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Hawaii public employee pension overhauls approved

By Mark Niesse

Associated Press

LAST UPDATED: 12:44 p.m. HST, May 5, 2011

The Hawaii Legislature approved a measure overhauling the state's underfunded pension system by reducing benefits of new public employees hired.

The House of Representatives unanimously voted Thursday to pass the bill, sending it to Gov. Neil Abercrombie for his signature or veto.

The legislation raises the retirement age, lowers retirement payouts and requires higher worker contributions to pension accounts.

It also increases the amount of time before employees become vested, and it lowers the system's projected return on investment.

The changes were estimated to save the state about $440 million over the next five years as it tries to reduce the $7.1 billion unfunded liability of the Employees' Retirement System.

The changes would affect only new hires, and the state's existing employees would continue under current benefit levels of the Employees' Retirement System.

Modifications to Hawaii's retirement system include raising the retirement age, lowering retirement payments by adjusting how they're calculated and requiring higher worker contributions to pension accounts. The amount of time before employees are vested would increase, and the system's projected return on investment would be reduced, from 8 percent to 7.75 percent.

The measure was estimated to save $440 million over the next five years, with additional savings in the future as newer hires make up a larger part of the government work force.

"It's a very good start toward getting us where we need to be in terms of a better-funded status," said Wesley Machida, the retirement system's administrator. "The system will be more financially sound in the future."

The ERS is only 61 percent funded, with its invested assets worth about $11 billion compared to the $18 billion amount that would be in the system if it were fully funded.

The Hawaii Government Employees Association, the state's largest public worker labor union with more than 28,000 active state and county workers, has said it isn't opposing the reforms. The union declined to comment Wednesday.

Other labor unions fear long-term damage to state employee pay and benefits.

"This proposed legislation will establish a retirement system that will diminish the compensation of new employees by providing less retirement benefits than guaranteed current employees," said Kristeen Hanselman, associate executive director for the University of Hawaii Professional Assembly, in written testimony. "This can impede the recruitment and retention of future faculty by creating an inequity in the conditions of employment."

It's unclear whether this bill will do enough to reduce the state's unfunded liability projected over the next 30 years.

The retirement system will continue to evaluate investment return rates, payroll growth, retirees' lifespans and contribution levels, Machida said.

"I don't know for sure that it will solve the whole problem. It's certainly a gigantic step in the right direction," said House Labor Committee Chairman Karl Rhoads (D, Kakaako-Downtown).

The legislation previously passed the Senate, but negotiators on a conference committee last week couldn't agree on proposals to revise the bill.

Instead of letting the measure die, House leaders moved to agree to the Senate's version of the bill.

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