NO. 4-09-0810 Filed 8/12/10
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
CARL SARTWELL, ) Appeal from Plaintiff-Appellant, ) Circuit Court of v. ) Sangamon County THE BOARD OF TRUSTEES OF THE TEACHERS’ ) No. 09MR122 RETIREMENT SYSTEM OF THE STATE OF ) ILLINOIS, ) Honorable Defendant-Appellee. ) Peter C. Cavanagh, ) Judge Presiding. _________________________________________________________________
JUSTICE McCULLOUGH delivered the opinion of the court:
In February 2009, defendant, the Board of Trustees of
the Teachers’ Retirement System of the State of Illinois (Board),
denied plaintiff, Carl Sartwell, $12,430.54 in salary credit
toward his retirement pension for the conversion of noncreditable
fringe benefits into salary in the 2005-06, 2006-07, and 2007-08
school years. The Board found that Sartwell failed to timely
appeal a 2005 teachers’ retirement system (retirement system)
staff determination regarding the conversion and to rebut the
presumption of conversion by clear and convincing evidence. On
appeal, the circuit court of Sangamon County affirmed the Board’s
judgment.
Sartwell appeals, arguing (1) his appeal falls within the six-month appeal period because the staff made a second
determination of noncreditability in January 2008, within six
months of his May 2008 appeal; (2) the 2005 letter violated his
procedural-due-process rights because it failed to notify him it
was an appealable staff determination; (3) his increase in salary
did not violate the conversion rule; and (4) the conversion rule
is arbitrary and therefore invalid. We affirm in part, reverse
in part, and remand with directions.
In February 2004, Sartwell and the Board of Education
of Rossville-Alvin Community Unit School District No. 7 (Dis-
trict) agreed to a three-year employment contract. The District
hired Sartwell to work as the district superintendent and high
school principal for three years beginning in the 2004-05 school
year. Sartwell’s total creditable earnings toward his retirement
amounted to $88,010.98. That figure included $76,490 in salary
and $3,600 toward a tax-deferred annuity, totaling $80,090. The
District contributed 9.89% of his $80,090 salary into the retire-
ment system, raising his total to $88,010.98 in creditable
income. The District also paid $12,912.66 in noncreditable
benefits for medical insurance for Sartwell and his family.
After the 2004-05 school year, the District opted to close the
high school due to financial pressures.
- 2 - In August 2005, the District and Sartwell entered into
a two-year contract for him to become the district superintendent
and principal of the district’s grade school beginning July 1,
2005. Sartwell’s base salary rose to $85,000, while the tax-
deferred annuity contribution rose to $5,600. His compensation
totaled $90,600. The contract also cut the District’s payment of
medical insurance for Sartwell and his family. Sartwell’s wife
began a new job in 2005, at which she was able to purchase
medical insurance for $4,930.56 per year. According to an
affidavit from Sartwell, coverage through the District would have
cost over $14,000 for the 2005-06 school year.
Sartwell reported his income to the Board as
$104,441.52, although it is not clear how he arrived at that
figure. The Board’s records show that the District contributed
10.37% of Sartwell’s $90,600 salary into the retirement system,
which would amount to $100,000.22. The Board arrived at a total
of $99,560.43 in reportable earnings, which would indicate the
District contributed 9.89% of Sartwell’s salary into the retire-
ment system. In any case, the Board accepted Sartwell’s figure
and found that he received a raise of $12,430.54 from the 2004-05
to 2005-06 school years.
In November 2005, Sartwell received a copy of a letter
- 3 - to the District from an employer services auditor employed by the
retirement system. The letter follows, in pertinent part:
"The [t]eachers’ [r]etirement [s]ystem
has reviewed the contracts submitted on Mr.
Sartwell’s behalf for the 2004-05 and 2005-06
school years.
[The retirement system] periodically
reviews employer records to ensure that prop-
er service credit and salary information are
reported for its members. ***
If there is a decrease in noncreditable
compensation in the last seven creditable
school years of employment, the [s]ystem
considers the difference to have been con-
verted into salary for the purpose of in-
creasing final average salary. ***
* * *
Based upon our review, it is our under-
standing that beginning with the 2005-06
school year, [the District] discontinued
providing Mr. Sartwell with board-paid health
insurance benefits. Absent any documentation
- 4 - to the contrary, [we] must presume the full
family coverage previously paid by the [Dis-
trict] on Mr. Sartwell’s behalf was converted
to salary for the purpose of increasing final
average salary. Such converted salary will
be excluded from creditable earnings if Mr.
Sartwell retires before the 2011-12 school
year."
The letter also provided Sartwell with contact informa-
tion for the retirement system employee who made the conversion
determination. Sartwell did not respond to the letter until
October 2007, when he sent a letter to the retirement system
seeking to rebut the presumption of conversion communicated in
the November 2005 letter. Sartwell alleged that the District
stopped paying for benefits "to save a financially-ailing dis-
trict a substantial amount of money and further, was pursuant to
a change in family status."
In December 2007, Sartwell drafted another letter to
the retirement system, which stated, in pertinent part, as
follows:
"As an employee[,] the difference be-
tween the premium and the benefit provided by
- 5 - my wife’s employer had to be paid through
payroll deduction, so the [District] opted to
provide the cost of the insurance to me in
the form of salary. The cost of the insur-
ance to my wife was *** $2,881.58 annually.
The cost of the insurance to the board would
have exceeded $14,000 in annual premiums.
Thus the [District] achieved a significant
cost savings as a result eliminating [sic]
the provision of the contract that provided
for board-paid family health insurance.
There is no additional 'side' payment to me
for insurance nor was there ever one. ***
The remaining difference in salary that
was provided the [s]uperintendent between the
two contracts can be explained by a change in
job responsibilities[,] or what I labeled a
change 'in employment.' The [District] faced
significant financial problems and declining
enrollments. After considering all the op-
tions available to them, the [District] opted
to reduce costs by deactivating Rossville-
- 6 - Alvin High School and paying a negotiated
tuition to two [h]igh [s]chools in neighbor-
ing districts to provide the educational
services to Rossville-Alvin students. At the
time, the administration of the *** district
consisted of one [g]rade [s]chool principal,
one [h]igh [s]chool principal, and the
[s]uperintendent. As a result of the reorga-
nization, only the [s]uperintendent would
remain employed by the district. The
[s]uperintendent’s job responsibilities were
redefined to include responsibilities of the
[g]rade [s]chool [p]rincipal. The [D]istrict
justified the additional compensation because
the [s]uperintendent would assume the dual
role."
In a January 2008 letter, retirement system staff
rejected Sartwell’s request. The letter noted the existence of
the November 2005 letter and characterized Sartwell’s request as
one to reconsider the prior decision. On the merits, the retire-
ment system found that neither cost savings and financial gain to
the District nor Sartwell’s change in job responsibilities
- 7 - overcame the presumption of conversion. In February 2008,
Sartwell received a letter from the general counsel of the
retirement system enclosing the rules for administrative review
of the January 2008 denial of his request.
Sartwell retired after the 2007-08 school year.
Pursuant to the retirement system’s conversion finding, the
retirement system deducted $12,430.54 from Sartwell’s reported
salary for the 2005-06 through 2007-08 school years.
In May 2008, Sartwell appealed the retirement system
staff’s denial to the Board, which referred the matter to its
claims hearing committee. Sartwell attached affidavits from
himself and Dennis Price, the president of the District’s board
of education, to his appeal. Sartwell’s affidavit restated his
earlier arguments but also admitted that his insurance costs for
2005-06 were $4,930.56. Price’s affidavit stated as follows:
"Sartwell’s salary was increased *** for the
purpose of compensating him fairly for assum-
ing the duties of [g]rade [s]chool [p]rincip-
al after the deactivation of the high school,
and to reimburse Sartwell for the costs of
the health insurance premiums he would be
paying *** through his wife’s employer."
- 8 - The committee recommended upholding the staff decision
to deduct $12,430.54 from Sartwell’s creditable salary. The
committee’s written recommendation found that Sartwell failed to
file a timely appeal and, in the alternative, his salary increase
violated the conversion rule. Regarding timeliness, the commit-
tee found that the November 2005 letter constituted a staff
disposition. Pursuant to section 1650.620 of Title 80 of the
Illinois Administrative Code (Illinois Code) (80 Ill. Adm. Code
§1650.620, as amended by 25 Ill. Reg. 203, 211 (eff. December 22,
2000)), Sartwell failed to file his appeal within the six-month
period permitted for appeals of staff dispositions. The commit-
tee also found that the staff’s continued correspondence with him
did not waive the appeal period.
Regarding the conversion rule itself, the committee
found Sartwell failed to overcome the presumption of conversion.
First, the committee found Sartwell had different, rather than
more, job duties as the superintendent and grade-school principal
in 2005-06 as compared to his duties as superintendent and high-
school principal in 2004-05. Second, the committee found that
his wife’s change in jobs was not a "change in family status."
The committee defined a "change in family status" as a legal
change, such as marriage or divorce.
- 9 - In February 2009, the Board voted to adopt the commit-
tee’s recommended decision. In September 2009, the circuit court
affirmed the Board’s decision.
This appeal followed.
Sartwell argues as follows: (1) he filed a timely
appeal from the January 2008 rejection letter, (2) the failure to
provide notice of the finality of the November 2005 letter and
his appeal rights violated his procedural-due-process rights, (3)
the Board erred when it determined he violated the conversion
rule, and (4) the conversion rule is arbitrary and therefore
invalid.
In an appeal from an administrative agency’s decision,
this court reviews the agency’s determination, not that of the
circuit court. Marconi v. Chicago Heights Police Pension Board,
225 Ill. 2d 497, 531, 870 N.E.2d 273, 292 (2006). In all admin-
istrative proceedings, the plaintiff bears the burden of proof.
Marconi, 225 Ill. 2d at 532-33, 870 N.E.2d at 293. Based upon
the question presented, this court reviews agency determinations
under three distinct standards of review. The agency’s interpre-
tation of a statute or administrative rule is a question of law,
which receives de novo review. Marconi, 225 Ill. 2d at 532, 870
N.E.2d at 293. The agency’s factual determinations will be
- 10 - upheld unless they are against the manifest weight of the evi-
dence. Kouzoukas v. Retirement Board of the Policemen’s Annuity
& Benefit Fund, 234 Ill. 2d 446, 465, 917 N.E.2d 999, 1011
(2009). A finding is against the manifest weight of the evidence
where the opposite conclusion is clearly apparent. Peacock v.
Board of Trustees of the Police Pension Fund, 395 Ill. App. 3d
644, 652, 918 N.E.2d 243, 250 (2009). Finally, this court
reviews mixed questions of fact and law under the clearly errone-
ous standard. See McKee v. Board of Trustees of the Champaign
Police Pension Fund, 367 Ill. App. 3d 538, 543, 855 N.E.2d 571,
575 (2006). An administrative agency’s decision is clearly
erroneous where the reviewing court comes to the definite and
firm conclusion that the agency has committed an error. Cinkus
v. Village of Stickney Municipal Officers Electoral Board, 228
Ill. 2d 200, 211, 886 N.E.2d 1011, 1018 (2008). The clearly
erroneous standard provides some deference based upon the
agency’s experience and expertise, falling between de novo and
manifest-weight-of-the-evidence review. McKee, 367 Ill. App. 3d
at 543, 855 N.E.2d at 575.
Sartwell argues that the court should apply a de novo
standard of review because his argument involves the construction
of "staff disposition" as used in section 1650.620 of the Illi-
- 11 - nois Code (80 Ill. Adm. Code §1650.620, as amended by 25 Ill.
Reg. 203, 211 (eff. December 22, 2000)). To the extent the
appeal involves the construction of "staff disposition," we
agree. The pertinent text of the rule follows:
"Any member, beneficiary, annuitant[,] or
employer may appeal a staff disposition of a
claim or interpretation of the [Illinois
Pension Code (Pension Code) (40 ILCS 5/1-101
through 24-109 (West 2004))] to the Board ***
within [six] months after the staff disposi-
tion or interpretation, by filing a written
request for an administrative review with the
[e]xecutive [d]irector." 80 Ill. Adm. Code
§1650.620, as amended by 25 Ill. Reg. 203,
211 (eff. December 22, 2000).
Neither party has provided a definition for "staff
disposition" found in the Board’s internal rules, the Illinois
Code, or statute, and this court’s own research reveals none.
Thus, we turn to principles of statutory interpretation. Admin-
istrative regulations have the force and effect of law and are
construed according to the same rules of construction governing
the construction of statutes. Kean v. Wal-Mart Stores, Inc., 235
- 12 - Ill. 2d 351, 368, 919 N.E.2d 926, 936 (2009). The touchstone of
construction is administrative intent. People v. Hanna, 207 Ill.
2d 486, 497, 800 N.E.2d 1201, 1207 (2003). The language of the
regulation itself provides the best evidence of administrative
intent. People ex rel. Madigan v. Illinois Commerce Comm’n, 231
Ill. 2d 370, 380, 899 N.E.2d 227, 232 (2008). Where the language
of the regulation is clear and unambiguous, this court will apply
it as written. Madigan, 231 Ill. 2d at 380, 899 N.E.2d at 232.
Black’s Law Dictionary defines "disposition" as a
"final settlement or determination." Black’s Law Dictionary 505
(8th ed. 2004). Similarly, Merriam-Webster’s Collegiate Dictio-
nary defines "disposition" as a "final arrangement." Merriam-
Webster’s Collegiate Dictionary 335 (10th ed. 2000). Based upon
those definitions, this court concludes that a "staff disposi-
tion" is a final determination or decision regarding an interpre-
tation of the Pension Code or an administrative rule made by a
member of the retirement system staff. Whether the November 2005
letter fell within the definition of "staff disposition" is
reviewed under the clearly erroneous standard. McKee, 367 Ill.
App. 3d at 543, 855 N.E.2d at 575.
The Board’s determination that the November 2005 letter
constituted a staff disposition was clearly erroneous. The
- 13 - letter informed Sartwell that the retirement system had deter-
mined his salary increase violated section 1650.450 (80 Ill. Adm.
Code §1650.450, as amended by 27 Ill. Reg. 1668, 1675-78 (eff.
January 17, 2003)). To fall within the definition of "staff
disposition," the letter had to inform Sartwell in some manner of
the decision’s finality. The November 2005 letter did not state
that the decision was final. Instead, the letter sought
Sartwell’s response and provided him with contact information for
the employee who had made the decision. It likewise did not
provide time limits within which Sartwell had to respond.
Further, the November 2005 letter could not have
achieved the measure of finality necessary to become a staff
determination fit for judicial review following an appeal to the
Board. Jurisdiction exists in a court of review only where the
parties present a justiciable matter. In re M.W., 232 Ill. 2d
408, 424, 905 N.E.2d 757, 769 (2009). Where a controversy is not
ripe for review, it is not justiciable. Morr-Fitz, Inc. v.
Blagojevich, 231 Ill. 2d 474, 489, 901 N.E.2d 373, 384 (2008).
To determine whether an issue is ripe, courts examine (1) the
issue’s fitness for judicial determination and (2) any hardship
that would result from withholding a judicial ruling. Morr-Fitz,
231 Ill. 2d at 490, 901 N.E.2d at 384. An issue is not fit for
- 14 - judicial determination where an administrative decision has not
been formalized and the parties would not feel the effects of the
controversy’s resolution. Alternate Fuels, Inc. v. Director of
the Illinois Environmental Protection Agency, 215 Ill. 2d 219,
231, 830 N.E.2d 444, 451 (2004).
Here, any determination made in November 2005 was not
fit for judicial determination because it had no impact on the
parties. To violate the conversion rule, the change must take
place within seven years of retirement. 80 Ill. Adm. Code
§1650.450(c)(6), as amended by 27 Ill. Reg. 1668, 1677 (eff.
January 17, 2003). Until an employee makes the decision to
retire, that date is not fixed. The November 2005 letter had no
financial impact on Sartwell. It does not appear from this
record that, for example, the Board returned a portion of the
school district’s contribution toward Sartwell’s retirement paid
for the 2004-05 and 2005-06 school years. The Board accepted the
entire contribution, and rightly so, because Sartwell could have
retired following the 2011-12 school year. In that event, the
conversion rule would not have applied, and the instant dispute
would not have arisen.
For those reasons, the November 2005 letter was not a
staff determination. Accordingly, the staff disposition did not
- 15 - occur until January 2008, from which Sartwell filed a timely
appeal to the Board. Because of our ruling, we need not deter-
mine whether the letter violated Sartwell’s constitutional
rights.
Sartwell next argues that the Board erred when it
determined his salary increase violated the conversion rule.
According to Sartwell, his wife’s eligibility for health benefits
through her new employer was sufficient to overcome the presump-
tion of conversion. The Board argues that the change in employ-
ment of Sartwell’s spouse did not constitute a "change in family
status" overcoming the presumption of conversion.
The retirement system was created to provide retirement
annuities and other retirement benefits for teachers. 40 ILCS
5/16-101 (West 2006). To determine the proper annuity for a
retiring teacher, retirement system staff must determine a
member’s final average salary. See 40 ILCS 5/16-133(a)(B) (West
2006). "Final average salary" is defined as the average of the
highest four consecutive years of salary within the last 10 years
of creditable service, subject to the rules of the Board. 40
ILCS 5/16-133(b) (West 2006). "Salary" is defined as the "actual
compensation received by a teacher during any school year and
recognized by the [retirement] system in accordance with the
- 16 - rules of the [B]oard." 40 ILCS 5/16-121 (West 2006). Section
1650.450(a) of the Illinois Code defines "salary" more specifi-
cally as "[a]ny emolument of value recognized by the [s]ystem
that is received, actually or constructively, by a member in
consideration for services rendered as a teacher." 80 Ill. Adm.
Code §1650.450(a), as amended by 27 Ill. Reg. 1668, 1675 (eff.
January 17, 2003). Subsections 1650.450(b) and (c) of the
Illinois Code provide specific examples of compensation included
and excluded from the calculation of final average salary. 80
Ill. Adm. Code §§1650.450(b), (c), as amended by 27 Ill. Reg.
1668, 1676-78 (eff. January 17, 2003). Section 1650.450(c)(6)
excludes from the compensation of final average salary the
following:
"Any amount paid in lieu of previously
nonreportable benefits or reported in lieu of
previously non-reported compensation where
the conversion occurs in the last years of
service and one of the purposes is to in-
crease a member’s average salary." 80 Ill.
Adm. Code §1650.450(c)(6), as amended by 27
Ill. Reg. 1668, 1677 (eff. January 17, 2003).
The conversion rule applies where (1) the member
- 17 - receives a pay raise, (2) the raise was received in lieu of
previously nonreportable benefits, (3) it occurred in the last
years of service, and (4) one of the purposes of the raise was to
increase average salary. 80 Ill. Adm. Code §1650.450(c)(6), as
amended by 27 Ill. Reg. 1668, 1677 (eff. January 17, 2003). A
presumption of conversion applies where, in the last seven years
of service, nonreportable benefits exceed those of any subsequent
year. 80 Ill. Adm. Code §1650.450(c)(6), as amended by 27 Ill.
Reg. 1668, 1677 (eff. January 17, 2003). Where the presumption
of conversion arises, the member must prove by clear and convinc-
ing evidence that "none of the purposes of the change in compen-
sation structure was to increase average salary." 80 Ill. Adm.
Code §1650.450(c)(6), as amended by 27 Ill. Reg. 1668, 1677 (eff.
January 17, 2003). The regulation then gives three examples of
changes that would rebut the presumption of conversion: changes
in a collective-bargaining agreement applicable to all similarly
situated individuals, change of employer, and change in family
status. 80 Ill. Adm. Code §1650.450(c)(6), as amended by 27 Ill.
Reg. 1668, 1677-78 (eff. January 17, 2003).
Again, where the language of a regulation is unambigu-
ous, it must be given its plain and ordinary meaning. Madigan,
231 Ill. 2d at 380, 899 N.E.2d at 232. On the other hand, where
- 18 - a regulation’s language is ambiguous, this court must resort to
other methods of statutory interpretation. County of Du Page v.
Illinois Labor Relations Board, 231 Ill. 2d 593, 604, 900 N.E.2d
1095, 1101 (2008). A statute is ambiguous where it is capable of
more than one reasonable interpretation. County of Du Page, 231
Ill. 2d at 604, 900 N.E.2d at 1101.
In its written decision, the Board wrote that a "change
in family status" was limited to a change in the composition of
the family unit. Its examples included marriage, divorce, birth
of a dependent child, or loss of a dependent child. It specifi-
cally stated that a "change in the employment of a spouse is not
a change in the family status." The Board argues that this court
should defer to its interpretation of "change in family status"
because it is the agency charged with the rule’s enforcement.
"It is generally recognized that courts will give substantial
weight and deference to an interpretation of an ambiguous statute
by the agency charged with the administration and enforcement of
the statute." Illinois Consolidated Telephone Co. v. Illinois
Commerce Comm’n, 95 Ill. 2d 142, 152, 447 N.E.2d 295, 300 (1983).
An agency’s interpretation expresses an informed opinion on
legislative intent, based upon expertise and experience.
Abrahamson v. Illinois Department of Professional Regulation, 153
- 19 - Ill. 2d 76, 98, 606 N.E.2d 1111, 1121 (1992). However, a court
is not bound by an agency’s erroneous interpretation of a statute
or administrative regulation, no matter how long the interpreta-
tion has persisted. Abrahamson, 153 Ill. 2d at 97, 606 N.E.2d at
1121.
The regulation is unambiguous. The regulation’s plain
language does not limit the member’s methods of proof to one of
the enumerated examples. The examples show the types of proof a
member could offer to rebut the presumption of conversion. See
Merriam-Webster’s Collegiate Dictionary 402 (10th ed. 2000)
(defining "example" as "one that serves as a pattern to be
imitated"). The examples are not the only methods of rebutting
the presumption of conversion. The member may prove through any
evidence and by any reasoning that none of the purposes of the
change in compensation structure was to increase average compen-
sation. Our conclusion leads to two questions: (1) whether the
term "change in family status" includes a change in employment of
a member’s spouse; and (2) whether Sartwell has rebutted the
presumption of conversion.
"Change in family status" is ambiguous. It is not
defined in the regulation itself, nor is it a term of art.
However, it is defined in two other subsections of Title 80 of
- 20 - the Illinois Code to describe events permitting a health-care-
benefit election change outside an open enrollment period for
state employees. See 80 Ill. Adm. Code §2110.30(a), as amended
by 31 Ill. Reg. 352, 357 (eff. December 28, 2006); 80 Ill. Adm.
Code §2120.30(a), as amended by 30 Ill. Reg. 15119, 15124 (eff.
September 6, 2006). Section 2120.30(a) defines the term as
"'Change in Family Status' means mar-
riage, divorce, death of spouse or dependent,
birth or adoption of child, commencement or
termination of employment of spouse, signifi-
cant change in cost or benefits coverage of
the [employee] or spouse due to the spouse's
employment, switch from full-time to part-
time status of spouse, or from part-time to
full-time, or unpaid leave of absence of
[employee] or spouse, or any other events
that the Department [of Central Management
Services] determines constitute a change in
family status." (Emphasis added.) 80 Ill.
Adm. Code §2120.30(a), as amended by 30 Ill.
Reg. 15119, 15124 (eff. September 6, 2006).
- 21 - Section 2110.30 deals with dependent-care-reimbursement
plan election changes and defines a "change in family status" to
include the termination of a spouse’s employment, although not
the commencement of a spouse’s employment. 80 Ill. Adm. Code
§2110.30(a), as amended by 31 Ill. Reg. 352, 357 (eff. December
28, 2006). Many other states have defined "change in family
status" to include a change in the employment status of a covered
employee’s spouse. See, e.g., S.D. Codified Laws §3-12A-28
(Michie 2009) (including spouse’s change of employment status as
a "change in family status"); 805 Mass. Code Regs. §9.04(1)
(2009); W. Va. Code §151-1-2.1(a) (2009) (adopting attachment
including spouse’s change of employment as change in family
status). But see Wash. Adm. Code §182-26-325(1)(b) (2008)
(excluding spouse’s change in employment status as change in
family status).
Title 26, section 1.125-4(c), of the Code of Federal
Regulations (Federal Code) (26 C.F.R. §1.125-4(c) (2008)) also
defines change-in-status events upon which the state health-care
election change events are based. Change-in-status events permit
taxpayers revoking a health-care plan in a cafeteria-style
election system during a period of coverage to exclude from
taxable income the full premium. See 26 C.F.R. §1.125-4 (2008).
- 22 - Change in status includes a change in legal marital status,
number of dependents, residency, and employment status. 26
C.F.R. §1.125-4(c)(2) (2008). Employment status changes apply to
the employee, his spouse, and his dependents and include "a
termination or commencement of employment; a strike or lockout; a
commencement of or return from an unpaid leave of absence; and a
change in worksite." 26 C.F.R. §1.125-4(c)(2)(iii) (2008). At
least two states have defined change-in-status events qualifying
for a change-of-benefit election in lockstep with the Federal
Code. See Ky. Rev. Stat. Ann. §18A.227(1)(d) (2009); N.J. Admin.
Code §17:1-13.5(e) (2009).
Including a change in a spouse’s employment status as a
"change in family status" event also furthers the Board’s spe-
cific intent in promulgating the conversion rule. As the regula-
tion itself states, conversion is impermissible where "one of the
purposes is to increase a member’s average salary." 80 Ill. Adm.
Code §1650.450(c)(6), as amended by 27 Ill. Reg. 1668, 1677 (eff.
January 17, 2003). The regulation’s language shows the Board’s
intent to exclude illegitimate increases, those designed to
circumvent the conversion rule, from the consideration of final
average salary. The converse is true as well. Where the parties
lacked the intent to artificially increase final average salary,
- 23 - the regulation permits converted benefits to be considered in the
calculation of final average salary. The intent to artificially
increase salary is based upon an intent to retire, which has no
relation to a change in the employment status of a member’s
spouse.
Based upon the state and federal definitions of "change
in family status" and the purpose of the rule, we conclude that a
change in the employment status of a member’s spouse falls within
the definition of "change in family status" of section
1650.450(c)(6) (80 Ill. Adm. Code §1650.450(c)(6), as amended by
27 Ill. Reg. 1668, 1678 (eff. January 17, 2003)). Here,
Sartwell’s wife took a new job with Carle Clinic with health
insurance available at a lower cost than the school board could
offer. In response, the school board increased Sartwell’s salary
to reimburse him $4,930.56 for the cost of health insurance for
the 2005-06 school year. The change in employment was a "change
in family status" and rebutted the presumption of conversion
contained in the regulation. The $4,930.56 raise in 2005-06, and
any subsequent increases in the annual cost of health insurance
over the two following years, should have been included in the
calculation of his final average salary. The Board erred when it
- 24 - excluded those amounts as converted.
Turning to the balance of the 2005-06 raise, $7,499.98,
Sartwell wrote in his February 2008 letter that it was meant to
compensate him for increased duties as the district
superintendent and grade-school principal from the 2005-06
through 2007-08 school years. In the 2004-05 school year,
Sartwell worked as the district superintendent and principal of
the high school. The Board found that his duties were different,
but not increased, as a result of becoming the grade-school
principal. Sartwell remained a superintendent of a school
district and the principal of a school. His primary duties
stated in the February 2004 and August 2005 contracts were
exactly the same. Before the Board, Sartwell alleged that he had
increased duties starting in the 2005-06 school year, but the
record does not show precisely what those duties were. The
Board’s factual finding that Sartwell did not have increased job
duties was not against the manifest weight of the evidence.
According to the dissent, Sartwell had increased job
duties because he had to administer the grade school without the
assistance of a grade school principal or high school athletic
director. The record does not support those assertions. In
2004-05 Sartwell was the district superintendent and principal of
- 25 - the high school. In 2005-06, he was the district superintendent
and principal of the grade school. While the district had fewer
administrative staff members, it also had one less school, and
Sartwell remained the principal of only one school. With respect
to the high school athletic director, the record is devoid of
facts showing the functions, if any, that he performed in the
grade school. Based upon this record, the Board’s conclusion was
not clearly incorrect. Accordingly, the Board did not err when
it determined that Sartwell failed to overcome the presumption of
conversion with respect to the remaining $7,499.98 by clear and
convincing evidence.
Sartwell finally argues that the conversion rule is
invalid because it does not reasonably relate to the Pension Code
(40 ILCS 5/1-101 through 24-109 (West 2004)). Specifically,
Sartwell contends that the Board does not possess the authority
to limit creditable salary increases because the legislature has
already done so in the Pension Code. The Board argues that the
conversion rule is not unreasonable or arbitrary simply because
the legislature has imposed caps on creditable salary increases.
An administrative regulation will not be invalidated
unless it is arbitrary, unreasonable, or capricious. Begg v.
Board of Fire & Police Commissioners of the City of Park Ridge,
- 26 - 99 Ill. 2d 324, 331-32, 459 N.E.2d 925, 928 (1984).
Illinois Code section 1650.450 covers different subject
matter than Pension Code sections 16-133(b) and 16-158(f).
Sections 16-133(b) and 16-158(f) of the Pension Code regulate the
State's and employer's fiscal liability with respect to a
member's salary increase. Section 16-133(b) (40 ILCS 5/16-133(b)
(West 2004)) excludes all salary increases over 20% in any given
year from the calculation of final average salary. Section
16-158(f) (40 ILCS 5/16-158(f) (West Supp. 2005)) requires
employers to pay contributions to the retirement system for all
salary increases over 6% granted to members.
On the other hand, section 16-121 of the Pension Code
directs the Board to define "salary" for the purpose of fixing
contributions due to the retirement system. 40 ILCS 5/16-121
(West 2004). Section 1650.450 of the Illinois Code (80 Ill. Adm.
Code §1650.450, as amended by 27 Ill. Reg. 1668, 1675-78 (eff.
January 17, 2003)) defines "salary" pursuant to that directive.
Section 1650.450(c)(6) excludes from the definition of "salary"
any compensation paid in lieu of previously nonreported fringe
benefits, such as health insurance. 80 Ill. Adm. Code
§1650.450(c), as amended by 27 Ill. Reg. 1668, 1677-78 (eff.
January 17, 2003).
- 27 - The Pension Code sections regulate contributions while
the Illinois Code section defines "salary." For example, an
employee might receive both a raise and convert certain benefits,
such as health insurance, into salary for the purpose of
increasing final average salary. The converted amount does not
constitute "salary." Converted benefits are, by definition, not
"salary" and not covered by the cited sections of the Pension
Code. Therefore, section 1650.450(c)(6) of the Illinois Code is
not unreasonable or arbitrary.
The Board erred when it found Sartwell’s appeal
untimely and excluded the amount paid to him toward the purchase
of health insurance for the school years 2005-06 through 2007-08.
Those amounts were paid pursuant to a change in family status and
should have been included in the calculation of his final average
salary. Because the record does not show the amount Sartwell
paid for health insurance in the 2006-07 and 2007-08 school
years, we remand to the Board with instructions to hold a hearing
to determine the amounts paid toward health insurance premiums in
those years, which are to be included in the calculation of his
final average salary.
Affirmed in part and reversed in part; cause remanded
with directions.
- 28 - POPE, J., concurs.
MYERSCOUGH, P.J., specially concurs in part and
dissents in part.
- 29 - PRESIDING JUSTICE MYERSCOUGH, specially concurring in
part and dissenting in part:
I respectfully specially concur in part and dissent in
part. I agree Sartwell's request for administrative review was
timely and the change in employment was a change in family
status. However, the fact Sartwell received a raise resulting in
an increase in salary does not prevent Sartwell from overcoming
the presumption of conversion. All conversions result in an
increase in income. But not all of those increases can overcome
the presumption. According to Sartwell's affidavit, he had
increased job duties as grade-school principal and no longer was
aided by a principal and athletic director and had less staff
support. He also had 200 additional students.
"4. In 2005, I renegotiated a new
employment contract with the Board
(hereinafter '2005 Contract'), which
superceded the 2004 Contract. I renegotiated
my employment contract in 2005 because (1)
the District was deactivating the high school
due to financial problems, (2) I was taking
on the additional responsibilities of the
Grade School Principal, and (3) I wanted to
- 30 - present the Board with a less costly health
insurance option that I had access to through
my wife's new employer.
5. Before the high school was
deactivated, I was responsible for
supervising the operations of the high
school, which had an enrollment of
approximately 100 students. I was assisted
in this duty by the high school Principal and
the high school Athletic Director.
6. After the high school was
deactivated, I became responsible for
supervising the operation of the grade
approximately 300 students, in addition to my
duties as Superintendent. The High School
Principal, Athletic Director, and Grade
School Principal positions were cut as part
of the high school deactivation. As a
result, I had much less staff support in my
administrative role over the grade school
than I had at the high school.
- 31 - ***
9. It was the understanding between
myself and the Board that the only purposes
for my salary increase in my 2005 Contract
were to compensate me for my new
administrative role as Principal for the
grade school and to reimburse me for the cost
of my wife's much cheaper health insurance
premiums, since her employer could not deduct
the amount from my paycheck directly."
Further, Dennis Price, President of the Board of Education,
testified in his affidavit, the increase in salary was for the
additional duties and the Board did not contemplate retirement
before the 2011-12 school year.
"7. It was the collective understanding
of the Board that Sartwell's salary was
increased between the 2004 Contract and the
2005 Contract for the purpose of compensating
him fairly for assuming the additional duties
of Grade School Principal after the
deactivation of the high school, and to
reimburse Sartwell for the costs of the
- 32 - health insurance premiums he would be paying
to obtain family health insurance coverage
through his wife's employer.
8. At the time Sartwell's contract was
negotiated in 2005, the Board did not
contemplate that Sartwell would be retiring
before the 2011-2012 school year."
Sartwell has clearly rebutted the presumption of conversion as to
$12,430.54.
For these reasons, I would reverse.
- 33 -