Sharp v. The Board of Trustees of the State Employees' Retirement System

Illinois Official Reports

Appellate Court

Sharp v. Board of Trustees of the State Employees’ Retirement System,

2014 IL App (4th) 130125

Appellate Court DAVID M. SHARP, Plaintiff-Appellee and Cross-Appellant, v. THE

Caption BOARD OF TRUSTEES OF THE STATE EMPLOYEES’

RETIREMENT SYSTEM, JUDY BAAR TOPINKA, Chairperson;

and MICHAEL NOSER, DANNY SILVERTHORN, HAROLD W.

SULLIVAN, JR., RENEE FRIEDMAN, THOMAS ALLISON,

PATRICIA OUSLEY, LORI LAIDLAW, PATRICIA RENSING,

DAVID MORRIS, SHIRLEY BYRD, and VIRGINIA YATES, as

Trustees of the State Employees’ Retirement System, Defendants-

Appellants and Cross-Appellees.

District & No. Fourth District

Docket No. 4-13-0125

Filed January 13, 2014

Held In an administrative review action arising from the Board of Trustees

(Note: This syllabus of the State Employees’ Retirement System’s reconsideration and

constitutes no part of the reduction of its calculation of plaintiff’s monthly pension benefits

opinion of the court but upon his retirement from his position as a Secretary of State

has been prepared by the investigator, the trial court’s finding that the Board lacked the

Reporter of Decisions statutory authority to reduce plaintiff’s pension was upheld on appeal,

for the convenience of since the Board reduced the pension when it discovered, several

the reader.) months after the original calculation, that the wrong formula was used

and the statute only allows such a modification within the 35-day

period following the Board’s initial approval of the pension.

Decision Under Appeal from the Circuit Court of Sangamon County, No. 12-MR-725;

Review the Hon. John Schmidt, Judge, presiding.

Judgment Affirmed.

Counsel on Lisa Madigan, Attorney General, of Chicago (Michael A. Scodro,

Appeal Solicitor General, and Clifford W. Berlow (argued), Assistant

Attorney General, of counsel), for appellants.

Carl R. Draper (argued), of Feldman, Wasser, Draper & Cox, of

Springfield, for appellee.

Panel JUSTICE KNECHT delivered the judgment of the court, with

opinion.

Justices Turner and Steigmann concurred in the judgment and

opinion.

OPINION

¶1 In March 2011, plaintiff, David M. Sharp, retired from his position as a Secretary of State

investigator with the State of Illinois. In April 2011, defendants, the Board of Trustees of the

State Employees’ Retirement System (SERS), Judy Baar Topinka, chairperson; and Michael

Noser, Danny Silverthorn, Harold W. Sullivan, Jr., Renee Friedman, Thomas Allison, Patricia

Ousley, Lori Laidlaw, Patricia Rensing, David Morris, Shirley Byrd, and Virginia Yates, as

trustees of SERS (collectively, the Board), approved Sharp’s monthly pension of $3,171.24. In

February 2012, the Board notified Sharp it had computed his monthly pension using the wrong

formula (3% rather than 2.2%) resulting in an overpayment of $5,874.21. The Board informed

Sharp his monthly pension would decrease to $2,496.16 and arrangements to collect the

overpayment would be forthcoming.

¶2 Sharp appealed to the SERS executive committee (Committee). Following an April 2012

hearing, the Committee recommended the appeal be denied. In July 2012, the Board ratified

the Committee’s recommendation. Sharp filed an action for administrative review in the circuit

court of Sangamon County. Following a January 2013 hearing, the circuit court reversed the

Board, finding it lacked authority to reconsider its earlier pension calculation.

¶3 Defendants appeal. Plaintiff cross-appeals seeking attorney fees. We affirm.

¶4 I. BACKGROUND

¶5 On March 31, 2011, Sharp retired from his position as a Secretary of State investigator with

the State of Illinois. Prior to his retirement, Sharp–on at least two occasions–requested pension

estimates from SERS. In a July 9, 2010, letter, SERS informed plaintiff his estimated monthly

pension assuming a July 31, 2010, retirement (effective date of pension being August 1, 2010)

would be $2,897.86 ($2,371.57 from SERS and $526.19 from the Illinois Municipal

Retirement Fund (IMRF)). In a February 23, 2009, letter, SERS informed Sharp his estimated

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monthly pension assuming a December 31, 2010, retirement (effective date of pension being

January 1, 2011) would be $2,970.53 ($2,439.72 from SERS and $530.81 from IMRF). On

April 28, 2011, SERS approved Sharp’s application for pension benefits filed in November

2010 and noted his monthly checks would be in the amount of $3,171.24 minus any state

insurance or federal tax deductions Sharp authorized, if any. The letter further noted the

pension was computed using 23 years, 9 months of service (which included total time served as

both a Secretary of State investigator and a Department of Children and Family Services

employee), but did not list the formula used to compute the amount of his pension or the

breakdown between SERS and IMRF.

¶6 In letters dated May 19 and May 20, 2011, SERS notified Sharp it had overstated his

combined SERS and IMRF pension benefits resulting in an overpayment from SERS of

$44.78. The letters noted Sharp’s future monthly gross would be $3,148.85, and the $44.78

overpayment would be recovered by deducting this amount from Sharp’s June 2011 pension

check. Sharp did not appeal.

¶7 Nearly nine months later, on February 1, 2012, SERS notified Sharp by letter it had

incorrectly computed his pension using the 3% alternative formula (40 ILCS 5/14-110(a)(i)

(West 2010)) instead of the 2.2% regular formula (40 ILCS 5/14-108(a) (West 2010)) to which

his 15.8 years of employment as a Secretary of State investigator entitled him. As a result of

the error in the computation, SERS informed Sharp he was overpaid $5,874.21 between April

and December 2011, and SERS would contact him at a future date to discuss recovery of the

overpayment. Using the correct formula of 2.2%, Sharp’s monthly pension would be decreased

from $3,148.85 to $2,496.16. Additionally, SERS stated it would be refunding Sharp

$21,798.05 for contributions he made at the higher rate from July 2000 through March 2011.

(The record is unclear why Sharp was making contributions at a higher rate and does not cite

authority for the rate of contributions.) Sharp appealed to the Committee.

¶8 Following an April 2012 hearing before the Committee, during which Sharp testified and

his attorney argued, the Committee recommended Sharp’s appeal be denied. The Committee

concluded as follows: (1) SERS and the Board have authority to correct errors in the

calculation of individual contributions and pension payments and may (a) modify benefits to

comport with the proper formula, (b) collect overpayments, and (c) refund any excess

payments in contributions; (2) equitable estoppel does not apply to the correction of

overpayments in pension benefit administration; and (3) the Board is not precluded from

correcting ministerial errors made by staff in calculating individual contributions and pension

payments. Specifically, the Committee emphasized the purpose of SERS, the Board’s

fiduciary duty to manage the fund, and the Board’s power to audit the fund.

¶9 In July 2012, the Board ratified the Committee’s recommendation. Sharp filed an action for

administrative review in the circuit court of Sangamon County.

¶ 10 Following a January 2013 hearing on administrative review, the circuit court reversed the

Board, finding it lacked authority to reconsider the matter. The circuit court did not (1) rule on

whether defendants violated the Illinois Administrative Procedure Act (5 ILCS 100/1-1 to

15-10 (West 2010)) by not having a verbatim record of its administrative hearing or (2)

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consider whether Sharp is entitled to an award of attorney fees as requested in Sharp’s initial

complaint.

¶ 11 Defendants appeal and Sharp cross-appeals.

¶ 12 II. ANALYSIS

¶ 13 On appeal, defendants assert the Board has authority to correct erroneous benefits

calculations. Sharp contends defendants had no statutory authority to reconsider the earlier

April 2011 final administrative decision and, if they did, the Board violated the Illinois

Administrative Procedure Act by (1) applying a policy not promulgated in its adopted rules

and (2) adopting a rule in direct conflict with the Illinois Administrative Procedure Act.

Additionally, Sharp requests a remand to the circuit court with directions to conduct a hearing

on an award of attorney fees and costs.

¶ 14 A. Standard of Review

¶ 15 Pursuant to section 14-150 of the Illinois Pension Code (Pension Code) (40 ILCS 5/14-150

(West 2010)), we review the Board’s decision in accordance with the Administrative Review

Law (735 ILCS 5/art. III (West 2010)). Kildeer-Countryside School District No. 96 v. Board of

Trustees of the Teachers’ Retirement System, 2012 IL App (4th) 110843, ¶ 20, 972 N.E.2d

1286. We review the decision of the administrative agency rather than the circuit courts.

McDonald v. Department of Human Services, 406 Ill. App. 3d 792, 797, 952 N.E.2d 21, 26

(2010). Because this appeal presents purely legal questions, our review is de novo. Department

of Human Services v. Porter, 396 Ill. App. 3d 701, 718, 921 N.E.2d 367, 380 (2009).

¶ 16 B. Board’s Authority To Correct Errors in Benefits Calculations

¶ 17 The Pension Code, which governs the Board, provides “the Administrative Review Law

*** govern[s] all proceedings for the judicial review of final administrative decisions of the

retirement board provided for under this Article. The term ‘administrative decision’ is defined

as in Section 3-101 of the Code of Civil Procedure.” 40 ILCS 5/14-150 (West 2010). An

“administrative decision” is “any decision, order or determination of any administrative

agency rendered in a particular case, which affects the legal rights, duties or privileges of

parties and which terminates the proceedings before the administrative agency.” 735 ILCS

5/3-101 (West 2010). “Decisions of the Board of Trustees shall be final administrative

decisions subject to the provisions of the Administrative Review Law ***.” 80 Ill. Adm. Code

1540.270(f)(1) (2008). The Administrative Review Law provides, in relevant part, as follows:

“Every action to review a final administrative decision shall be commenced by the filing of a

complaint and the issuance of summons within 35 days from the date that a copy of the

decision sought to be reviewed was served upon the party affected by the decision ***.” 735

ILCS 5/3-103 (West 2010). Here, the Board’s April 2011 approval of Sharp’s pension in the

amount of $3,171.24 per month, less state insurance or federal tax deductions authorized by

Sharp, was a final administrative decision. See, e.g., Sola v. Roselle Police Pension Board, 342

Ill. App. 3d 227, 231-32, 794 N.E.2d 1055, 1058-59 (2003) (holding the pension board could

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not modify its initial pension decision because it was a final administrative decision invoking

the Administrative Review Law’s 35-day review period); Karfs v. City of Belleville, 329 Ill.

App. 3d 1198, 1205, 770 N.E.2d 256, 261 (2002) (holding although the pension board may

have erred in calculating the pension benefits, the city could not challenge the pension award

after the 35-day review period).

¶ 18 “An administrative agency, such as the Pension Board, has no inherent or common law

powers, but is empowered to act only pursuant to the authority it is granted by law.” Rossler v.

Morton Grove Police Pension Board, 178 Ill. App. 3d 769, 773, 533 N.E.2d 927, 930 (1989).

In other words, under the Administrative Review Law, the review of the Board’s initial

approval of Sharp’s pension was limited to a 35-day period after the decision was

issued–regardless of whether the Board or Sharp brought the complaint–unless the General

Assembly granted the Board authority to revisit its final decision outside of the 35-day period.

See, e.g., Trigg v. Industrial Comm’n, 364 Ill. 581, 588, 5 N.E.2d 394, 398 (1936) (although

the claim appealed to the supreme court’s “sense of equity,” the Industrial Commission lacked

jurisdiction to reconsider its former order); Pearce Hospital Foundation v. Illinois Public Aid

Comm’n, 15 Ill. 2d 301, 307, 154 N.E.2d 691, 695 (1958) (holding the Public Aid Commission

lacked statutory authority to reconsider its decision after the 35-day review period provided by

the then-Administrative Review Act, regardless of whether the Commission tried to bypass the

rule by claiming it was a new hearing); Board of Education of Mundelein Elementary School

District No. 75 v. Illinois Educational Labor Relations Board, 179 Ill. App. 3d 696, 702, 534

N.E.2d 1022, 1026 (1989) (noting “the supreme court has consistently held that an

administrative agency may allow a rehearing, or modify and alter its decisions, only when

authorized to do so by statute”).

¶ 19 We note under the rules promulgated by SERS, all petitions for written appeal of a final

decision of the Board must be received by the executive secretary of SERS in its Springfield

office within 30 days following notification of the initial disposition of the claim. 80 Ill. Adm.

Code 1540.270(c)(1) (2008). However, this rule conflicts with the Administrative Review

Law’s 35-day time period and nothing in the Pension Code’s enabling statute authorizes SERS

to apply a shorter time period.

¶ 20 The Board concedes article 14 of the Pension Code (40 ILCS 5/art. XIV (West 2010)) does

not grant it the express authority to correct errors it makes in the calculation of pension

benefits. However, the Board asserts it has the implicit power to do what is reasonably

necessary to carry out its duty, including correcting errors in the calculation of pension benefits

at any time. Sharp disagrees and asserts absent an express statutory provision granting the

Board continued authority to review its final decision, it is without jurisdiction to do so beyond

the Administrative Review Law’s 35-day time period. Further, Sharp contends even if the

Board has the implicit power to review its final decisions at any time, it must have first

promulgated a rule setting forth the procedure for doing so.

¶ 21 The Board cites Vuagniaux v. Department of Professional Regulation, 208 Ill. 2d 173, 188,

802 N.E.2d 1156, 1165 (2003), for the proposition an agency’s authority may “ ‘devolve by

fair implication and intendment from the express provisions of the [statute] as an incident to

achieving the objectives for which the [agency] was created.’ Schalz v. McHenry County

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Sheriff’s Department Merit Comm’n, 113 Ill. 2d 198, 202-03[, 497 N.E.2d 731, 733] (1986).”

According to the Board, its implicit power to correct pension calculation errors is derived from

three express provisions of the Pension Code: (1) the objectives for which SERS was created

(40 ILCS 5/14-102 (West 2010)), (2) the Board’s duty to act as a fiduciary (40 ILCS 5/1-101.2

(West 2010)), and (3) the Board’s power to audit the fund (40 ILCS 5/14-135.06 (West 2010)).

¶ 22 SERS was “created to provide retirement annuities and other benefits for employees of the

State of Illinois.” 40 ILCS 5/14-101 (West 2010). Section 14-102 of the Pension Code

provides as follows:

“The purpose of [SERS] is to provide an orderly means whereby aged or disabled

employees may be retired from active service, without prejudice or hardship, and to

enable the employees to accumulate reserves for themselves and their dependents for

old age, disability, death and termination of employment, thus effecting economy and

efficiency in the administration of the State Government.” 40 ILCS 5/14-102 (West

2010).

The Board asserts as part of establishing an orderly means of disbursing benefits, it must be

able to prevent waste, fraud, and abuse of SERS–which requires the ability to correct errors so

as not to deplete the fund. Next, the Board contends forcing it to continue paying benefits not

authorized by the Pension Code in perpetuity conflicts with its fiduciary duty and jeopardizes

the financial stability of the fund. See 40 ILCS 5/1-109(a), (d) (West 2010) (a fiduciary must

act “solely in the interest of the participants and beneficiaries and: (a) [f]or the exclusive

purpose of: (1) Providing benefits to participants and their beneficiaries; and (2) [d]efraying

reasonable expenses of administering the retirement system or pension fund” and “(d) [i]n

accordance with the provisions of the Article of the Pension Code governing the retirement

system or pension fund”). Last, the Board argues it would be illogical for the legislature to

grant it the power to audit SERS (40 ILCS 5/14-135.06 (West 2010)) but then prohibit it from

responding to the audit’s findings.

¶ 23 While Sharp recognizes in some cases an administrative agency’s powers may evolve by

fair implication from an express provision of a statute, he asserts this is not the case here as

neither the Board’s fiduciary duty nor its audit power implies it has continuing jurisdiction to

review its final decisions after the time period provided for by the Administrative Review Law

or SERS’s own rule. As support for his contention, Sharp points to the express authority

granted to municipal police pension boards and the State Universities Retirement System

(SURS) to review and correct certain errors outside of the Administrative Review Law’s

35-day limit. 40 ILCS 5/15-186.1, 3-144.2 (West 2010).

¶ 24 We agree with Sharp the legislature expressly granted SURS the authority to correct a

mistake in benefits at any time. Section 15-186.1 of the Pension Code provides as follows:

“If [SURS] mistakenly sets any benefit at an incorrect amount, it shall recalculate the

benefit as soon as may be practicable after the mistake is discovered.

***

If the benefit was mistakenly set too high, [SURS] may recover the amount

overpaid from the recipient thereof, plus interest at the effective rate from the date of

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overpayment to the date of recovery, either directly or by deducting such amount from

the remaining benefits payable to the recipient. However, if (1) the amount of the

benefit was mistakenly set too high, and (2) the error was undiscovered for 3 years or

longer, and (3) the error was not the result of incorrect information supplied by the

affected member or beneficiary, then upon discovery of the mistake the benefit shall be

adjusted to the correct level, but the recipient of the benefit need not repay to [SURS]

the excess amounts received in error.” 40 ILCS 5/15-186.1 (West 2010).

Additionally, the legislature expressly granted municipal police pension boards the power to

deduct from future pension or benefit payments “any overpayment, due to fraud,

misrepresentation or error.” 40 ILCS 5/3-144.2 (West 2010).

¶ 25 While SERS acknowledges the legislature did not grant it the express authority to fix errors

in its pension calculations, it urges this court to infer its authority based on the objectives for

which SERS was created, its fiduciary duty, and its audit power. We decline to do so.

¶ 26 “The primary objective in construing a statute is to ascertain and give effect to the intent of

the legislature.” Alvarez v. Pappas, 229 Ill. 2d 217, 228, 890 N.E.2d 434, 441 (2008). The

legislature clearly knows how to grant a pension board the authority to fix errors it makes in

pension calculations outside of the 35-day period of review provided by the Administrative

Review Law, as it has done so for SURS and municipal police pension boards. Further, both

SERS and SURS were created for the same purpose–to provide retirement annuities and

benefits to their employees. Likewise, both SERS and SURS have fiduciary duties and the

power to audit (compare 40 ILCS 5/15-174 (West 2010), with 40 ILCS 5/14-135.06 (West

2010)). Despite the similarities between these pension boards, the legislature decided to

include an express provision granting SURS the authority to correct its mistakes at any time,

but did not do so for SERS. Had the legislature intended SERS to have this authority, surely it

would have stated as much.

¶ 27 In addition, the Board argues it is contrary to public policy to prevent it from correcting

what it asserts are “computational errors.” See generally Yaccino v. State Farm Mutual

Automobile Insurance Co., 346 Ill. App. 3d 431, 439, 804 N.E.2d 677, 684 (2004) (noting a

“public policy interest in protecting public funds”); Aetna Casualty & Surety Co. of Illinois v.

James J. Benes & Associates, Inc., 229 Ill. App. 3d 413, 421, 593 N.E.2d 1087, 1092 (1992)

(noting a “public policy interest of protecting public funds and property and preventing the

diversion of tax monies from their intended purpose of paying damage claims”). We disagree.

¶ 28 The Board is not estopped from fixing errors it makes in its calculation of pension benefits;

it must simply correct those mistakes within the 35-day period provided for by the

Administrative Review Law. We note the Board found an error in the calculation of Sharp’s

pension benefits by May 19, 2011, 21 days after its initial April 29, 2011, approval of his

pension benefits. The Board notified Sharp of the error, collected an overpayment, and reduced

Sharp’s monthly pension. The Board should have noticed any error in the rate used to compute

his pension at that time, but it did not. Absent statutory authority, the Board may not correct the

error now. Perhaps the Board should have the authority to do so. This is a matter for the

legislature. It is not appropriate for the court to imply such authority.

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¶ 29 C. Whether SERS Actions Violated the Illinois

Administrative Procedure Act

¶ 30 Sharp also asserts even if the Board has implied authority to reconsider its final order

beyond the 35-day period allowed by the Administrative Review Law, the Board violated the

Illinois Administrative Procedure Act by (1) applying a policy not promulgated in its adopted

rules and (2) adopting a rule (80 Ill. Adm. Code 1540.270(d)(10)(B) (2008)) in direct conflict

with the Illinois Administrative Procedure Act (5 ILCS 100/10-35(b) (West 2010)), i.e.,

requiring a bystander’s report of its hearings in lieu of a verbatim transcript. Because we find

the Board does not have authority to fix errors it makes in the formula used in its pension

calculations outside the 35-day period of review provided by the Administrative Review Law,

we need not determine whether SERS’s rule requiring a bystander’s report of its hearings

violates the Illinois Administrative Procedure Act (5 ILCS 100/1-1 to 15-10 (West 2010)).

¶ 31 D. Whether the Board Is Estopped From

Reducing Sharp’s Monthly Pension

¶ 32 Because we find the Board lacks authority to reduce his monthly pension benefit, we need

not address Sharp’s argument the doctrine of equitable estoppel would prevent the Board from

doing so. However, we note based on what the Board considered to be its implied authority to

correct errors in the calculation of pension benefits it approved nearly nine months prior, it

notified Sharp it would be reducing his monthly benefit from $3,148.85 to $2,496.16, and

would need to collect an overpayment of $5,874.21. The record is devoid of whether the

$2,496.16 is the amount SERS would pay, or the combined amount of SERS and IMRF.

¶ 33 Based on the Board’s letter and the overpayment of $5,874.21 it is trying to collect, it

appears the $2,496.16 would be the total amount from both SERS and IMRF ($3,148.85 minus

$2,496.16 times 9 equals $5,874.21). However, prior to retiring, Sharp obtained the following

two pension estimates from SERS: (1) $2,897.86 assuming an August 1, 2010, retirement

($2,371.57 from SERS and $526.19 from IMRF) and (2) $2,970.53 assuming a January 1,

2011, retirement ($2,439.72 from SERS and $530.81 from IMRF). Sharp retired March 21,

2011. Based on these prior two estimates, it appears the $2,496.16 is the monthly pension

amount from SERS only, as it is not likely a retiree’s pension would decrease $652.69 by

retiring nearly three months after the date considered by the last estimate.

¶ 34 E. Attorney Fees and Costs

¶ 35 Last, Sharp requests a remand for a hearing on an award of attorney fees and costs. His

claim for attorney fees, however, is couched in his argument SERS violated the Illinois

Administrative Procedure Act by (1) following a policy for which it did not promulgate a rule

or (2) adopting a rule, i.e., the use of a bystander’s report, in direct conflict with the Illinois

Administrative Procedure Act. Because this court declines to reach either argument, we cannot

reach Sharp’s argument for attorney fees and costs.

¶ 36 III. CONCLUSION

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¶ 37 For the reasons stated, we affirm the circuit court’s judgment reversing the Board’s order.

¶ 38 Affirmed.

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