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Officer Down

Monday, September 29, 2014

The dilemma of correcting pension benefit mistakes

-OBKCG- web Site-

--Mistakes happen. But are you made aware of when they do? Or, how they fixed? Your pension board is handling YOUR money. This is not money that just appears in a bank account for you. You pay part of your salary into the pension for your future and your local pension board is answerable to YOU. Learn what is going on!!!!!!!.--

Legal Insights for Pension Boards (Spring 2014)

by Vladimir Shuliga, Jr.

One of the most challenging issues for fire and police pension funds in Illinois is tackling the issue of a mistake made in a pension benefit it has previously granted. While the issue of benefit corrections is a universal problem for all public pension systems, Illinois has some of the most difficult law on this issue of any state. The authority to correct benefit mistakes, however, is a required component of any pension plan document under Internal Revenue Code provisions that provide our pension systems with “qualified plan status” and favorable tax status. (See 26 U.S.C. § 401(a))

In Illinois the legal authority given to the board of trustees of a pension fund to retroactively correct a mistake made in granting a benefit to a pensioner depends on which article of the Illinois Pension Code the fund is organized. However, applicable to all pension funds’ final decisions is the Illinois Administrative Review Law (735 ILCS 5/3-101 et seq.). Under the Administrative Review Law, a pension board can only revisit its decision within 35 days from the date that a copy of the written decision of the board is served on the party affected by the decision. (735 ILCS 5/3-103) Beyond the brief 35-day window a pension board is very limited in its ability to correct mistakes that may have been made in granting a pension benefit.

Section 3-144.2 of the Illinois Pension Code (which is applicable to police pension funds) provides that “the amount of any overpayment, due to fraud, misrepresentation or error . . . may be deducted from future payments to the recipient of such pension.” (40 ILCS 5/3-144.2) Typically fraud or misconduct would involve a pensioner intentionally misleading a pension fund when seeking a pension benefit. “Error,” on the other hand, would appear to encompass mistakes made in granting a benefit.

However, Section 3-144.2 has been interpreted to allow a police pension board to readjust pension payments where the board “made some inadvertent arithmetical error in calculating pension benefits,” but not as a means of circumventing the appeal period of the Administrative Review Law. (Rossler v. Morton Grove Police Pension Board, 178 Ill.App.3d 769 (1st Dist. 1989))

In Rossler, the Morton Grove Police Pension Board incorrectly calculated the amount of creditable time a police officer had due to its inclusion of a leave of absence as creditable time. The Board attempted to hold a rehearing to correct its error, but was precluded from doing so due to the lapse of the 35-day appeal period under the Administrative Review Law. The court found that the Board’s mistaken inclusion of a leave of absence as creditable time did not constitute an arithmetical error, as to permit the Board to recoup overpayment under Section 3-144.2 of the Code. Thus, based on the Rossler case, the authority granted to police pension funds under Section 3-144.2 of the Code is limited to arithmetical errors in calculating the benefit rather than errors in interpreting or applying provisions of the Pension Code.

Article 4 (which is applicable to firefighter pension funds) does not have a provision similar to Section 3-144.2 which would allow a fund to recoup overpayment. However, this does not mean that all benefits ever granted by a firefighter pension fund are forever etched in stone. There are other provisions within the Code which allow a fund to alter a benefit in certain situations. For instance, Section 4-117 directs a pension fund to suspend pension payments to a member of the fund who re-enters active service. (40 ILCS 5/4-117) Additionally, Section 4-112 requires a pension board to terminate a disability pension if it is determined that the firefighter on the disability pension has recovered from the disability. (40 ILCS 5/4-112) Furthermore, Article 4 makes it a crime to intentionally make a false statement or falsify documents in an attempt to defraud a pension fund. (40 ILCS 5/4-138.5) Inherent in that statutory provision is the fund’s authority to correct or terminate any benefit that was fraudulently induced.

However, these provisions envision a change in circumstances which change the status of the pensioner. Furthermore, the change in status is made prospectively. If a pension fund finds that a member of the fund receiving pension payments has re-entered active service, it must first make that finding and then suspend pension payments once that finding is made. Similarly, a pension fund must make the determination that a disability pensioner recovered from the disability and then must prospectively stop payments. In neither situation does the Code authorize a pension board to retroactively make the determination that a pensioner either recovered from a disability or re-entered active service.

In short, both police pension funds and firefighter pension funds are limited in their authority to correct mistakes made in granting benefits. The current state of the Illinois Pension Code does not offer any authority to firefighter pension funds to correct mistakes those funds may have made in granting benefits, and only allows police pension funds to recoup mistaken payments in instances of fraud, misrepresentation, or arithmetical error.

Although legislation has been introduced to expand the authority of Article 3 and Article 4 pension boards to correct benefit mistakes, pension funds are limited to the authority they are granted under the Illinois Pension Code until that legislation is passed.