The de minimis nature of EC[L]’s employment outside

the agreement with the City.

[4] The fact that [plaintiff], his wife, and his daughter

were the only employees of EC[L].

[5] The fact that [plaintiff], at the time of the original

execution of the Agreement, was both secretary and president

of EC[L].

[6] The nature of the duties required under the Agreement

and the fact that [plaintiff] alone fulfilled its requirement for

a full-time staff person.”

On July 22, 2011, the IMRF Board voted to uphold the administrative

staff determination and adopted the findings and conclusions set forth

in the Board’s benefit review committee report. Plaintiff appealed to

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the circuit court of Sangamon County. The circuit court confirmed the

Board’s decision.

¶ 17 Plaintiff then appealed to the appellate court, which reversed,

holding that an ERI annuitant must have accepted “employment with”

or entered into a “personal services contract with” an IMRF

participating municipality to be subject to the forfeiture provisions of

section 7-141.1(g). 2012 IL App (4th) 120048, ¶ 38. Here, the

Agreement was between the City and ECL—a distinct legal

entity—not between the City and plaintiff. Id.

¶ 18 The appellate court also held that the legislature did not grant the

IMRF Board power to find a corporation was created solely as a guise

to circumvent the forfeiture criteria of section 7-141.1(g). Id. ¶ 37. In

the appellate court’s view, finding a corporation to be a guise under

the present circumstances created a new condition—of which an

annuitant has no notice, and which is in direct conflict with the two

conditions for forfeiture listed in section 7-141.1(g). Id. Finally, the

appellate court found that a determination that a corporation is a guise

is akin to a determination that the corporate veil can be pierced. Id.

¶ 38. The appellate court concluded that “[w]hile the legislature gave

the IMRF Board the power to make administrative decisions on

participation and coverage necessary for carrying out the intent of the

Fund, this general power does not include equitable remedies

generally reserved for the courts.” Id.

¶ 19 The Board filed a petition for leave to appeal with this court. We

allowed that petition.

¶ 20 ANALYSIS

¶ 21 The outcome of this case turns on the interpretation of a statute,

and therefore it presents a question of law that we review de novo.

Board of Education, Joliet Township High School District No. 204 v.

Board of Education, Lincoln Way Community High School District

No. 210, 231 Ill. 2d 184, 194 (2008); Hooker v. Retirement Board of

the Firemen’s Annuity & Benefit Fund, 2012 IL App (1st) 111625, ¶

13. The primary objective in construing a statute is to ascertain and

give effect to the intent of the legislature. Chicago Teachers Union,

Local No. 1 v. Board of Education of the City of Chicago, 2012 IL

112566, ¶ 15. The most reliable indicator and best evidence of

legislative intent is the language used in the statute itself, which must

be given its plain and ordinary meaning. Roselle Police Pension

Board v. Village of Roselle, 232 Ill. 2d 546, 552 (2009). Additionally,

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in determining the legislative intent of a statute, a court may consider

not only the language used, but also the reason and necessity for the

law, the evils sought to be remedied, and the purposes to be achieved.

Williams v. Staples, 208 Ill. 2d 480, 487 (2004). Words and phrases

should be construed in light of other relevant provisions of the statute

and must not be interpreted in isolation. Id. Each word, clause and

sentence of a statute must be given a reasonable meaning, if possible,

and should not be rendered superfluous. Chicago Teachers Union,

2012 IL 112566, ¶ 15.

¶ 22 At issue in this case is the ERI forfeiture provision of section 7-

141.1(g) of the Pension Code. That section provides in relevant part

as follows:

“An annuitant who has received any age enhancement or

creditable service under this Section and thereafter accepts

employment with or enters into a personal services contract

with an employer under this Article thereby forfeits that age

enhancement and creditable service ***. A person forfeiting

early retirement incentives under this subsection (i) must

repay to the Fund that portion of the retirement annuity

already received which is attributable to the early retirement

incentives that are being forfeited, (ii) shall not be eligible to

participate in any future early retirement program adopted

under this Section, and (iii) is entitled to a refund of the

employee contribution paid under subsection (f). The Board

shall deduct the required repayment from the refund and may

impose a reasonable payment schedule for repaying the

amount, if any, by which the required repayment exceeds the

refund amount.” (Emphases added.) 40 ILCS 5/7-141.1(g)

(West 2010).

¶ 23 Before this court, the parties differ as to the proper interpretation

to be given section 7-141.1(g). The Board argues that the terms

“employment with” and “personal services contract with” are

ambiguous. The Board acknowledges that it did not make any specific

determination in the proceeding below that either of these two

conditions were violated. Nonetheless, the Board argues here that

those terms should be liberally construed to effectuate the intent of

the statute. The Board contends that a look at section 7-141.1 of the

Pension Code as a whole shows that it was enacted as a cost savings

device to allow highly paid senior employees to retire early and either

not be replaced at all or be replaced with employees earning a lower

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salary. Therefore, the Board suggests that section 7-141.1(g) be read

so as to take away any incentive for a worker to retire early, create a

corporation, become employed by that corporation, contract with the

former IMRF employer through that corporation and then simply go

back to work at essentially the same job. Additionally, the Board

argues that even if plaintiff did not specifically violate either of the

two expressed conditions for forfeiture contained in the statute, the

Board nonetheless had the authority to find a forfeiture based on the

corporate arrangement set up by plaintiff.

¶ 24 We first reject the Board’s argument that the terms in question are

ambiguous. Neither “employment” nor “personal services contract”

are defined in the Pension Code, but we find the terms to be

sufficiently plain and clear nonetheless. Even though the term

“employment” is not defined, the term “employee” is defined in the

Pension Code in relevant part as a person who (1) is paid “for the

performance of personal services or official duties out of the general

fund of a municipality” or a fund controlled by a municipality, or (2)

“[u]nder the usual common law rules applicable in determining the

employer-employee relationship, has the status of an employee with

a municipality.” 40 ILCS 5/7-109 (West 2010). The appellate court

found that to be “employed with” an IMRF employer, a person must

first fit the definition of “employee.” 2012 IL App (4th) 120048, ¶ 29.

We agree with that assessment. Here, plaintiff was not employed with

the City after his retirement in 1998. Rather, plaintiff was employed

by ECL, a separate legal entity.

¶ 25 The Board does not dispute that plaintiff was no longer an

“employee” of the City once he retired in 1998. However, the Board

resists application of the definition of “employee” found in section 7-

109 of the Pension Code to inform the decision of what constitutes

“employment with” under section 7-141.1(g). Instead, the Board

relies upon a Black’s Law Dictionary definition of “employment,”

which defines it as “[w]ork for which one has been hired and is being

paid by an employer.” Black’s Law Dictionary 566 (8th ed. 2004).

But this definition does not support the Board’s position either, as the

Board hired and paid ECL, not plaintiff. Thus, even under the

definition of employment supplied by the Board, plaintiff did not

enter into “employment with” an IMRF employer following his

retirement on December 31, 1998.

¶ 26 We also find the term “personal services contract” to be clear.

Although the Pension Code does not define the phrase and there is a

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dearth of Illinois case law discussing its parameters, courts in other

jurisdictions have been almost uniform in defining it as “ ‘[a] contract

which contemplates the performance of personal services involving

the exercise of special knowledge, judgment, taste, skill, or ability.’ ”

Doltz v. Harris & Associates, 280 F. Supp. 2d 377, 388 (E.D. Pa.

2003) (quoting In re Compass Van & Storage Corp., 65 B.R. 1007,

1011 (Bankr. E.D.N.Y. 1986)). Typical personal services contracts

are ones that require a specific person to perform the contract with

“rare genius and extraordinary skill” and are nontransferable,

nonassignable and are therefore personal. Taylor v. Palmer, 31 Cal.

240, 247-48 (1866); see also In re Herlan, No. 09-2665, 2010 WL

56019, at *7 (Bankr. N.D. W. Va. 2010). That an agreement is

between two corporations and does not identify any individual as

being material to its performance are facts that weigh strongly against

(if they are not indeed fatal) to construing the agreement as a

“personal services contract.” Fransmart, LLC v. Freshii

Development, LLC, 768 F. Supp. 2d 851, 860-61 (E.D. Va. 2011)

(mem. op.).

¶ 27 Black’s Law Dictionary appears to be in full agreement with the

above-noted principles culled from the case law. According to

Black’s Law Dictionary, a “personal contract” is defined as “[a]

contract that binds a person but not that person’s heirs or assignees

because the contract requires a personal performance for which there

is no adequate substitute.” Black’s Law Dictionary 347 (8th ed.

2004).1

¶ 28 In the present case, the Board did not make a determination that

plaintiff entered into a “personal services contract with” the City. But

1

Additionally, Black’s Law Dictionary simply defines a “service

contract” as “[a] contract to perform a service.” Black’s Law Dictionary

348 (8th ed. 2004). Moreover, we note that under certain federal

regulations governing fairness in obtaining government contracts, the term

“personal services contract” is a term of art that would be of no benefit to

the Board’s position in the present case. Under federal regulation, a

“personal services contract” is one in which the contractor’s employees are

under the direction and supervision of the government, but a “[n]onpersonal

services contract” is one under which the contractor is an independent

contractor. See, e.g., 48 C.F.R. § 37.101 (2013); 32 C.F.R. §§ 107.1 to

107.6 (2013); see also Horn v. United States, 98 Fed. Cl. 500, 502 (2011);

Glen v. Performance Anesthesia, P.A., No. 5:09-CV00309-BR (Aug. 27,

2010) (unpublished order).

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the Board nevertheless now argues that the term is ambiguous and

that plaintiff should be deemed to have entered such a contract. We

conclude, however, that the term is clear and unambiguous and that

any determination that plaintiff had entered such a contract based on

the record before us would have been clearly erroneous given the

undisputed facts. Here, we again note that the Agreement was

between the City and ECL. More importantly, the Agreement did not

require that plaintiff personally perform any of the services described

in it. Rather, the Agreement expressly provided that ECL was an

independent contractor and that ECL was simply responsible to

“provide a qualified full time person to perform the duties” described.

Again, nothing in the Agreement required plaintiff to perform any

personal services. We further note that even though ECL only had

three employees during its existence and plaintiff was the only one of

those three qualified to perform the duties mentioned, there was

nothing in the Agreement that would have prevented ECL from hiring

another qualified contractor to perform the supervision and

management services listed. Thus, plaintiff’s personal performance

of the duties was not material to the contract. Under these

circumstances, plaintiff did not enter into a personal services contract

with the City.

¶ 29 We now turn to the Board’s argument that it had the authority to

determine that plaintiff forfeited a portion of his pension because, in

its view, ECL was a guise to circumvent the restrictions of section 7-

141.1(g). In support of its argument, the Board relies upon the general

grant of authority under section 7-200 of the Pension Code to make

“administrative decisions on participation and coverage” to carry out

the intent of the fund. See 40 ILCS 5/7-200 (West 2010). The Board

also relies upon the general fiduciary duty on the part of the boards of

all Illinois pension funds to act prudently in accordance with the

provisions of the Pension Code. See 40 ILCS 5/1-109 (West 2010);

see also Marconi v. Chicago Heights Police Pension Board, 225 Ill.

2d 497, 544 (2006) (an important function of a pension board is to

ensure adequate financial resources to pay benefits to those who

qualify by screening unqualified or fraudulent claims).

¶ 30 We have no disagreement with the principles cited by the Board,

but we find that the Board’s attempt to override the two specific

conditions for forfeiture and find a third ground upon which forfeiture

may rest is misplaced given the lack of any clear intent in the pension

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statute to allow the Board to find a forfeiture under the present

circumstances.

¶ 31 The legislative findings and declarations in subsection (a) of

section 7-141.1 state as follows:

“(a) The General Assembly finds and declares that:

(1) Units of local government across the State have

been functioning under a financial crisis.

(2) This financial crisis is expected to continue.

(3) Units of local government must depend on

additional sources of revenue and, when those sources are

not forthcoming, must establish cost-saving programs.

(4) An early retirement incentive designed specifically

to target highly-paid senior employees could result in

significant annual cost savings.

(5) The early retirement incentive should be made

available only to those units of local government that

determine that an early retirement incentive is in their best

interest.

(6) A unit of local government adopting a program of

early retirement incentives under this Section is

encouraged to implement personnel procedures to

prohibit, for at least 5 years, the rehiring (whether on

payroll or by independent contract) of employees who

receive early retirement incentives.

(7) A unit of government adopting a program of early

retirement incentives under this Section is also

encouraged to replace as few of the participating

employees as possible and to hire replacement employees

for salaries totaling no more than 80% of the total salaries

formerly paid to the employees who participate in the

early retirement program.

It is the primary purpose of this Section to encourage units

of local government that can realize true cost savings, or have

determined that an early retirement program is in their best

interest, to implement an early retirement program.” 40 ILCS

5/7-141.1(a) (West 2010).

¶ 32 Furthermore, subsection (b) of the same statutory section then

requires that in order to validly join the early retirement incentives

program, a municipality must adopt an ordinance that, among other

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things, requires the municipality to resolve to “use its best efforts” to

limit the number of employees who replace employees who retire

early, or limit the salaries paid to employees who replace the

employees who retire early under the ERI program. 40 ILCS 5/7-

141.1(b) (West 2010). Importantly, subsection (b) continues on to

merely require that the municipality resolve that “a person who retires

under the [ERI] program shall lose those incentives if he or she later

accepts employment with any IMRF employer in a position for which

participation in IMRF is required or is elected by the employee.”

(Emphasis added.) 40 ILCS 7/5-141.1(b) (West 2010).

¶ 33 From the above-quoted provisions, it is clear that the legislature

recognized that local governments have been operating under

financial crisis, that the ERI program is designed to target highly paid

senior employees, and that implementation of the program could

result in cost savings. However, nothing in the legislative declarations

evinces a clear intent that the ERI forfeiture prohibitions be

interpreted so as to result in forfeiture in a situation like the present

one. First, we note that subsection (a), which sets forth the intent and

purpose of the statute, provides that a participating municipality is

merely “encouraged” (not required) either to not replace a retiring

employee or to replace him at a lesser salary. Also, while the

legislature meant to encourage this, it also recognized that in some

cases it would not be possible to get by without replacing the retiring

employee at the same high salary. Second, we note that a participating

municipality is merely “encouraged” to prohibit (and only for five

years) the rehiring (by independent contract or payroll) of employees

who receive ERI. Finally, in subsection (b), the participating

municipality is simply required to resolve that a person who retires

early forfeits his ERI if he accepts “employment with any IMRF

employer in a position for which participation in IMRF is required or

is elected by the employee.” 40 ILCS 5/7-141.1(b) (West 2010). Here,

of course, plaintiff did not accept “employment with” an IMRF

employer after his retirement on December 31, 1998, and it is

undisputed that his position with ECL after his retirement did not

require IMRF participation nor was such participation elected (and in

fact it could not have been elected).

¶ 34 Thus, it appears that contrary to the Board’s argument, the intent

of the legislature was actually fulfilled in this case. ECL’s contract

with the City did not allow for plaintiff’s continued participation in

the IMRF, as plaintiff was not an employee of the City. The City thus

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did not have to make pension contributions as it would have had to

do had it hired an employee. Undoubtedly, the City also saved by

avoiding paying other employee benefits that would have been

necessary in an employment context. We also note that ECL was

bound by the Agreement for an initial three-year term without the

same right to terminate that the City possessed upon 30 days written

notice. This provision allowed the City the option of searching for an

employee to fill the role needed or of simply continuing to rely upon

ECL.

¶ 35 On the other hand, we realize that the arrangement effected in the

present case was a lucrative one for plaintiff. He was allowed to retire

early and was then able to earn significant income through ECL’s

contract with the City. However, the fact that plaintiff may have taken

advantage of a windfall or that the Board sees a loophole in the

statute does not mean that this court may “sit as a superlegislature to

weigh the wisdom of legislation [or] to decide whether the policy

which it expresses offends the public welfare.” (Internal quotation

marks omitted.) Roselle, 232 Ill. 2d at 557. We must construe and

apply statutory provisions as they are written and cannot rewrite them

to make them consistent with the judiciary’s view of orderliness and

public policy. Id. at 558.

¶ 36 It is well settled that an administrative agency is a creature of

statute and therefore any power or authority claimed by it must find

its source in the provisions of the statute that created it. County of

Knox ex rel. Masterson v. The Highlands, LLC, 188 Ill. 2d 546, 554

(1999). Moreover, a determination of the scope of the agency’s power

and authority is a question of law for the judiciary to resolve and is

not an issue to be finally determined by the agency itself. Id.

¶ 37 Here, the legislature did not grant the Board power to find a

corporation was a guise to circumvent the forfeiture provisions set

forth in section 7-141.1(g) of the Pension Code. The legislature

granted the Board the power to “carry on generally any other

reasonable activities” necessary to carry out the intent of the IMRF.

See 40 ILCS 5/7-200 (West 2010). We agree with the appellate court

that creating a new condition for forfeiture—of which the annuitant

has no notice from the clear terms of the statute itself—is not a

reasonable activity. We also agree that had the legislature intended to

give the Board discretion to invent new conditions to find forfeiture

of ERI, it surely would have stated so. See 2012 IL App (4th) 120048,

¶ 37. It would be profoundly unjust to uphold the forfeiture in the

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present case where the statute clearly lists only two conditions for

forfeiture and neither was violated. If the legislature intended further

conditions to apply, this would be a situation that would cry out for

legislative line-drawing. The IMRF Board’s superimposed criteria

appears to be vague, unworkable and evolving over time.

¶ 38 We will not presume that the legislature intended to create a

condition for forfeiture of pension benefits where the statute is silent

on the subject. See Shields v. Judges’ Retirement System of Illinois,

204 Ill. 2d 488, 496-97 (2003). It is the dominion of the legislature to

enact laws and the courts to construe them, and we can neither restrict

nor enlarge the meaning of an unambiguous statute. Id. at 497.

¶ 39 Moreover, it is beyond dispute that to the extent there is any

question as to legislative intent and the clarity of the language of a

pension statute, it must be liberally construed in favor of the rights of

the pensioner. Taddeo v. Board of Trustees of the Illinois Municipal

Retirement Fund, 216 Ill. 2d 590, 596 (2005); Shields, 204 Ill. 2d at

494; see also Roselle, 232 Ill. 2d at 552-53 (if the legislative intent is

“obvious” from the language of the statute, it will be given effect

regardless of the well-settled canon that statutory provisions of a

pension statute should be liberally construed in favor of the

pensioner). To adopt the Board’s construction in this case, then,

would be inconsistent with both our obligation to construe pension

statutes liberally in favor of the pensioner and to give effect to the

plain meaning of the words used in the statute.

¶ 40 We also acknowledge the general rule that the interpretation of a

statute by the agency charged with its administration is given some

deference; but this rule is not binding and if the interpretation is

erroneous, it will be rejected. Taddeo, 216 Ill. 2d at 595. Here, the

Board’s interpretation is not only erroneous, but is one that appears

to have been inconsistent and evolving over the years.

¶ 41 The IMRF’s inconsistency over the years is shown by the fact that

in September 1998, two months before plaintiff retired, the IMRF

advised plaintiff’s attorney that the City could contract with a

corporation for services even though the corporation employs a

former City employee who elected the ERI and also that a former City

employee could contract with an IMRF employer as an independent

contractor. This interpretation was confirmed by the IMRF a few

years later in March 2002. Seven months later, however, the IMRF

told plaintiff’s counsel that a retired IMRF employee may be the

owner of the corporation contracting with the City, but the

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corporation cannot just be a guise and would have to hire itself out to

the general public also. This apparently represented a retreat from

IMRF’s earlier position that the City could contract with a retired

former IMRF employee on an independent-contractor basis. Then, in

July 2011, when the IMRF Board made its determination that plaintiff

forfeited a portion of his pension because his corporation was a

“guise,” it relied upon a host of never-before-mentioned factors,

including the nature and amount of the corporation’s non-City

contracts, the number of employees in the corporation, and the timing

surrounding its creation.

¶ 42 At any rate, we note that our determination of the outcome in this

case would have been different if, from our reading of the statute as

a whole, we were able to conclude that the legislature had a clear

intent to inhibit the sort of corporate contract involved in this

case—i.e., one that outsourced the supervision of the City’s electrical

department to a legally valid corporation controlled by a retired IMRF

employee—by making the retired employee’s ERI subject to

forfeiture on account of the arrangement. But we can find no such

intent in this case.

¶ 43 From our reading of the statute, we believe that it is possible that

the General Assembly believed that prohibiting an annuitant from

being employed by a corporation (regardless of the annuitant’s role

in forming the corporation) that contracts with the annuitant’s former

IMRF employer would hamper a local governmental entity’s ability

to maintain a quality workforce. Or the General Assembly may have

believed that such a bar was unnecessary because a municipality

should be able to choose on its own whether entering into a contract

with a self-incorporated annuitant through a corporation on an

independent-contractor basis was a better fiscal option than hiring an

employee to do the same work and having to pay the commensurate

employee benefits.

¶ 44 We believe that had the General Assembly wanted to make a

continued “relationship” with an IMRF employer through a

corporation grounds for forfeiture under section 7-141.1(g), then the

statute would have spoken directly to the matter. We therefore find,

as the appellate court did, that if the ruling we reach here is

“something the General Assembly wanted to avoid, then legislative

action is required” to address the problem directly and provide

sufficient guidelines for the Board to follow in making its

determination. See 2012 IL App (4th) 120048, ¶ 40.

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¶ 45 Our resolution of the foregoing issues renders it unnecessary to

address the remaining issues raised by the parties.

¶ 46 CONCLUSION

¶ 47 For all of the above reasons, we conclude that the Board had no

authority under the Pension Code to conclude that plaintiff’s legally

valid corporation was a guise to circumvent the forfeiture provisions

of section 7-141.1(g). Accordingly, we affirm the judgment of the

appellate court.

¶ 48 Affirmed.

¶ 49 JUSTICE FREEMAN, dissenting:

¶ 50 The majority today holds that the Illinois Municipal Retirement

Fund (IMRF) Board of Trustees (Board), a fiduciary under the Illinois

Pension Code (Pension Code), had no authority to determine that

plaintiff’s corporation was a guise to circumvent the forfeiture

provisions of the Early Retirement Incentive (ERI) statute. In other

words, under the majority’s decision the Board, a fiduciary, had no

authority to perform its fiduciary function. I disagree, and therefore

respectfully dissent.

¶ 51 I

¶ 52 On December 31, 1998, plaintiff retired from his position as

superintendent of the electrical department of the City of Peru, Illinois

(City), under the ERI program the City had adopted pursuant to

section 7-141.1 of the Pension Code (40 ILCS 5/7-141.1 (West

2010)). This program allowed participating employees to purchase

age enhancement credits which in turn allowed the employee to retire

early with a higher pension. Prior to his retirement, plaintiff

purchased five years of age enhancement credit, so that, according to

the record, his pension was based on 32.833 years of service credit

rather than 27.333 years.

¶ 53 On December 18, 1998, about two weeks before his retirement,

plaintiff incorporated Electrical Consultants, Ltd. (ECL). At the time

of incorporation, plaintiff was the secretary and president of ECL.

Plaintiff’s wife, Diane, later took over as secretary and president.

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During its existence, ECL never had more than three employees:

plaintiff, his wife, and their daughter Natalie.

¶ 54 On December 21, 1998, three days after ECL’s incorporation and

10 days prior to plaintiff’s retirement, ECL and the City entered into

a “Management and Supervision Agreement for Operation of the

Electric Department” (Agreement). The three-year Agreement began

on January 1, 1999, the day after plaintiff retired. It required ECL to

provide a qualified full-time person to perform the contractor’s duties

for the City, including electrical management and supervisory

services. Plaintiff was the only one of ECL’s three employees

qualified to perform these duties.

¶ 55 Under the Agreement, the City paid ECL $89,816.74 for the first

year (about $7,000 more than plaintiff’s $82,284.20 annual salary

when he retired), with increases in subsequent years based on the

Consumer Price Index. The Agreement was extended eight times,

with its final term ending in March 2009. The Agreement thus was in

effect for approximately 10 years, during which the City paid ECL a

total of $1,075,398.92. During this same period, plaintiff continued

to receive his enhanced ERI pension. ECL was dissolved on

November 30, 2009, approximately eight months after its Agreement

with the City ended.

¶ 56 The Agreement and each of the eight riders extending it were

executed on behalf of the City by then-Mayor Donald Baker, who was

also plaintiff’s business partner.2 According to Baker’s affidavit, it

was the City’s intent, in entering the Agreement, to contract with ECL

“only until such time as a permanent replacement for the position of

Superintendent of the Electrical Department could be located.” Baker

averred, in addition, that the City intended to find such a replacement

“as quickly as possible.”

¶ 57 On three occasions (one in September 1998, one in March 2002

and the third in November 2002), plaintiff’s attorney, Douglas

Schweickert, who was also outside legal counsel for the City,

contacted IMRF on plaintiff’s behalf to inquire about any impact the

Agreement might have on plaintiff’s pension. Schweickert

documented these conversations with IMRF representatives in three

letters he wrote to plaintiff. These letters generally indicate that the

2

In 1995, plaintiff and Baker, among others, created Peru Development

Land Trust (PDLT) in order to renovate and convert real estate in Peru,

Illinois.

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IMRF representatives assured Schweickert that plaintiff’s corporate

arrangement with the City was acceptable. In the third letter,

Schweickert told plaintiff the IMRF representative specifically

indicated that an ERI retiree could work for a separate corporation

which contracted to do work for the City, even if the ERI retiree was

an owner of that corporation. In that event, however, the corporation

could not just be a guise to avoid IMRF regulations.

¶ 58 On April 5, 2009, a few weeks after the City’s Agreement with

ECL ended, Scott Harl was elected the City’s new mayor. He was

sworn in on April 27. According to his affidavit, he chose not to fill

the position of superintendent of the electrical department, but named

a department foreman “as Supervisor of the Electrical Department.”

Mayor Harl averred, in addition, that for duties that typically fall

under the purview of the superintendent, such as engineering tasks

and management, the City relies on “outside vendors, engineering

companies, and the like.”

¶ 59 On November 5, 2010, the IMRF general counsel notified

plaintiff by letter that the IMRF made a staff determination that

plaintiff’s continued relationship with the City after his retirement

triggered the forfeiture provisions of section 7-141.1(g) of the

Pension Code. Plaintiff appealed to the IMRF Benefit Review

Committee, which concluded plaintiff forfeited his ERI benefits

because ECL, plaintiff’s corporation, “was created as a guise to avoid

the return to work prohibitions” of section 7-141.1(g). The IMRF

Board confirmed the decision of the Benefit Review Committee,

including the determination that plaintiff forfeited his early retirement

incentives in the amount of $307,100.50, which was to be recovered

by withholding a percentage of his retirement annuity (pension

payments) over a reasonable period.3 The circuit court confirmed the

Board’s decision, and the appellate court reversed, vacating the

Board’s decision. 2012 IL App (4th) 120048. The majority today

affirms the judgment of the appellate court.

3

According to the Board, from 1998-2010 plaintiff received pension

payments totaling $668,349.95. IMRF sought to recover only that portion

attributable to plaintiff’s early retirement, which was $307,100.50.

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¶ 60 II

¶ 61 Under subsection (g) of section 7-141.1 (40 ILCS 5/7-141.1(g)

(West 2010)), an ERI annuitant such as plaintiff who “accepts

employment with or enters into a personal services contract with” an

IMRF employer thereby forfeits his age enhancement and creditable

service benefits. In concluding plaintiff forfeited his ERI benefits, the

Board made no specific determination that either of these two

statutory conditions were met. Instead, the Board concluded that

plaintiff’s corporation, ECL, was created as a guise to avoid the

section 7-141.1(g) prohibitions against accepting employment with

or entering into a personal services contract with an IMRF employer.

In other words, the Board determined that plaintiff committed a fraud

against the IMRF.

¶ 62 My colleagues in the majority reject this reasoning, holding that

the Board “had no authority under the Pension Code to conclude that

plaintiff’s legally valid corporation was a guise to circumvent the

forfeiture provisions of section 7-141.1(g).” Supra ¶ 47. The majority

emphasizes that an administrative agency such as the Board “is a

creature of statute and therefore any power or authority claimed by it

must find its source in the provisions of the statute that created it.”

Supra ¶ 36 (citing County of Knox ex rel. Masterson v. The

Highlands, LLC, 18 Ill. 2d 546, 554 (1999)).

¶ 63 The only two conditions for forfeiture listed in subsection (g) are

(1) accepting employment with or (2) entering into a personal

services contract with an IMRF employer. In the majority’s view, the

terms “employment” and “personal services contract” are clear and

unambiguous. Under the plain meaning of “employment,” plaintiff

was not employed with the City after his retirement in 1998. “Rather,

plaintiff was employed by ECL, a separate legal entity.” Supra ¶ 24.

In addition, plaintiff clearly “did not enter into a personal services

contract with the City.” Supra ¶ 28.

¶ 64 The majority finds no support in the statute for what it considers

a “new condition” for forfeiture—the Board’s finding that ECL was

a “guise” to avoid the return-to-work prohibitions of subsection (g).

The majority states:

“We will not presume that the legislature intended to

create a condition for forfeiture of pension benefits where the

statute is silent on the subject. [Citation.] It is the dominion of

the legislature to enact laws and the courts to construe them,

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and we can neither restrict nor enlarge the meaning of an

unambiguous statute.” Supra ¶ 38.

¶ 65 The majority thus holds that so long as there is literal compliance

with subsection (g), there is no forfeiture of ERI benefits, regardless

of the nature of the corporate or other arrangement utilized to reach

that result. According to the majority, the Board has no authority to

look into the arrangement to determine if it is fraudulent.

¶ 66 I disagree. The majority’s holding runs directly counter to section

1-109 of the Pension Code, which applies to all pension funds created

within the Pension Code. Section 1-109 charges the boards of these

funds as fiduciaries to act prudently and in “accordance with the

provisions of the Article of the Pension Code governing the

retirement system or pension fund.” 40 ILCS 5/1-109 (West 2010).

¶ 67 This court has clearly described this fiduciary duty. In Marconi v.

Chicago Heights Police Pension Board, 225 Ill. 2d 497 (2006),4 we

stated:

“This fiduciary duty, however, is owed to all participants in

the pension fund, not just plaintiff. Perhaps the most

important function of a pension board is to ensure adequate

financial resources to cover the Board’s obligations to pay

current and future retirement and disability benefits to those

who qualify for such payments. An important part of this

responsibility involves the screening of unqualified or

fraudulent disability claims, so that funds are not unfairly

diverted to undeserving applicants.” (Emphasis in original

and added.) Id. at 544.

¶ 68 This section 1-109 fiduciary duty bears some semblance to, but is

different from, the common law remedy known as piercing the

corporate veil. Under this remedy, courts in some circumstances will

disregard the corporate entity and find shareholders, directors, or

officers personally liable for corporate obligations. Ted Harrison Oil

Co. v. Dokka, 247 Ill. App. 3d 791, 795 (1993); Alpert v. Bertsch, 235

Ill. App. 3d 452, 460 (1992); Gallagher v. Reconco Builders, Inc., 91

Ill. App. 3d 999, 1004-05 (1980). Situations where a court may pierce

the corporate veil include circumstances where adherence to the

4

Marconi was a per curiam opinion in which Justices Burke and

Kilbride took no part. Justice Fitzgerald dissented, with opinion. Joining in

the per curiam opinion were Chief Justice Thomas and Justices Freeman,

Garman, and Karmeier.

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fiction of a separate corporate existence would sanction a fraud,

promote injustice, or promote inequitable consequences. Ted

Harrison Oil Co., 247 Ill. App. 3d at 795; Alpert, 235 Ill. App. 3d at

460; Gallagher, 91 Ill. App. 3d at 1004. The gist of the remedy of

piercing the corporate veil is that “courts will not permit themselves

to be blinded or deceived by ‘mere’ forms of law—they will penetrate

behind the screen of a corporate entity to deal with the substance of

the transaction and the relationship of the parties involved.” Ronald

J. Broida, The History of the Development of the Remedy of “Piercing

the Corporate Veil,” 65 Ill. B.J. 522, 523 (1977).

¶ 69 Just as courts sometimes encounter circumstances where it is

necessary to disregard the corporate entity in order to prevent fraud

or injustice, pension boards face similar circumstances. Courts draw

their authority to pierce the corporate veil from the common law. In

the case of pension boards, the fiduciary duty is established by statute.

¶ 70 In the case at bar, plaintiff’s corporate arrangement with the City

presented a situation sufficient to authorize the Board, as a fiduciary,

to examine the arrangement to determine whether it was fraudulent.

Recall some of the details of plaintiff’s arrangement. About two

weeks before he retired as superintendent of the City’s electric

department, plaintiff incorporated ECL. Three days later, ECL

entered into a management and supervision agreement with the City

for operation of the electric department. The Agreement, which began

on January 1, 1999, the day after plaintiff retired, required ECL to

provide a qualified full-time person to perform the contractor’s duties

for the City, including electrical management and supervisory

services. Of ECL’s three employees—plaintiff, his wife, and their

daughter—plaintiff was the only one qualified to perform these

duties.

¶ 71 Under the Agreement, the City paid ECL $89,816.74 for the first

year (about $7,000 more than plaintiff’s $82,284.20 annual salary

when he retired), with increases in subsequent years based on the

Consumer Price Index. The Agreement was extended eight times,

with its final term ending in March 2009. The Agreement thus was in

effect for approximately 10 years, during which the City paid ECL a

total of $1,075,398.92. During this same period, plaintiff continued

to receive his enhanced ERI pension. ECL was dissolved on

November 30, 2009, approximately eight months after its Agreement

with the City ended.

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¶ 72 The Agreement and each of the eight riders extending it were

executed on behalf of the City by then-Mayor Donald Baker, who was

also plaintiff’s business partner. On April 5, 2009, a few weeks after

the City’s Agreement with ECL ended, Scott Harl was elected the

City’s new mayor. He was sworn in on April 27.

¶ 73 The majority’s holding today essentially bars the Board from

fulfilling its important fiduciary role of looking into or policing

corporate arrangements such as plaintiff’s, or any other potentially

fraudulent circumstance, in order to ensure that funds are not unfairly

diverted to undeserving applicants. In other words, the Board, a

fiduciary pursuant to section 1-109, has no authority to perform its

fiduciary function. This cannot be what the legislature intended.

¶ 74 I strongly disagree with the majority’s holding that the Board had

no authority under the Pension Code to conclude plaintiff’s

corporation was a guise to circumvent the forfeiture provisions of

section 7-141.1(g). I respectfully dissent.

¶ 75 III

¶ 76 While I would hold the Board has authority to police potentially

fraudulent claims to ensure that funds are not unfairly diverted to

undeserving applicants, the question remains whether the Board

properly applied that authority in the instant case. For example,

should the Board be estopped from finding forfeiture where, as here,

IMRF representatives apparently assured plaintiff’s attorney,

repeatedly, that plaintiff’s corporate arrangement with the City was

acceptable? The majority does not address this question here.

Accordingly, I do not address it in this dissent.

¶ 77 JUSTICE BURKE joins in this dissent.

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