The shortfall in Hawaii’s public employees pension fund mushroomed to $12.44 billion in fiscal 2016, setting the stage for more finger-pointing in the Legislature and dealing a financial blow to taxpayers who will have to dig deep to pay for it.

A report released Monday by an independent actuary showed the deficit in the state Employees’ Retirement System pension fund widened substantially from last year’s $8.77 billion, and the pension plan is only 54.7 percent funded compared with 62.2 percent funded a year ago.

The pension plan now needs an additional $385 million a year from taxpayers to make up for the shortfall, according to ERS Executive Director Thom Williams, who took over his position in November 2015. With that additional revenue, taxpayers would be paying $1.14 billion a year to help fund the pension plan, which provides retirement, disability and survivor benefits to more than 120,000 active, retired and inactive state and county employees.

“This is going to be a big pill to swallow,” ERS board member Colbert Ma­tsumoto said Monday.

Senate Ways and Means Committee Chairwoman Jill Tokuda (D, Kailua-Kaneohe) said the new calculations were shocking, and they effectively undermine the entire two-year proposed budget that Gov. David Ige submitted to lawmakers just last month.

“It’s stunning,” she said. “This is truly overwhelming.”

For lawmakers to confront a new demand for an increase in pension payments of $385 million per year, “we don’t have that kind of bottom line, we don’t have that kind of carryover, it does not exist in anyone’s budget right now,” Tokuda said.

“It can rain money out of the sky, it still cannot account for these kinds of payments,” she said.

A bill that the ERS is introducing in the Legislature, if adopted, would increase annual employer contribution rates for police and fire workers to 42.5 percent from the present 25 percent of an employees’ wages beginning July 1, and raise employer contribution rates for general employees to 24.75 percent from 17 percent on that same date.

Without the increases, it would take the fund 66 years, or until 2082, to become whole, according to projections from Dallas-based actuary Gabriel Roeder Smith & Co. With the added $385 million from taxpayers, the pension plan would be fully funded in 25 years, or 2042.

Williams said the increased shortfall is a result of the ERS lowering its investment target, ERS members living longer and higher-than-expected salary increases across the board.

He said $2 billion of the increased shortfall results from the ERS board lowering its assumed rate of investment return to 7 percent from 7.5 percent to reflect actual market conditions. That means the ERS will need more money from contributions to make up for what it is unable to earn in investments.

About $1.5 billion of the added shortfall is due to life expectancy changes with ERS members living longer from their age of retirement to their death. And an additional $300 million of the shortfall is due to salaries increasing more than anticipated.

Williams said the ERS board is not to blame for the increased shortfall.

“None of this is a result of any decisions that the trustees have made,” he said. “We don’t have any control over mortality increases; we don’t have any control over the investment markets broadly; we don’t control the rate of salary growth across the state; and we don’t control the contribution rates, which are established by the Legislature.”

House Finance Chairwoman Sylvia Luke (D, Punchbowl-Pauoa-Nuuanu) took issue with that statement last week, saying someone in the leadership of the pension fund should resign after the fund posted what she called a “pathetic” investment return of negative 1 percent in the fiscal year that ended June 30. Luke helps shape the state budget and is one of the most influential members of the state House.

The ERS board of trustees, which approves investment decisions, is made up of nine volunteer local business and community leaders. They are advised on investments by Portland, Ore.-based Pension Consulting Alliance, which was hired in 2008 and is paid by the ERS about $300,000 a year.

The ERS Board of Trustees, governors and Legislature have taken several steps over the last six years to try to shore up the pension shortfall.

In previous pension reforms, required employer and employee contributions were increased, and overall benefits have been reduced for new members. The ERS trustees also have restructured the pension portfolio to reduce its risk with more diversification, pursued investments that perform better in more volatile environments and obtained lower fees.

Williams said the $385 million additional contribution from taxpayers is necessary to put the pension plan, which had a market value of $14.1 billion as of June 30, on the right track.

“Even though these contributions are high, they are intended to avoid great expense down the road,” he said. “So the sooner we begin to address the unfunded liability in a proactive way, the less it will ultimately cost to amortize it. By implementing these increases, we would save $225 billion over the funded horizon. Right now with the proposed contribution increases, the plan would be funded in 25 years.”

The ERS pays out nearly $1.3 billion in benefits a year and brings in $993 million a year from employer and employee contributions.

Actuary Joe Newton of Gabriel Roeder Smith, who made a presentation to the ERS trustees Monday, said if the Legislature opted to phase in the contribution increases, the period of time before the pension plan became whole would be extended.

Pension woes like those in Hawaii are playing out nationwide with only three states fully funded, according to a recent Pew report.

In an August study by the Pew Charitable Trusts of the nation’s state-run retirement systems, Hawaii’s funded ratio was tied for ninth worst in the country with 64 percent, based on 2014 data for all states. Only three states — South Dakota (107 percent), Oregon (104 percent) and Wisconsin (103 percent) — were fully funded. Illinois and Kentucky, both at 41 percent, were the worst.

Tokuda was concerned that the state Council on Revenues recently reduced its estimate of how much the state will collect in taxes this fiscal year, noting the state is still negotiating with public worker unions that are seeking raises for their members.

“You have still outstanding collective bargaining and arbitration awards that have yet to be seen, and therefore what we really have is a fake budget,” Tokuda said.

State Finance Director Wes Machida told lawmakers last week the administration set aside some money in the budget to cover increased pension obligations, but Tokuda said she doesn’t believe the administration has enough money tucked away in the budget to absorb “anything in the neighborhood of $300 million.”

“The governor should just go back and start from scratch,” Tokuda said of Ige’s budget. “I know we’re two weeks from session, but at this point this is a game changer.”

Both the state and counties pay into the ERS, with the state paying between 75 and 80 percent of the total. Of the $385 million, the state’s share would result in a payment of between $289 million and $308 million.

Tokuda said it may be possible to defer some of the new cost, but “knowing these kinds of numbers, they only get bigger with time. … Typically, the longer you defer, the more it will cost.”

Star-Advertiser reporter Kevin Dayton contributed to this story.