Board of Trustees of the City of Harvey Firefighters' Pension Fund v. City of Harvey
2017 IL App (1st) 153074
| Ill. App. Ct. | 2017Background
- The Board of Trustees of the City of Harvey Firefighters’ Pension Fund sued the City of Harvey alleging statutory underfunding of the firefighters’ pension, breach of a 1996 settlement (requiring timely remittance of levied property taxes and 12.2% of personal property replacement taxes), and sought declaratory, injunctive relief, mandamus, and damages covering 2005–2014.
- Discovery showed Harvey frequently failed to levy or remit amounts sufficient to meet annual actuarial requirements; many years (notably 2010–2013) had little or no municipal contributions while benefit payouts continued.
- Experts (actuaries, auditors, consultants) quantified contribution deficiencies and lost investment opportunity; estimates of cumulative shortfall ranged from roughly $8–12 million, with larger figures for total underfunding.
- The trial court granted the Pension Board declaratory and injunctive relief, enforced the 1996 settlement, assessed roughly $11.56 million in damages (including unremitted PPRT), but denied mandamus.
- On appeal the appellate court affirmed most rulings (statutory violation, breach of settlement, damages, rejection of separation-of-powers and laches defenses) but reversed the trial court’s conclusion that the pension fund was NOT on the verge of default — holding instead that the fund is on the verge of default or imminent bankruptcy and therefore constitutionally impaired.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Harvey breached the 1996 settlement (timely remit levied taxes and 12.2% PPRT) | Settlement required remittance within 30 days; Harvey misapplied/failed to remit levied and PPRT funds. | Harvey contends it never collected full levied amounts due to overall shortfalls and thus could not remit funds it did not receive. | Breach: court held Harvey violated the settlement; may allocate collection shortfalls proportionately but cannot charge the entire deficit to the pension levy. |
| Whether Harvey violated statutory funding duties under 40 ILCS 5/4-118(a) | City failed to levy and remit sums sufficient to meet annual actuarial requirements; the Code requires compliance with the statutory formula. | City has discretion in setting levies and should be liable only for the most recent actuarial requirement; some years lacked enrolled-actuary valuations. | Violation: court affirmed that Harvey abused its discretion and failed to comply with the statutory funding obligation. |
| Whether the pension fund is "on the verge of default or imminent bankruptcy" (constitutional protection) | Fund is rapidly depleting, expert testimony shows insolvency within years; firefighters’ benefits are therefore at immediate risk. | City argued the standard is draconian and not met; many Illinois pensions are underfunded but not constitutionally impaired. | Constitutional impairment found: appellate court (first to do so) held the Fund is on the verge of default given prolonged underfunding, asset depletion, expert opinions, and municipal mismanagement. |
| Damages: proper method and scope (years included; PPRT; lost investment earnings) | Damages should reflect cumulative missed annual actuarial requirements and lost investment returns; include years where valuations were reconstructed by enrolled actuaries. | City argued damages should be limited to the single most recent actuarial valuation and exclude years without enrolled-actuary valuations. | Damages affirmed: court upheld trial court’s methodology and award (~$11.56M plus PPRT and postjudgment interest), including reconstructed valuations for disputed years. |
| Separation of powers / laches / mandamus availability | Pension Board: judicial relief is appropriate to enforce statutory/fiduciary duties; mandamus inappropriate for discretionary levy but other equitable relief available. | City: separation of powers bars courts from directing taxation; laches/time-bar and immunity defenses apply; mandamus cannot command discretionary legislative acts. | Separation of powers and laches defenses rejected (except mandamus denied): court held equitable/judicial relief may enjoin statutory violations and laches did not bar the claim; mandamus denied because levy adoption is discretionary. |
Key Cases Cited
- People ex rel. Illinois Federation of Teachers v. Lindberg, 60 Ill.2d 266 (Ill. 1975) (constitutional pension clause does not require specific funding levels)
- McNamee v. State, 173 Ill.2d 433 (Ill. 1996) (constitutional clause protects benefits but not particular funding methods)
- People ex rel. Sklodowski v. State, 182 Ill.2d 220 (Ill. 1998) (statutes presumptively do not create vested contractual funding rights; plaintiffs must show verge-of-default factual allegations)
- In re Pension Reform Litigation (Heaton), 2015 IL 118585 (Ill. 2015) (constitutional protection of accrued pension benefits; analysis of funding and legislative changes)
- People ex rel. Toman v. Chicago & Northwestern Ry. Co., 377 Ill. 547 (Ill. 1941) (municipal officials’ discretion in allocating shortfalls from levies; does not excuse contractual/explicit levy remittance obligations)
- Mathews v. City of Chicago, 342 Ill. 120 (Ill. 1930) (courts generally defer to municipal discretion on taxation but can intervene for clear abuse)
- Board of Trustees v. City of Rockford, 96 Ill. App.3d 102 (Ill. App. 1981) (municipal discretion to set levies exists but must operate within statutory scheme)
- City of Evanston v. Board of Trustees, 281 Ill. App.3d 1047 (Ill. App. 1996) (levy is a discretionary municipal act not subject to mandamus; yet courts may enjoin abuses of statutory duty)