Participation in the State of Hawaii Deferred
Compensation Plan stands at about 35%. That far exceeds
the average 21.6% participation rate among state 457
plans, according to data from the National Association of
Government Defined Contribution Administrators, Inc.
(NAGDCA). Plan officials point to a major education push
and a culture that highly values saving as
explanations.
Photo by Marco Garcia
Bottom from left to right: Cynthia Akiyoshi, Marie
C.
Laderta, Georgina K. Kawamura;
Top from left to right: Tracy Kiyabu, Wayne Chu ,
Rodney J. Tam and Carol Raber
However, they want more of the approximately 57,000
eligible state and Hawaii County, Maui County, and Kauai
County employees to join the plan. (The City and County
of Honolulu do not participate.)
"We would like to see that participation rate
increase, so that employees can take advantage of the
benefits," says Cynthia Akiyoshi, a Personnel
Management Specialist at the State of Hawaii Department
of Human Resources Development. "Their deduction can
lower their tax bracket and, knowing that employees are
living longer, this can help them to be able to have
enough supplemental retirement savings."
So, a bill recently introduced in the Hawaii State
Legislature would automatically enroll employees into
what they call the "Island $avings Plan."
According to Senate Bill No. 3066, "Relating to the
State of Hawaii Deferred Compensation Plan," all new
state and participating county employees hired on or
after July 1, 2009, would be required to join the plan
and have 1% of their gross monthly wages deducted and
deposited into a default investment option selected by
the plan's board. They could opt out of the plan
within 90 calendar days.
"If it goes through, it will really help
prepare our employees for retirement by enhancing the
growth potential of their retirement savings and help us
with enrollment," says Marie Laderta, the
chairperson of the plan's board and Director of the
Department of Human Resources Development. At
press
time, a hearing had not been scheduled on the
legislation; the legislative session lasts until
May.
Cost of Living
Hawaii
's high cost of living helps explain why the minority
of employees participates now, Laderta says, along with
inertia. (The plan does not have an employer match.)
Inertia also likely plays a role in the reality that only
2.5% of participant assets have shifted to lifecycle funds
since their 2004 introduction in the plan, with nearly half
of total assets remaining in stable value.
"The board has been grappling with promoting
lifecycle funds and increasing participation, and they
are looking at different ways to do that," says Kim
Alger, Boston-based business leader for the public sector
at CitiStreet, the plan's third-party administrator
(TPA).
Having automatic enrollment and using lifecycle
funds as the default would help a lot. "They also are
looking at simplifying the enrollment form, so that
employees do not have to walk through all of the 10 core
funds to find lifecycle funds," she says.
Doing automatic enrollment in a 457 plan is a
fairly new concept, Alger says, but some states now are
following corporations in moving toward it in the wake of
the Pension Protection Act. Texas is implementing it, she
says, and a number of other states have legislation
pending that would allow automatic enrollment in a state
deferred compensation plan.
All state and participating county employees
eligible for the state's primary retirement vehicle,
the State of Hawaii Employees' Retirement System (ERS),
can participate in the 457 plan. As of July 2006, new
hires automatically participate in a new ERS contributory
plan to which they contribute 6% of their pay.
Existing employees could stay in the
noncontributory plan or switch, and approximately 55%
(which includes the City and County of Honolulu
employees) remain in the noncontributory plan.
A Three-Legged Stool
Unlike many private-sector employees, most Hawaii
state workers still have a three-legged stool to fund
their retirement years. Effective July 1, the statutory
employer contribution rates for general employees and
police/fire employees in the ERS system will be 19.7% and
15%, respectively.
Employees retire with varying percentages of
pre-retirement income from the ERS, based on the plan,
length of service, and average compensation. Assuming a
30-year career noncontributory employee, the retirement
benefit will be up to 37.5%, and less if a survivor
option is selected.
Assuming a 30-year career contributory employee,
the retirement benefit will be up to 60%, again less if a
survivor option is selected. Except for police and
firefighters, the eligible state and county employees
also are covered under Social Security.
"The deferred compensation plan is designed to
supplement that plan," Laderta says of ERS. "The state
wanted to encourage employees to put away more money for
their retirement years. Because of the cost of living
here, we do need more money."
Automatic enrollment would continue a proactive
mindset at the Hawaii plan that has, among other things,
resulted in an average deferral rate of 13.07%, or a $213
average dollar deferral rate, as of January. The $5,112
annual average deferral far surpasses the national
average of $3,486 pegged by NAGDCA, a professional
organization for deferred compensation and defined
contribution plan administrators from all 50 states and
more than 100 local governments and entities, as well as
providers.
(The organization bases its findings on 40 state
plans that responded to a biennial survey based on
year-end 2005 totals, and it currently is putting
together results based on year-end 2007
statistics.)
"What has been unique about that board is that they
really have a paternalistic approach concerning their
particÂipants," says Troy Saharic, Seattle-based West
Zone Business Leader at Mercer Investment Consulting, the
plan's investment adviser. "They put a lot of energy into
understanding how participants accumulate assets prior to
retirement, and the longevity risks
post-retirement."