                           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

follows:

                "'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

school, which had an enrollment of

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 -
