                           ILLINOIS OFFICIAL REPORTS
                                         Appellate Court




   Board of Education of Schaumburg Community Consolidated School District No. 54 v.
                Teachers’ Retirement System, 2013 IL App (4th) 120419




Appellate Court            THE BOARD OF EDUCATION OF SCHAUMBURG COMMUNITY
Caption                    CONSOLIDATED SCHOOL DISTRICT NO. 54, Plaintiff-Appellant, v.
                           THE TEACHERS’ RETIREMENT SYSTEM OF THE STATE OF
                           ILLINOIS; THE BOARD OF TRUSTEES OF THE TEACHERS’
                           RETIREMENT SYSTEM OF THE STATE OF ILLINOIS; and
                           RICHARD W. INGRAM, Executive Director of The Teachers’
                           Retirement System of the State of Illinois, Defendants-Appellees.


District & No.             Fourth District
                           Docket No. 4-12-0419


Argued                     December 5, 2012
Filed                      January 7, 2013


Held                       For purposes of plaintiff school district’s retirement program and the
(Note: This syllabus       raises provided to some of its administrators that were in excess of 6% of
constitutes no part of     their salaries in years preceding their retirements, the Teachers’
the opinion of the court   Retirement System’s decision to deny plaintiff district’s request for an
but has been prepared      exemption from an assessment based on those increases was upheld and
by the Reporter of         the district was required to pay into the retirement system “the present
Decisions for the          value of the increase in benefits resulting from the portion of the increase
convenience of the         in salary that is in excess of 6%,” since the increases were pursuant to
reader.)
                           contracts “entered into, amended, or renewed” after June 1, 2005.


Decision Under             Appeal from the Circuit Court of Sangamon County, No. 11-MR-638; the
Review                     Hon. John Schmidt, Judge, presiding.
Judgment                   Affirmed.


Counsel on                 Andrew A. Malahowski (argued) and Scott R. Metcalf, both of Franczek
Appeal                     Radelet P.C., of Chicago, for appellant.

                           Ralph H. Loewenstein (argued), of Loewenstein, Hagen & Smith, P.C.,
                           of Springfield, for appellees.


Panel                      JUSTICE POPE delivered the judgment of the court, with opinion.
                           Justices Appleton and Knecht concurred in the judgment and opinion.




                                             OPINION

¶1           On October 28, 2011, the Board of Trustees for the Teachers’ Retirement System of the
        State of Illinois (TRS) voted to uphold the recommended decision of TRS’s claims hearing
        committee (Committee). In re Schaumburg Community Consolidated School District No.
        54, The Board of Trustees of the Teachers’ Retirement System (October 28, 2011). The
        Committee recommended denying the Board of Education of Schaumburg Community
        Consolidated School District No. 54’s (District) request for an exemption from an
        assessment issued pursuant to section 16-158(f) of the Illinois Pension Code (Pension Code)
        (40 ILCS 5/16-158(f) (West 2008)) against the District because the District provided some
        of its administrators raises in excess of 6% in the years preceding their retirements pursuant
        to the District’s voluntary retirement program (Retirement Program). In April 2012, the
        circuit court denied the District’s request for administrative review. The District appeals,
        arguing TRS’s interpretation of section 16-158(g) of the Pension Code (40 ILCS 5/16-158(g)
        (West 2008)) and sections 1650.483 and 1650.484 of title 80 of the Illinois Administrative
        Code (Administrative Code) (80 Ill. Adm. Code 1650.483, 1650.484 (2005)) is contrary to
        law and the plain language of its own regulations. We affirm the circuit court’s affirmance
        of TRS’s decision.

¶2                                      I. BACKGROUND
¶3          On February 26, 2003, the District and its teachers’ union agreed the Retirement Program
        would continue for the duration of the teachers’ collective-bargaining agreement and would
        be available for retirements with an effective date prior to June 30, 2011. The term of the
        collective-bargaining agreement between the teachers’ union and the District was July 1,
        2003, to June 20, 2009. The District’s board of education approved the Retirement Program
        on March 18, 2004.

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¶4        Retired District administrators and now TRS annuitants Robert Dewing, Craig Gaska,
     Mary Marello, Judith McDonald, Robert Kaplan, Joyce Drenth, and Patrick Hayes received
     retirement incentives pursuant to “Option C” of the District’s Retirement Program. “Option
     C” provided various retirement incentives to the administrators, including salary increases
     in excess of 6% per year.
¶5        The administrators at issue in this case did not have written contracts with the District
     nor were they union members covered by the collective-bargaining agreement between the
     teachers’ union and the District. However, the District considered them entitled to benefits
     and retirement incentives under the Retirement Program. The administrators fulfilled the
     notice requirements of the Retirement Program. Pursuant to the incentives in the Retirement
     Program, each administrator’s salary was increased by 20% over the prior years’
     compensation for the remaining two years.
¶6        TRS required the District to pay $586,387.81 plus interest of $1,245.81 into the
     Retirement System pursuant to section 16-158(f) of the Pension Code because the raises
     given by the District to the administrators exceeded 6%. The District claimed these raises
     were exempt and sought review of the assessment.
¶7        In its recommended decision, the Committee found the primary issue on administrative
     review had already been decided by TRS in In re Urbana School District No. 116, The Board
     of Trustees of the Teachers’ Retirement System (August 7, 2008). The Committee found the
     District in this case, like the Urbana School District, ignored section 10-23.8a of the School
     Code (105 ILCS 5/10-23.8a (West 2008)), which governs the employment of administrators,
     by arguing the administrators were employed pursuant to employment policies and not
     employment contracts. While the administrators in this case did not have written employment
     contracts, the Committee found these administrators had one-year contracts by operation of
     law. As a result, according to the Committee’s recommended decision, the administrators
     received the retirement incentives in question under nonexempt contracts.
¶8        As a result, the Committee found section 1650.484 of title 80 of the Administrative Code
     (80 Ill. Adm. Code 1650.484 (2005)) did not apply to the administrators in question in this
     case because the administrators had contracts by operation of law. According to the
     Committee:
          “Section 1650.484 applies to a small group of TRS members, who are at-will employees
          such as certain employees of the Illinois State Board of Education, TRS and in the
          Regional Offices of Education. However, assuming arguendo that 1650.484 does apply
          to these administrators, according to paragraph (c) of the rule, they would have been
          assumed to have a one year contract running from July 1, 2005[,] to June 30, 2006. Even
          under this scenario, the administrators did not exercise their retirement incentive rights
          under the exempt contract and the retirement incentives were not paid under the exempt
          contract, making Schaumburg ineligible for exemption.” In re Schaumburg Community
          Consolidated School District No. 54, Recommended Decision of the Claims Hearing
          Committee, at 9 (July 27, 2011).
     As a result, the Committee found the assessment the District received was statutorily
     required under section 16-158(f) of the Pension Code (40 ILCS 5/16-158(f) (West 2008)).


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¶9         On October 28, 2011, TRS made a final administrative decision, upholding the
       recommended decision of the Committee. In November 2011, the District filed a complaint
       for administrative review in the circuit court. The District asked the circuit court to reverse
       and set aside TRS’s October 28, 2011, administrative decision. On April 4, 2012, the circuit
       court denied plaintiff’s complaint for administrative review, thereby upholding the decision
       of TRS.
¶ 10       This appeal followed.

¶ 11                                         II. ANALYSIS
¶ 12       According to our supreme court’s decision in Provena Covenant Medical Center v.
       Department of Revenue, 236 Ill. 2d 368, 386, 925 N.E.2d 1131, 1142 (2010), “[w]hen an
       appeal is taken to the appellate court following entry of judgment by the circuit court on
       administrative review, it is the decision of the administrative agency, not the judgment of the
       circuit court, which is under consideration.” Our supreme court also stated:
               “Judicial review of administrative decisions is subject to important constraints
           regarding the issues and evidence that may be considered. If an argument, issue, or
           defense was not presented in the administrative proceedings, it is deemed to have been
           procedurally defaulted and may not be raised for the first time before the circuit court.
           [Citation.] In addition, ‘[t]he findings and conclusions of the administrative agency on
           questions of fact shall be held to be prima facie true and correct’ and ‘[n]o new or
           additional evidence in support of or in opposition to any finding, order, determination or
           decision of the administrative agency shall be heard by the court.’ 735 ILCS 5/3-110
           (West 2002). Consistent with these statutory mandates, we have held that ‘it is not a
           court’s function on administrative review to reweigh evidence or to make an independent
           determination of the facts.’ [Citation.] When an administrative agency’s factual findings
           are contested, the court will only ascertain whether such findings of fact are against the
           manifest weight of the evidence. [Citation.]
               The standard of review is different when the only point in dispute is an agency’s
           conclusion on a point of law. There, the decision of the agency is subject to de novo
           review by the courts. Yet a third standard governs when the dispute concerns the legal
           effect of a given set of facts, i.e., where the historical facts are admitted or established,
           the rule of law is undisputed, and the issue is whether the facts satisfy the statutory
           standard. In such cases, which we have characterized as involving a mixed question of
           law and fact, an agency’s decision is reviewed for clear error.” Provena, 236 Ill. 2d at
           386-87, 925 N.E.2d at 1142-43.
       The District argues TRS’s decision should be reviewed de novo because the issue before this
       court is whether TRS erred in interpreting the applicable statutes and regulations. TRS does
       not contest this standard of review. However, even when we apply a de novo review, our
       supreme court has stated an agency’s construction of a statute or rule is entitled to substantial
       weight and deference. Provena, 236 Ill. 2d at 387 n.9, 925 N.E.2d at 1143 n.9.
¶ 13       Turning to the merits of this case, section 16-158(f) of the Pension Code (40 ILCS 5/16-
       158(f) (West 2008)) requires a teacher’s employer to make additional payments to the

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       Teachers’ Retirement System in certain situations, stating in pertinent part:
           “If the amount of a teacher’s salary for any school year used to determine final average
           salary exceeds the member’s annual full-time salary rate with the same employer for the
           previous school year by more than 6%, the teacher’s employer shall pay to the System,
           in addition to all other payments required under this Section and in accordance with
           guidelines established by the System, the present value of the increase in benefits
           resulting from the portion of the increase in salary that is in excess of 6%.”
¶ 14       The parties agree the administrators in question are considered “teachers” under the
       Pension Code and received salary increases in excess of 6% after filing their individual
       notices of intent to retire. The parties also agree the raises in question were made pursuant
       to the District’s Retirement Program, which was approved by the District prior to June 1,
       2005. Based on the language of section 16-158(f), if no exemption applied, the District is
       required to contribute “the present value of the increase in benefits resulting from the portion
       of the increase in salary that is in excess of 6%” to the Retirement System.
¶ 15       However, section 16-158(g) provides a statutory grandfathering exemption, stating in
       pertinent part:
           “This subsection (g) applies only to payments made or salary increases given on or after
           June 1, 2005 but before July 1, 2011. The changes made by Public Act 94-1057 shall not
           require the System to refund any payments received before July 31, 2006 (the effective
           date of Public Act 94-1057).
                When assessing payment for any amount due under subsection (f), the System shall
           exclude salary increases paid to teachers under contracts or collective bargaining
           agreements entered into, amended, or renewed before June 1, 2005.” (Emphasis added.)
           40 ILCS 5/16-158(g) (West 2008).
       The District argues its Retirement Program, which was adopted by the District prior to June
       1, 2005, should be treated as a grandfathered contract pursuant to section 16-158(g).
¶ 16       According to the District, TRS erred in failing to treat the contract as grandfathered for
       the following reasons.
           “First, TRS misinterpreted the plain language of its administrative regulations, which
           clearly treat[s] employment policies such as the [Retirement Program] as exempt
           contracts under Section 16-158(g). Second, to reach this result, TRS misinterpreted the
           Illinois School Code’s provisions on the employment of school administrators. Third,
           TRS misinterpreted or otherwise ignored Illinois contract law and other decisional law
           that had a material effect [sic] on its decision. In short, the entire administrative review
           reveals that TRS was prepared to assess and uphold contributions against the District
           regardless of the law.” (Emphasis omitted.)
¶ 17       As to the District’s argument TRS misinterpreted the plain language of its own
       administrative regulations, the District cites sections 1650.483 and 1650.484 of title 80 of
       the Administrative Code (80 Ill. Adm. Code 1650.483, 1650.484 (2005)). Section
       1650.483(a) states:
           “The exemptions from employer contributions provided under 40 ILCS 5/16-128(d-10)


                                                 -5-
           and 40 ILCS 5/16-158(f) for those members who notify their employer of the intent to
           retire under the terms of an exempt contract or collective bargaining agreement but do
           not receive such incentives until after the expiration of the contract or collective
           bargaining agreement shall cease no later than three school years after the expiration of
           the contract or collective bargaining agreement or June 30, 2011, whichever is earlier.”
           80 Ill. Adm. Code 1650.483(a) (2005).
       Section 1650.484, which is titled, “Members Not Covered by Collective Bargaining
       Agreements or Employment Contracts,” provides as follows:
                “a) For members not covered by collective bargaining agreements or employment
           contracts, the System will accept employment policies as evidence of a contractual
           agreement under which salary increases paid and sick leave granted shall be exempt from
           employer contributions under 40 ILCS 5/16-128(d-10) and 16-158(f).
                b) Such policies must have been in effect prior to June 1, 2005.
                c) Employees operating under employment policies will be deemed to be employed
           under a one school year contract for exemption from employer contribution purposes
           under 40 ILCS 5/16-128(d-10) and 16-158(f) unless the salary increases and/or granting
           of sick leave under the policy are governed by provisions in the employer’s collective
           bargaining agreement, in which case the employer exemption shall end at the same time
           the exemption ends for that collective bargaining agreement.” 80 Ill. Adm. Code
           1650.484 (2005).
       Pursuant to the aforementioned TRS regulations, the District argues its Retirement Program
       must be accepted as an exempt contract by TRS because the prerequisites of those
       regulations have been met, including the following: (1) the administrators in question were
       not covered by employment contracts with the District and were not union members covered
       by the collective-bargaining agreement; (2) the administrators fulfilled the notice
       requirements of the Retirement Program by submitting their notices of intent to retire prior
       to the expiration of the Retirement Program; and (3) the Retirement Program was approved
       by the District’s board of education prior to June 1, 2005.
¶ 18       Relying on section 10-23.8a of the School Code (105 ILCS 5/10-23.8a (West 2008)),
       TRS argues the administrators at issue had employment contracts. Section 10-23.8a states
       in relevant part:
           “Principal and other administrator contracts. After the effective date of this amendatory
           Act of 1997 and the expiration of contracts in effect on the effective date of this
           amendatory Act, school districts may only employ principals and other school
           administrators under either a contract for a period not to exceed one year or a
           performance-based contract for a period not to exceed 5 years, unless the provisions of
           Section 10-23.8b of this Code or subsection (e) of Section 24A-15 of this Code otherwise
           apply.” 105 ILCS 5/10-23.8a (West 2008).
       Whether the administrators in question were operating under an employment contract is a
       crucial question in this appeal. The District’s argument it was exempt from extra
       contributions to the system pursuant to section 16-158(f) (40 ILCS 5/16-158(f) (West 2008))
       relies heavily on section 1650.484 (80 Ill. Adm. Code 1650.484 (2005)). If the administrators

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       were operating under employment contracts, section 1650.484 of title 80 of the
       Administrative Code would not apply to this case, since it only applies to individuals
       working without a contract.
¶ 19        The District argues section 10-23.8a of the School Code (105 ILCS 5/10-23.8a (West
       2008)) does not suggest an administrator without a written employment contract
       automatically has a one-year contract by operation of law. The District cites Fumarolo v.
       Chicago Board of Education, 142 Ill. 2d 54, 104, 566 N.E.2d 1283, 1305 (1990), for the
       proposition a legal presumption exists in Illinois a legislative enactment is not intended to
       create private contractual rights.
¶ 20        According to the District, TRS cannot overcome the presumption section 10-23.8a did
       not create private contractual rights between the District and its administrators. However, as
       the appealing party before this court, it is the District’s burden to explain why a contract
       between the District and the administrators was not created by operation of law pursuant to
       section 10-23.8a. The District simply argues, “Nowhere does [s]ection 10-23.8a suggest this
       result, nor does the statutory language suggest there is any result if a school district chooses
       to employ an administrator without an employment contract.” We disagree.
¶ 21        Section 10-23.8a clearly states “school districts may only employ principals and other
       school administrators under either a contract for a period not to exceed one year or a
       performance-based contract for a period not to exceed 5 years.” (Emphases added.) 105 ILCS
       5/10-23.8a (West 2008). The legislature’s use of the word “only” clearly limited the manner
       in which a school district can employ an administrator. The plain language of section 10-
       23.8a overcomes any presumption the statute was not intended to create a contract by law for
       at least a period of one year between administrators and the school district for which they
       work. The administrators in question had one-year contracts pursuant to section 10-23.8a,
       regardless of whether they entered into a written contract with the District. As a result,
       section 1650.484 of title 80 of the Administrative Code does not apply to the situation in this
       case.
¶ 22        However, even if the administrators in this case did not have employment contracts with
       the District, the District failed to establish its Retirement Program would qualify as an
       exempt grandfathered contract for the same period the collective-bargaining agreement
       between the District and its teachers’ union qualified for an exemption. Section 1650.484(c)
       of title 80 of the Illinois Administrative Code (80 Ill. Adm. Code 1650.484(c) (2005)), which
       only concerns members of the retirement system not covered by collective-bargaining
       agreements or employment contracts, states:
                 “c) Employees operating under employment policies will be deemed to be employed
            under a one school year contract for exemption from employer contribution purposes
            under 40 ILCS 5/16-128(d-10) and 16-158(f) unless the salary increases and/or granting
            of sick leave under the policy are governed by provisions in the employer’s collective
            bargaining agreement, in which case the employer exemption shall end at the same time
            the exemption ends for that collective bargaining agreement.” 80 Ill. Adm. Code
            1650.484 (2005).
       The record does not reflect provisions in the collective-bargaining agreement governed the


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       salary increases provided by the Retirement Program.
¶ 23        The District points to a February 2003 agreement between the District and the teachers’
       union that the Retirement Program would be available for the duration of the teachers’
       collective-bargaining agreement. However, the record does not reflect this agreement
       between the District and its teachers’ union was included in the terms of the collective-
       bargaining agreement. More important, as noted in the preceding paragraph, the District
       failed to establish the terms of the collective-bargaining agreement governed the salary
       increases at issue in this appeal.
¶ 24        The District also argues the Retirement Program was an independent contract for
       retirement incentives that qualified for an exemption pursuant to section 16-158(g) of the
       Pension Code (40 ILCS 5/16-158(g) (West 2008)). The District cites our supreme court’s
       decision in Duldulao v. St. Mary of Nazareth Hospital Center, 115 Ill. 2d 482, 505 N.E.2d
       314 (1987), for the proposition “a policy which is disseminated to employees and which
       could reasonably be understood as an offer is enforceable as a contract.” The District ignores
       another requirement in the formation of a contract–acceptance of the offer.
¶ 25        In Duldulao, the plaintiff alleged she had been discharged from her employment in a
       manner that violated the terms of her employer’s employee handbook. Duldulao, 115 Ill. 2d
       at 484, 505 N.E.2d at 315. Plaintiff claimed the handbook created enforceable contractual
       rights. Duldulao, 115 Ill. 2d at 484, 505 N.E.2d at 315. Our supreme court stated:
            “[W]e hold that an employee handbook or other policy statement creates enforceable
            contractual rights if the traditional requirements for contract formation are present. First,
            the language of the policy statement must contain a promise clear enough that an
            employee would reasonably believe that an offer has been made. Second, the statement
            must be disseminated to the employee in such a manner that the employee is aware of its
            contents and reasonably believes it to be an offer. Third, the employee must accept the
            offer by commencing or continuing to work after learning of the policy statement. When
            these conditions are present, then the employee’s continued work constitutes
            consideration for the promises contained in the statement, and under traditional principles
            a valid contract is formed.” Duldulao, 115 Ill. 2d at 490, 505 N.E.2d at 318.
       The employee handbook in question explicitly stated: “ ‘Please take the time to become
       familiar with these policies. They are designed to clarify your rights and duties as employees.
       Your observance of these policies will produce a safe and pleasant environment in which to
       work and assure you a respected place in Saint Mary’s family of employees.’ ” Duldulao, 115
       Ill. 2d at 486, 505 N.E.2d at 316. By working for defendant after receiving the employee
       handbook, the plaintiff accepted the offered terms of employment contained in the employee
       handbook.
¶ 26        According to the District, section 16-158(g) of the Pension Code (40 ILCS 5/16-158(g)
       (West 2008)) “grandfathers all contracts entered into prior to June 1, 2005, generally–not just
       employment contracts or collective bargaining agreements.” The District argues the
       Retirement Program “contract” is exempt because the District entered into the contract prior
       to June 1, 2005. The District’s reasoning is faulty because the adoption of the Retirement
       Program by the District and its agreement to continue the program for the duration of the


                                                  -8-
       collective-bargaining agreement between the District and its teachers’ union is not the
       contract at issue in this appeal. The contract at issue is the contract formed by the District and
       the administrators once the administrators submitted their irrevocable notice of intent to
       retire. Participation in the Retirement Program was not a term of employment the
       administrators agreed to by working for the District after learning of the program. This was
       not a compulsory retirement program.
¶ 27        If an independent contract was formed by an administrator’s agreement to take part in the
       Retirement Program, the contract was not formed until the administrator submitted his or her
       irrevocable notice of intent to retire under “Option C” of the Retirement Program. The
       notices in this case were submitted between December 2006 and November 2007. As a
       result, the salary increases at issue were paid to the administrators pursuant to contracts
       “entered into, amended, or renewed” after June 1, 2005, and therefore were not exempt. 40
       ILCS 5/16-158(g) (West 2008).
¶ 28        Finally, the District argued TRS’s decision in this case was predetermined and biased
       against the District. We find this argument has no merit.

¶ 29                                    III. CONCLUSION
¶ 30       For the reasons stated, we affirm the circuit court’s affirmance of the decision of the
       Teachers’ Retirement System Board of Trustees because the salary increases at issue were
       made pursuant to contracts “entered into, amended, or renewed” after June 1, 2005.
       Therefore, pursuant to section 16-158(f) of the Pension Code (40 ILCS 5/16-158(f) (West
       2008)), the District was required to pay into the retirement system “the present value of the
       increase in benefits resulting from the portion of the increase in salary that is in excess of
       6%.”

¶ 31       Affirmed.




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