Hawaii State Pension Funding Status Improves

December 11, 2007 (PLANSPONSOR.com) - The Hawaii Employees' Retirement System's (ERS) funding shortfall declined for the first time in seven years.

The Honolulu Advertiser reports the plan’s unfunded liability declined to $5.11 billion in the year ended June 30 from $5.13 billion a year earlier, actuaries told ERS trustees on Monday. An actuarial consultant said the recent fiscal year’s improvement was primarily the result of good investment returns, including a 16.9% gain last year.

The current market value of more than $11.4 billion is sufficient for paying retirees’ and beneficiaries’ current pensions, but the amount needed to pay future benefits has been growing, along with the gap between what the state and counties have set aside and the amount needed, the news report said.

From 2000 to the middle of this year, the ERS liability has grown tenfold and the funding status dropped from about 95% to about 68%, one of the lower funding ratios among state pension plans in the country, according to the Advertiser. Much of the problem was caused during a 35-year period when state and counties diverted more than $1.69 billion owed to the pension fund into other programs to cover state budgetary shortfalls.

The Legislature stopped that practice and enacted changes to provide more money for the ERS unfunded liability. The actuary told trustees the state and counties are to be credited for stepping up their commitment. During this fiscal year, it’s estimated the state and counties will pay $489 million, or almost 14% of their worker payroll, into the fund, and during the next fiscal year funding will increase to at least $561 million.

The consultant warned that trustees and legislators need to be vigilant because the deficit problem could easily flare if investment returns fall below the system’s 8% target and if negotiators grant big pay raises to public workers in coming years.

Hawaii ‘s ERS currently pays benefits to 35,324 retirees, survivors, and beneficiaries, and covers 65,251 active members who work for the state, counties, and Board of Water Supply.