The issue of cost of living increases for survivors from downstate police pension funds has been debated for many years. Recently, the Second District Appellate Court addressed this issue by ruling that recipients of downstate police pension surviving spouse benefits are not entitled to cost of living increases. Although the ruling resolves the legal question, it raises a number of procedural questions on how to remedy cost of living increases previously awarded in error to surviving spouses.

On May 19, 2008, the Second District Appellate Court issued a ruling in Village of Roselle v. Roselle Police Pension Board, Ill.App. 3d , 889 N.E.2d 665 (2^nd Dist. 2008). In Village of Roselle the spouse of a deceased Roselle police officer applied for a surviving spouse pension. In granting the pension to the officer’s widow, an issue arose regarding her entitlement to cost of living increases under Article 3 of the Illinois Pension Code, the article applicable to the downstate police pension funds. The Roselle Police Pension Fund Board of Trustees allowed the Village of Roselle to intervene in a hearing on the widow’s entitlement to the increases before the Board and to weigh in on the matter.

The Village argued that pursuant to Section 3-112(a) of the Illinois Pension Code, a surviving spouse was entitled only to the fixed benefits that the police officer had been receiving at the time of his or her death and was not eligible to receive cost of living increases (40 ILCS 5/3-112(a)). The Village also pointed to an advisory opinion issued by the Division of Insurance that concluded a police officer’s pension is fixed at his or her date of death with no further increases. Contrary to the Village’s position, the Board’s attorney argued that Section 3-112(a) was ambiguous and survivors retain all of the police officer’s rights, including cost of living increases. Ultimately, the Board awarded the cost of living increases, and the Village filed an administrative review action with the circuit court.

The circuit court reversed the Board’s decision, finding there was no statutory support for the Board’s position. On appeal, the Second District Appellate Court affirmed the trial court’s decision. The court held that since the relevant statutes did not specifically address annual cost of living increases for surviving spouses of police officers, there was no legal support for granting such increases. Similarly, it is interesting to note that Article 4 of the Illinois Pension Code, the article applicable to the downstate firefighters’ pension funds, also does not specifically provide for cost of living increases to surviving spouses (see 40 ILCS 5/4-114).

Police pension fund boards which granted 3% cost of living increases to surviving spouses now face the dilemma of correcting that error. The question is whether the board should:

• return the surviving spouses’ pension benefit to the original benefit amount received prior to the erroneous 3% increases received over the years; or
  
  
• freeze the benefits at the current level and discontinue any additional 3% increases.

Furthermore, a second question for boards in this situation is whether the board in its fiduciary role should seek to recapture any benefits overpaid to the surviving spouses when it erroneously granted the 3% increases.

Section 3-144.2 of the Illinois Pension Code provides:

The amount of any over payment, due to fraud, misrepresentation or error, of any pension or benefit granted under this Article may be deducted from future payments to the recipient of such pension or benefit. (40 ILCS 5/3-144.2)

Although this language appears to allow a police pension board that granted cost of living increases to a surviving spouse in “error” the ability to recover the amounts overpaid, Illinois case law does not support this interpretation.

In Sola v. Roselle Police Pension Board, 342 Ill.App.3d 227 (2^nd Dist. 2003), the Second District determined that a change in a pension board’s interpretation of the Illinois Pension Code did not qualify as an “error” that would allow the pension board to modify a pension pursuant to Section 3-144.2. Ironically, Sola addressed the identical issues of 3% increases to surviving spouse pensions in the Village of Roselle case, although the Second District declined to rule on whether there was legal support to grant cost of living increases to surviving spouses in Sola. The Second District held that the pension board could not modify an improper cost of living increase award after thirty-five days of granting the award.

Given that the Sola case seems to prohibit the modification of pension benefits after thirty-five days of the board granting the award, the question then turns to how pension boards who have improperly granted cost of living increases to surviving spouses can remedy the situation.

Initially, there does not appear to be any legal or public policy support for attempting to recoup overpayments made to surviving spouses. However, pension boards should halt future cost of living increases for surviving spouse pensions. Since cost of living increases are awarded annually, pension boards should notify the surviving spouse of the change in the interpretation of the law prior to the next annual cost of living increase and inform them that they are not legally entitled to any future cost of living increases.

It is recommended that the notification be in writing and include the date and time of the pension board meeting at which the board will approve pensions and cost of living increases for the upcoming year. At that meeting, the pension board should state specifically that the affected surviving spouses are no longer entitled to cost of living increases pursuant to the Village of Roselle case. A written order of the pension board’s action should be sent to the surviving spouse by certified mail.

Technically, each surviving spouse has the right to file an administrative review action against the board within thirty-five days to contest the cessation of the increases. However, based upon Village of Roselle, a trial court would have a difficult time advancing the procedural ruling in Sola over the substantive ruling in Village of Roselle.