People ex rel. Sklodowski v. State of Illinois

People ex rel. Sklodowski v. Illinois, No. 82459 (3/19/98)

Docket No. 82459--Agenda 22--September 1997.
THE PEOPLE ex rel. ROBERT SKLODOWSKI et al., Appellees, v. THE
STATE OF ILLINOIS et al., Appellants.
Opinion filed March 19, 1998.
JUSTICE NICKELS delivered the opinion of the court:
Beneficiaries in various state employee pension systems brought suit
seeking to compel the state and its officials to appropriate monies necessary to
meet statutory funding obligations contained in the Illinois Pension Code (40 ILCS
5/1--101 et seq. (West 1994)). The Cook County circuit court dismissed the action
on the pleadings, finding that the requested relief is barred by the separation of
powers clause of the Illinois Constitution of 1970 (Ill. Const. 1970, art. II, sec. 1).
The appellate court reversed. 284 Ill. App. 3d 809. We granted defendants'
petition for leave to appeal. 166 Ill. 2d R. 315.

BACKGROUND
This action began when six members of various state retirement systems
filed a complaint seeking mandamus, declaratory and injunctive relief in the circuit
court of Cook County. Plaintiffs included Robert Sklodowski, Thomas Hanahan,
Sandee Hanahan, Susan Lillis, Robert Negronida, and Mark Warden. Plaintiffs
subsequently filed a second-amended complaint, purporting to be both a class
action and a derivative action, naming as defendants the State of Illinois and its
officials: Governor Jim Edgar; the President of the Senate, Philip Rock; the
Speaker of the House of Representatives, Michael Madigan; the Comptroller,
Dawn Clark Netsch; and the Treasurer, Patrick Quinn. Also named as nominal
defendants were the Judges' Retirement System of Illinois (JRS), the State
Employees' Retirement System of Illinois (SERS), the State Universities
Retirement System (SURS), the Teachers' Retirement System of the State of
Illinois (TRS), the General Assembly Retirement System (GARS), and their
trustees.
In substance, plaintiffs' complaint alleged that the state failed to comply
with the funding provisions contained in Public Act 86--273, eff. August 23, 1989.
These provisions controlled funding of the five state retirement systems governed
by the Pension Code. See Ill. Rev. Stat. 1989, ch. 108«, pars. 2--124, 14--131, 15-
-155, 16--158, 18--131. The funding provisions contained in Public Act 86--273
required that, starting in 1990, the state would contribute additional incremental
amounts each year, that along with employer contributions, would in seven years
meet the annual normal cost for each fund, as well as satisfy the amount necessary
to amortize the unfunded liability for each fund over the next 40 years.
Plaintiffs' complaint first alleged that the State of Illinois and the trustees
of the pension funds, by failing to insure funding occurred in accordance with
Public Act 86--273, violated fiduciary duties owed to participants. Plaintiffs'
complaint also alleged that the state and its officials, in failing to appropriate
monies sufficient to satisfy Public Act 86--273, violated the pension protection
clause of the Illinois Constitution of 1970 (Ill. Const. 1970, art. XIII, sec. 5) and
impaired the contract rights of fund participants in violation of the contract clauses
of the United States Constitution (U.S. Const., art. I, sec. 10) and the Illinois
Constitution (Ill. Const. 1970, art. I, sec. 16). Plaintiffs' complaint also alleged
that defendants, in budgeting and appropriating less than is required under the
Pension Code, deprived them of property under color of law in violation of 42
U.S.C. sec. 1983 (1982).
Three of the nominal defendants, TRS, SERS, SURS, filed counterclaims
against the State of Illinois and its officials. These counterclaims were similar to
plaintiffs' claims. The trial court granted permission to intervene in the
proceedings to the Illinois Retired Teachers Association (IRTA), a not-for-profit
corporation whose purpose is to protect the interests of retired teachers. IRTA's
complaint also contained claims similar to those of plaintiffs and counterplaintiffs.
The trial court granted defendants' motions to dismiss each of these claims.
The trial court determined that all the claims were insufficient as a matter of law
because the requested relief, a judicial order requiring the state through its
legislative and executive officials to appropriate monies, would violate the
separation of powers clause of the Illinois Constitution (Ill. Const. 1970, art. II,
sec. 1). The trial court therefore dismissed plaintiffs' second-amended complaint,
intervenor IRTA's complaint, and the counterclaims of SURS, SERS, TRS. Each
appealed.
During the pendency of the appeal, the General Assembly passed Public
Act 88--593, which repealed Public Act 86--273 and amended the funding
provisions for each of the retirement systems at issue. See Public Act 88--593, eff.
August 22, 1994. This amendment required a lower level of state contributions
than previously required by Public Act 86--273, by reducing the ultimate funding
target from 100% to 90%, and by extending the time to reach that target from 40
to 50 years. See 40 ILCS 5/2--124, 14--131, 15--155, 16--158, 18--131 (West
1994). The amendment further provided for continuing automatic appropriations
for each pension system. See Pub. Act 88--593, eff. August 22, 1994 (adding 40
ILCS 15/1.1, 1.2 (West 1994)).
Based on this amendment, defendants moved in the appellate court to
dismiss the appeal as moot. This motion was taken with the case and summarily
denied by the appellate court without explanation.
In its opinion, the appellate court first determined that the state itself
should be dismissed from the lawsuit because the State Lawsuit Immunity Act
(745 ILCS 5/1 (West 1994)) grants the state immunity. However, the appellate
court concluded that the remaining state defendants could be made parties in their
official capacities. The appellate court reasoned that these claims were not against
the state, but were instead seeking only to require that state officials meet
statutory obligations set upon their offices.
The appellate court then examined whether the trial court erred in
dismissing all the claims on the basis that the requested relief, a judicial order
directing an appropriation of state monies to fund the retirement systems, would
violate separation of powers principles. The appellate court concluded that issuing
an order of mandamus compelling state officials to comply with the funding
requirements contained in the Pension Code would not violate the separation of
powers provision. The appellate court reasoned that the funding required by Public
Act 86--273 represents a mandatory duty for state officials. Furthermore, a court
could, consistent with separation of powers principles, order the disbursement of
the state funds necessary to meet this duty without requiring a specific legislative
appropriation that meets constitutional standards (see Ill. Const. 1970, art. VIII,
sec. 2(b)).
After determining that the doctrine of separation of powers does not bar
the requested relief, the appellate court then examined plaintiffs' claims that they
had a contractual right protected by the pension protection clause of the Illinois
Constitution (Ill. Const. 1970, art. XIII, sec. 5) to have the state contribute the
funds necessary to meet the level of pension funding required by Public Act 86--
273. The appellate court concluded that the pension protection clause created a
contractual relationship under the Pension Code between the pension beneficiaries
and the state. Thus, the appellate court reasoned that the beneficiaries were
entitled to enforce the statutory funding levels contained in Public Act 86--273 as
a contractual right.
After the appellate court issued its opinion, this court decided McNamee
v. State of Illinois, 173 Ill. 2d 433 (1996). In McNamee, participants in police
pension funds brought an action arguing that an amendment to the Pension Code
changing the method of computing the annual amount necessary to amortize the
unfunded accrued liability of police pension funds violated the participant's
constitutional pension rights by making the funds less secure. The McNamee court
reviewed the debates from the constitutional convention and determined that the
pension protection clause created a contractual right only to receive benefits, but
did not control funding.
The appellate court subsequently issued a modified opinion which sought
to distinguish McNamee. The appellate court apparently reasoned that, even if the
framers did not intend to control funding with the passage of the pension
protection clause, the legislature's unilateral action of passing a funding statute
created an enforceable contractual right protected by that clause.
The appellate court also reasoned that the present case is distinguishable
from McNamee because the present claims included allegations that the pension
systems are in a precarious financial position and could be depleted by the years
2008 or 2009. The appellate court determined that these allegations are sufficient
to state a claim under the pension protection clause because they involve the
actual "impairment" of benefits, not merely funding.
The appellate court further determined in its modified opinion that
plaintiffs were also entitled to protection of these contract rights under the contract
clauses of the United States Constitution (U.S. Const., art. I, sec. 10) and the
Illinois Constitution (Ill. Const. 1970, art. I, sec. 16). The appellate court found
it unnecessary to address plaintiffs' fiduciary duty and section 1983 claims.
The appellate court denied defendants' motion for a certificate of
importance. See 155 Ill. 2d R. 316. We granted the defendants' petition for leave
to appeal. 166 Ill. 2d R. 315. We conclude that plaintiffs, counterplaintiffs, and
intervenor do not possess either a constitutional or vested contractual right to
enforce the funding obligations contained in Public Act 86--273. Therefore, we
reverse the appellate court and affirm the circuit court.

ANALYSIS
In determining the legal sufficiency of a complaint, all well-pleaded facts
are taken as true and all reasonable inferences from those facts are drawn in favor
of plaintiff. Connick v. Suzuki Motor Co., 174 Ill. 2d 482, 490 (1996). A
reviewing court must determine whether the allegations in a complaint, when
viewed in a light most favorable to the plaintiff, are sufficient to state a cause of
action upon which relief can be granted. Connick, 174 Ill. 2d at 490. The
sufficiency of a complaint is an issue of law that we review de novo. Toombs v.
City of Champaign, 245 Ill. App. 3d 580, 583 (1993).
The pension protection clause in the Illinois Constitution provides:
"Membership in any pension or retirement system of the
State, any unit of local government or school district, or any
agency or instrumentality thereof, shall be an enforceable
contractual relationship, the benefits of which shall not be
diminished or impaired." Ill. Const. 1970, art. XIII, sec. 5.
The primary purpose behind the inclusion of section 5 of article XIII was
to eliminate the uncertainty that surrounded public pension benefits at the time of
the 1970 Constitution. McNamee, 173 Ill. 2d at 440. Historically, Illinois adhered
to the traditional classification of pension plans as either mandatory or optional.
Where an employee's participation in a pension plan was mandatory, the rights
created in the relationship were considered in the nature of a gratuity that could
be revoked at will. See, e.g., Bergin v. Board of Trustees of the Teachers'
Retirement System, 31 Ill. 2d 566, 574 (1964); Jordan v. Metropolitan Sanitary
District of Greater Chicago, 15 Ill. 2d 369, 382 (1958); Blough v. Ekstrom, 14 Ill.
App. 2d 153, 160 (1957). Where, however, the employee's participation in a
pension plan was optional, the pension was considered enforceable under contract
principles. Bardens v. Board of Trustees of the Judges Retirement System, 22 Ill. 2d 56, 60 (1961); People ex rel. Judges Retirement System v. Wright, 379 Ill. 328,
333 (1942).
The pension protection clause contained in the 1970 Constitution served
to eliminate any uncertainty as to whether state and local governments were
obligated to pay pension benefits to their employees. The plain language of the
pension protection clause makes participation in a public pension plan an
enforceable contractual relationship and also demands that the "benefits" of that
relationship "shall not be diminished or impaired." Ill. Const. 1970, art. XIII, sec.
5. This court has held that the contractual relationship is governed by the actual
terms of the Pension Code at the time the employee becomes a member of the
pension system. Di Falco v. Board of Trustees of the Firemen's Pension Fund of
the Wood Dale Fire Protection District No. One, 122 Ill. 2d 22, 26 (1988); Kerner
v. State Employees' Retirement System, 72 Ill. 2d 507, 514 (1978).
Defendants argue that the appellate court erred in construing the pension
protection clause as a means to create a contractual right to force the appropriation
of monies to fulfil the statutory funding obligations in the Pension Code. Relying
on People ex rel. Illinois Federation of Teachers v. Lindberg, 60 Ill. 2d 266
(1975), and McNamee v. State of Illinois, 173 Ill. 2d 433 (1996), defendants argue
that the pension protection clause creates enforceable contractual rights only to
receive benefits, not control funding.
Plaintiffs contend that when the General Assembly amended the Pension
Code to establish a level of funding that would achieve full funding, those
requirements became an enforceable contractual relationship between the
beneficiaries and the state. This contractual relationship is then protected by the
pension protection clause, as well as the contract clauses of the United States and
Illinois Constitutions. In response to the defendants' case law, plaintiffs argue that
Lindberg leaves open the question of whether the legislature may create vested
contractual rights in the Pension Code. Furthermore, plaintiffs argue that the
McNamee case is distinguishable because here plaintiffs have alleged more than
a funding claim, they have alleged that the state's underfunding of these retirement
systems has impaired pension benefits by placing the funds in a precarious
financial condition.
In light of these arguments, we begin our analysis into the protection
afforded by the pension protection clause with a thorough examination of the
Lindberg and McNamee decisions. In Lindberg, participants in several teachers'
pension funds challenged then Governor Walker's item reduction of fiscal
appropriations made to their respective funds. The pension fund participants
argued that the Pension Code establishes and defines a contractual relationship
between themselves and the state which obligates the state to fulfill its statutory
funding commitments. Lindberg, 60 Ill. 2d at 271-72. In rejecting that contention,
the court stated that "the convention debates do not establish the intent to
constitutionally require a specific level of pension appropriations during a fiscal
period." Lindberg, 60 Ill. 2d at 272. This court concluded in Lindberg that the
pension protection clause does not create a contractual basis for participants to
expect a particular level of funding, but only a contractual right "that they would
receive the money due them at the time of their retirement." Lindberg, 60 Ill. 2d
at 271.
The Lindberg court, after concluding that the pension protection clause
does not control funding, also rejected the argument that the General Assembly
intended to create any "vested" contractual relationship in the Pension Code that
would allow participants to enforce funding provisions. Lindberg, 60 Ill. 2d at
275. The court reasoned that the statutory funding provisions at issue were no
different than past provisions, which had not been construed as conferring vested
rights. Lindberg, 60 Ill. 2d at 275.
In McNamee, plaintiffs filed a complaint in the circuit court alleging that
an amendment to the Pension Code violated the pension protection clause. At
issue was an amendment to a provision which involved the accumulation of a
reserve to pay off the accrued liabilities for certain municipal police pension
funds. Plaintiffs' complaint alleged that the refinancing allowed by the amendment
diminished and impaired the pension benefits of participants because it would
allow municipalities to contribute lower initial annual contributions to the police
pension funds. Plaintiffs contended this refinancing would make the fund less
secure, thereby violating constitutional rights of pension participants.
This court in McNamee exhaustively reviewed the debates from the
convention regarding the purpose of the pension protection clause. We found that
the "transcripts from the convention make clear that the purpose of the amendment
was to clarify and strengthen the right of state and municipal employees to receive
their pension benefits, but not to control funding." McNamee, 173 Ill. 2d at 440.
We concluded that the pension protection clause "creates an enforceable
contractual relationship that protects only the right to receive benefits." McNamee,
173 Ill. 2d at 446.
Plaintiffs contend that their claims are distinguishable from the claims at
issue in Lindberg and McNamee. Plaintiffs first argue that, even if the pension
protection clause itself was not intended to control pension funding, the General
Assembly can establish specific contribution levels by statute that become vested
contractual rights belonging to the pension fund participants. Plaintiffs contend
that the vested rights analysis conducted in Lindberg leaves open the question
whether, in a future case, the General Assembly may create a vested right to
pension funding.
The presumption is that laws do not create private contractual or vested
rights, but merely declare a policy to be pursued until the legislature ordains
otherwise. Fumarolo v. Chicago Board of Education, 142 Ill. 2d 54, 104 (1990).
A party asserting that a law creates a contractual right bears the burden of
overcoming this presumption. Fumarolo, 142 Ill. 2d at 104.
Plaintiffs present no cogent argument for why this pension funding
provision creates a vested right where the one at issue in Lindberg did not. There
is no vested right in the mere continuance of a law. Envirite Corp. v. Illinois
Environmental Protection Agency, 158 Ill. 2d 210, 215 (1994). The funding
provisions contained in the Pension Code give no indication of a legislative
intention to establish a contractual right. See Fumarolo, 142 Ill. 2d at 105 (finding
that tenure statute for teachers, although promissory in nature and designed to
induce employees to accept employment, did not create a vested contractual right
because of the lack of any clear evidence in the statute showing a legislative intent
to contract). We therefore reaffirm Lindberg and reject the contention that the
Pension Code establishes vested contractual rights to statutory funding levels.
Plaintiffs also argue that they have pleaded a claim under the pension
protection clause because they alleged not only a funding claim, but also that their
benefits are at risk. In McNamee, we recognized that, although the pension
protection clause protects benefits, not funding, a beneficiary need not wait until
benefits are actually diminished to bring suit under the clause. McNamee, 173 Ill. 2d at 446-47 (" `The word "impaired" is meant to imply and to intend that if a
pension fund would be on the verge of default or imminent bankruptcy, a group
action could be taken to show that these rights should be preserved' "), quoting
4 Record of Proceedings, Sixth Illinois Constitutional Convention 2926 (comments
of Delegate Kinney). The appellate court ruled that the present claims are
distinguishable from those in McNamee, because the present claims contain
allegations that underfunding has left the retirement systems in a "precarious
state."
These allegations of underfunding are insufficient as a matter law to
constitute an impairment of benefits. Plaintiffs, counterplaintiffs, and intervenor
have alleged only an opinion that present funding levels are insufficient, from a
prudential standpoint, to meet the accrued future obligations of the funds. The
claims contain no factual allegations that would support a finding that the funds
at issue are "on the verge of default or imminent bankruptcy" such that benefits
are in immediate danger of being diminished. We therefore reject the appellate
court's conclusion that plaintiffs, counterplaintiffs, and intervenor have stated a
cause of action under the pension protection clause.
We therefore find neither a vested contractual nor constitutional right for
beneficiaries to enforce the level of state contributions previously mandated by
Public Act 86--273. The framers of the Illinois Constitution were careful to craft
in the pension protection clause an amendment that would create a contractual
right to benefits, while not freezing the politically sensitive area of pension
financing. In addition, the funding provisions contained in the Pension Code do
not evince a legislative intent to create vested contractual rights in favor of
beneficiaries. Without either a constitutional or contractual right to enforce the
funding levels contained in Public Act 86--273, plaintiffs' fiduciary duty and
section 1983 claims similarly fail. As we find that plaintiffs, counterplaintiffs, and
intervenor have failed to state a cause of action on these grounds, we need not
address whether the requested relief is barred by the doctrine of separation of
powers.

CONCLUSION
For the foregoing reasons, the judgment of the appellate court is reversed,
and the judgment of the circuit court is affirmed.

Appellate court judgment reversed;
circuit court judgment affirmed.