Judge grants TRO in ERS lawsuit over Maui hospitals
An Oahu Circuit Court judge issued a temporary retraining order Monday barring state officials from implementing a new law that provides severance payments and retirement bonuses for state hospital workers when their jobs are privatized.
The Hawaii Employees’ Retirement System filed a lawsuit on Aug. 9 to block the new law, which would affect about 1,500 Maui County hospital workers.
Those workers at Maui Memorial Medical Center, Kula Hospital and Lanai Community Hospital will lose their state jobs when Kaiser Permanente takes control of those facilities later this year in what will be the largest privatization of public facilities in state history.
Kaiser will retain those workers at least through the end of 2017 and many are expected to remain on the job at those facilities after the transition is complete. However, they will no longer be state employees.
To ease that transition, lawmakers approved Senate Bill 2077 this year to provide either a lump sum cash payment or early retirement to workers who lose their state jobs, regardless of whether they later go to work for Kaiser.
Gov. David Ige vetoed the bill, warning that the measure could threaten the federal tax-exempt status of the ERS. Ige also cited concerns that lawmakers had not provided funding to pay for the severance payments for the hospital workers.
The Legislature overrode the governor’s veto last month, and the ERS promptly sued to try to block the new law. The ERS claimed the severance and retirement bonus package could be “catastrophic” to the ERS because it threatened the tax exempt status of the retirement fund.
On Monday Circuit Judge Jeannette Castagnetti issued a temporary retraining order preventing the state from implementing the new law until the court can consider an ERS request for a preliminary injunction in the case.
The ERS contends the new law could violate the Hawaii State Constitution by giving certain state employees an improper choice between either a cash severance payment or special early retirement benefits. The ERS contends the U.S. Internal Revenue Code does not allow the State to offer employees such a choice, and the new law could therefore prompt the Internal Revenue Service to disqualify the ERS as a tax-exempt entity.
Castagnetti ruled that the public interest “supported the issuance of a (temporary restraining order) as it is in the public interest to maintain the ERS’s tax-qualified status and to avoid any impairment of benefits to the ERS’s members,” according to a statement from the ERS.
The temporary stay delays implementation of the severance and retirement bonus package so that the ERS can seek guidance from the IRS on what the potential impact of the new law might be, according to the ERS.
Thomas Williams, executive director for the ERS, said in a written statement that he is “pleased that the court took action (Monday) and look forward to getting a response from the IRS as soon as possible. As we have maintained all along, our sole objective is to protect the State and county employees’ retirement benefits.”
The ERS is the retirement fund for 120,000 current and former state and county employees, and the fund currently has an unfunded liability of about $8.8 billion.
The severance payments for the hospital workers are not expected to affect the unfunded liability because the ERS does not expect it will have to fund those payments. However, the retirement bonuses would add to the ERS’ unfunded liability unless lawmakers provide money to cover the cost of those bonuses, ERS officials say.
Randy Perreira, executive director of the Hawaii Government Employees Association, was unavailable for comment on Castagnetti’s ruling. The HGEA staged an all-out lobbying effort at the state Legislature this year to convince lawmakers to approve the severance and retirement bonus package for the hospital workers.
The restraining order will not have any impact on the pending transfer of the three Maui County medical facilities, which has been strongly resisted by the public worker unions. The transfer is scheduled to be completed as early as Nov. 6.
11 responses to “Judge grants TRO in ERS lawsuit over Maui hospitals”
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Aren’t these state employees vested to the degree that they have worked for the state? Why would the legislature give a benefit for years not worked?
I don’t think the serverance is based on years not worked. It should be based on years worked and this is only allowing those who chose to retire, to collect based on those years. Depending on whether you are in the contributory system or non-contributory system, your retirement pay will be adjusted accordingly.
I think the fear is if this measure is allowed, the feds look at this action as something outside of what the retirement fund is supposed to be for. Assuming you have a affected employee who is 50 years old but has been working for the past 25 years at the hospital. The employee is short of retirement age.
I could be wrong on this but the ERS is also concerned because the aount of money it will take to pay those who choose early retirement and the future draw on the funds is not something they have included in their budget.
This measure is breaking new ground for the ERS since they are not fully funded at this point.
Yes Dai, I think you covered it accurately and succinctly. It’s future costs and precedents that are concerning the ERS and I think it’s reasonable for them to challenge the legislation in the courts.
(also SA: it’s not a “retraining ” order, it’s a “restraining order.” Once again, spell check is not the same as editing. I’m working on my second of a series of three mystery novels and I can tell you that without a sharp editor, no matter how hard the writer tries, it will be a shambles. Especially stuff written at 0200. The problem is that sloppy editing conveys the impression that the SA doesn’t care enough about the stories to proofread web content. In the long run, it will be a big mistake to ignore quality control in your writing.)
Special interest legislation is truly a wonderful thing.
It sure is. Lots of money gets spent on special interest…as long as the public benefits. In this case it includes money that the employees have also been putting money into every month when they draw their pay checks. The ERS is supposed to invest the money and grow the fund for their future retirement, like a 401 accout would do.
This could have been avoided if all of the players knew the rules and consequences. Too bad we have elected officials who know very little about what is going on.
They called a special session to override Ige’s veto. Just call another to undo it. Admit it was a mistake and fix it.
And let Maui residents pay for it.
Can a list be provided on which legislators voted to over ride Governor’s veto? If there is a possibility that this piece of legislation negatively jeopardizes the ERS’s tax liability status with the IRS, its common sense to determine this before putting something into law. You would expect these lawmakers to know that there are 120,000 retired State workers hat could be negatively affected. But then again when have we ever seen “common sense” and politicians mingle?
I’d like to know how my legislator voted, because if they were one of the “Lolo’s” that over rode the veto, they will not get my vote in the future. Plus I would like to ask them what their reason was, even if there was a possibility of shafting the 120,000 who already served the State. Hope it’s not because of the HGEA endorsements for the politicians!
It’s easier to list the ones who voted “no” on the veto over-ride – “NO” Senators: Ihara; Kim; Slom; L. Thielen. “NO” Representatives: Cachola; Say; C. Thielen. That’s it. All other senators and representative voted to give the employees extra retirement benefits or severance payments that they otherwise were not entitled to — even though they ALREADY had reduction-in-force rights to fall back on.
The Star-Advertiser doesn’t report that the Legislature’s bill provides separation payments and early retirement benefits not JUST for the Maui hospital workers, but for ANY state or county worker that may be part of ANY reduction in force, including the Maui hospital or any other even at any time in the future, in perpetuity. That’s your tax dollars, folks.