Public pensions in Hawaii
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|Public pensions in|
|General information (2013)|
|Total contributions: |
|Employee contributions: |
|Government contributions: |
|Total payments: |
|Total cash and investment holdings: |
|Number of state and local pension systems: |
1 (1 state systems, 0 local systems)
|Active membership: |
|Inactive membership: |
|Pension health (2012)|
|Actuarial accrued liability (AAL): |
|Unfunded actuarial accrued liability (UAAL): |
|Funded ratio: |
|UAAL per capita: |
in the states
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|Public pensions • State public pension plans • Hawaii state budget and finances|
|Note: This page utilizes information from a variety of sources. As such, the currency of the information varies somewhat. The information presented on this page reflects the most recent data available as of March 2015.|
- 1 Background
- 2 General information
- 3 Contributions
- 4 Payments
- 5 Cash and investment holdings
- 6 Pension health
- 7 Issues
- 8 Studies and reports
- 9 Transparency
- 10 Recent news
- 11 See also
- 12 External links
- 13 References
According to the United States Census Bureau, there was one public pension system in Hawaii as of 2013. Of these, one is a state-level program, and there are no programs at the local level. As of 2013, membership in Hawaii's various pension systems totaled 73,538. Of these, 66,226 were active members.
According to reports based on the most recent available data, most states' pension plans continued to be underfunded below the 80 percent considered necessary for a healthy fund. Decreased funding and increasing liabilities since the 2008 recession continued to put pressure on local and state budgets, in some cases leading to bankruptcy. Higher pension costs can have the following consequences:
- higher taxes
- less intergovernmental aid for services
- lower credit ratings
- higher interest rates on state borrowing
- See also: Historic Hawaii pension information
Pension systems vary greatly across the states in their organization, management and accounting principles, and are extremely complicated and difficult to compare. The basic data on this page comes from the U.S. Census Bureau, as reported by the states and pension funds themselves. Also included are comparative data from three different reports which looked at the states' Comprehensive Annual Financial Reports (CAFRs). The Pew Center report and Morningstar have very similar data; the State Budget Research report differs because it uses a lower rate of return to calculate assets in the future. All three studies show that the majority of state pension funds are seriously underfunded. See the section on "Pension health" below for figures comparing Pennsylvania to its neighbors in all three reports.
- Actuarial accrued liability (AAL): The present value of all benefits owed to current and future retirees, based on the number of retirees and the promises made regarding benefits.
- Actuarial value of assets (AVA): The value of all the assets in the plan, which include investment gains and losses, depending on how the assets are valued.
- Unfunded actuarial accrued liability (UAAL): The difference between the total value of assets and accrued liability; the difference between what is owed to all beneficiaries enrolled in the plan and what funds are available to pay out to both current and future beneficiaries.
- Annual required contribution (ARC): An annual expense employers pay towards a pension plan made up of two parts: the "normal cost," or the amount paid for benefits earned in that year, and an additional cost that attempts to pay for a portion of the unfunded liabilities from previous years.
- Funded ratio: A percentage expressing how fully a pension plan is funded, determined by dividing net assets by accrued liabilities. For example, if a plan has assets of $80 million, but liabilities of $100 million, it is 80 percent funded.
- Rate of return: The ratio of money earned or lost on an investment expressed as a percentage of the investment. For example, a $5.00 profit on a $100 investment is a 5 percent rate of return.
- Active member: A member of a pension plan either receiving benefits or making contributions.
- Inactive member: A member of a pension plan no longer contributing and not yet receiving benefits from that plan.
- See also: Pension data, U.S. Census
According to the U.S. Census, Hawaii has one state pension system:
- Hawaii Employees Retirement System
In addition to the aforementioned state-level pension systems, there are no locally-administered pension systems in Hawaii.
The table below provides general pension system information for Hawaii and surrounding states.
|General pension system information, 2013|
|State||State systems||Local systems||Total members||Active members||Percent of total||Inactive members||Percent of total|
|Source: United States Census Bureau|
- See also: Pension contribution data, U.S. Census
Pension contributions are the funds paid into pension systems. These contributions come from the employer (in the case of public pensions, the government), employees and investment earnings.
In fiscal year 2013, the most recent year for which information is available, total contributions of $767.2 million were made to Hawaii's state and local pension systems. Of this amount, $185.8 million came from employees. The remainder came from state and local governments. The table below provides information about pension contributions in Hawaii and surrounding states in fiscal year 2013.
|Pension contributions, fiscal year 2013 (dollars in thousands)|
|State||Total contributions||Employee contributions||Percentage||Government contributions||Percentage||Earnings on investments|
|Source: United States Census Bureau|
- See also: Pension contribution data, U.S. Census
Payments are the amounts paid to pension recipients by their pension plans. Pension payments include benefits and withdrawals. Benefits are the regular payments made by a pension plan to the plan's recipients. Pension beneficiaries may also withdraw funds before they are due to receive regular benefits.
In fiscal year 2013, Hawaii's state and local pension systems made payments totaling $1.08 billion. The table below provides pension payment information for Hawaii and surrounding states in fiscal year 2013. The columns labelled "Benefits," "Withdrawals" and "Other" indicate subsets of total payments. All dollar amounts displayed are multiplied by 1,000 ($240,000 is equal to $240,000,000).
|Pension payments, fiscal year 2013 (dollars in thousands)|
|Source: United States Census Bureau|
Cash and investment holdings
- See also: Pension data, U.S. Census
Investments are a crucial part of the pension process. The goal is, by investing pension contributions, the pensioner will receive more money when he retires than he and his employer were able to contribute. These investments can come in the form of cash investments, short-term investments, securities or other investments. Cash investments are usually low-risk, short-term investments that have a lower rate of return than other types of investments. Short-term investments are riskier than cash investments, but have the potential for greater returns. Securities can refer to stocks or bonds and represent some form of financial value. As the values of these securities change, they can be traded to make a profit. While there are other applications to securities investments, this represents one of the most common practices.
As of fiscal year 2013, Hawaii's state and local pension systems held $12.05 billion in total cash and investment holdings. The table below summarizes pension system cash and investment holdings for Hawaii and surrounding states. The columns labelled "Total cash and short-term investments," "Total securities" and "Total other investments" indicate subsets of the grand total. All dollar amounts displayed are multiplied by 1,000 ($240,000 is equal to $240,000,000).
|Total cash and investment holdings, fiscal year 2013 (dollars in thousands)|
|State||Grand total||Total cash and short-term investments||Total securities||Total other investments|
|Source: United States Census Bureau|
Pension health is a term used to describe the overall state of pension systems. It can be difficult to gauge pension health in each state, but many studies use calculations to determine the average liabilities, unfunded liabilities, funded ratio and other data. Most experts believe that pensions systems need to be funded at least 80 percent to be considered healthy. This information is then used to provide a snapshot of the state's overall pension health. This section contains three separate studies that collected similar information to gauge pension health in all 50 states.
According to a 2014 report by the Pew Charitable Trust, “many states are seeing their pension debt continue to increase, despite reform efforts, because of missed contributions and the continued impact of investment losses.” The funding gap between what state pension systems have promised in benefits (liabilities) and current funding (assets) increased by $158 billion from 2010 to 2012 (14 percent), leaving state-run retirement systems with a $915 billion in unfunded liabilities. Only 15 states made at least 95 percent of the required contributions (ARCs) for their pensions between 2010 and 2012; the aggregate shortfall in funding for all state plans was $21 billion. Data on these state pensions come from the Comprehensive Annual Financial Reports (CAFRs) that each state’s pension plans prepared for fiscal year 2012 and include their own actuarial valuations based on “the expected rate of return on investments and estimates of employee life spans, retirement ages, salary growth, retention rates, and other demographic characteristics.”
All dollar amounts displayed are multiplied by 1,000,000 ($240,000 is equal to $240,000,000,000).
|Pew Charitable Trusts report, 2010-2012 (dollars in millions)|
|State||2012||Funded ratio||Percent of ARC paid|
|Totals in the U.S.||$3,298,643||$914,653||$87,213||75%||74%||72%||78%||77%||77%|
|Source: The Pew Charitable Trusts, "The Fiscal Health of State Pension Plans: Funding Gap Continues to Grow"|
- See also: Pension data, 2013 Morningstar report
In 2013, independent investment research firm Morningstar released "The State of State Pension Plans 2013," a report detailing various metrics of pension system health in all 50 states. They found a $1.2 trillion gap in 2012 for the largest 100 U.S. public pension plans (according to the actuarial firm Milliman). Based on two key drivers in Morningstar’s analysis--the funded ratio and the unfunded actuarial accrued liability (UAAL) per capita--the fiscal solvency and management of these plans varies greatly. Overall they found that "more than half of all states fall below Morningstar’s fiscally sound threshold of a 70% funded ratio" and all state plans combined are "72.6% funded with a UAAL per capita of roughly $2,600.”
According to Morningstar's research, Hawaii's state pension system was funded at a rate of 59.2 percent in fiscal year 2012. The table below provides state pension system health metrics for Hawaii and surrounding states in fiscal year 2012. Figures in the columns labelled "Assets," "AAL" and "UAAL" are rendered in thousands of dollars (for example, $2,400,000 translates to $2,400,000,000). Figures in the remaining columns have not been abbreviated. To view the full report click here.
|Pension health metrics, fiscal year 2012 (dollars in thousands)|
|State||Assets||Liabilities (AAL)||Unfunded liabilities (UAAL)||Funded ratio|| Unfunded liabilities |
|Totals in the U.S.||$2,157,578,916||$2,979,267,860||$821,688,945||72.40%||N/A|
|Source: Morningstar, "The State of State Pension Plans 2013: A Deep Dive Into Shortfalls and Surpluses," accessed September 16, 2013|
State Budget Solutions report
State Budget Solutions is "a non-partisan, non-profit, national public policy organization with the mission to change the way state and local governments do business." In November 2014 the organization released a research report which used a fair market valuation based on a discount rate of 2.743% to determine the unfunded liabilities of public pension plans. They concluded that "state public pension plans are underfunded by $4.7 trillion, up from $4.1 trillion in 2013. Overall, the combined plans' funded status has dipped three percentage points to 36%. Split among all Americans, the unfunded liability is over $15,000 per person."
According to the State Budget Solutions report, Hawaii was funded at a rate of 29 percent. This was lower than the Morningstar report's data, and below the Pew Center's recommended level of 80 percent.
The read the full report click here.
Note that all dollar amounts displayed (excluding those under the "Unfunded liability per capita" column) are multiplied by 1,000 ($240,000 is equal to $240,000,000).
|Pension health metrics from the State Budget Solutions report, fiscal year 2013 (dollars in thousands)|
|State||Assets||Market Liability*||Funding Ratio||Unfunded Liability||Unfunded Liability Per Capita||Unfunded Liability as % of 2013 Gross State Product|
|Totals in the U.S.||$2,679,831,466||$7,416,319,293||36%||$4,736,487,827||$15,052||29%|
|Source: State Budget Solutions: Promises Made, Promises Broken 2014: Unfunded Liabilities Hit $4.7 Trillion|
Rate of return
According to a 2012 analysis by the Pew Center for the States, most state pension plans assume an 8 percent rate of return on investments. Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.
Using a lower rate of return to predict investment earnings accurately, however, increases the current plan liabilities. This would lower the percent funded ratio and and require increased employer contributions (ARCs). This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities. For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion. Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.
The 2008 financial crisis had a devastating effect on pension plans nationwide because of slower economic growth and increased market volatility. Some market strategists found the 8 percent assumption to be overly ambitious and "dangerously optimistic." Advocates for a lower assumed rate of return argue that the standard 8 percent assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Further, if pension plans were using more conservative assumptions, such as the 3 or 4 percent assumed rate of return used in the private sector, and the plans grew more quickly than expected because of a higher rate of return, the fund would have a surplus and smaller future required contributions (ARCs), which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.
Traditional public pension plan advocates argue that the dip in recent years does not prove there is a long-term, downward trend in investment returns. According to Chris Hoene, executive director at the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."
The National Association of State Retirement Administrators researched the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20- and 25-year periods ending in 2013 and found it was 7.9 percent over the 20-year period, and exceeded 8 percent for the 1-, 3- and 25-year periods. It is important to note that the NASRA data reported the median returns, which means that median annualized returns of investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.
Studies and reports
Pension fund management fees
- See also: Public pension fund management fees
In July 2013, the Maryland Public Policy Institute (MPPI) and the Maryland Tax Education Foundation released a report detailing the fees paid for the management of state pension systems. According to MPPI, the 10 state pension funds that paid the most in management fees relative to net assets experienced lower returns over a five-year period than the 10 state pension funds that paid the least in management fees. For example, in fiscal year 2012 South Carolina's pension system paid approximately $296.1 million in total management fees (1.31 percent of total net assets at the beginning of the fiscal year) and its five-year rate of return was 1.46 percent. By contrast, Alabama's pension system paid roughly $13.3 million in management fees (0.05 percent of total net assets) and its five-year rate of return was 7.53 percent.
The table below presents the information collected by MPPI for Hawaii and surrounding states. For each state's pension system, total net assets are listed (both for the beginning and end of the fiscal year in question), as well as the total amount paid in management fees. In addition, the rates of return for the pension systems are presented.
|Public pension fund management fees, 2011-2012|
|State||Fiscal year||Total net assets at the beginning of the year||Total net assets at the end of the year||Total management fees||Management fees as a percentage of total net assets at the beginning of the year||Five-year rate of return for the pension fund|
| 1"Three states— Hawaii, Nevada and Rhode Island—were excluded because they hadn’t published CAFRs for fiscal years ending December 31, 2011 or later. West Virginia was excluded because its June 30, 2012 CAFR lacked sufficient disclosure."|
Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," accessed July 1, 2013
- The names of recipients and specific amounts disbursed to recipients are available information upon request, provided the request does not constitute a violation of the right to privacy under Hawaii law.
- Pension fund investment performance data is available in the Actuarial Valuation Report.
- The system discloses the amount of unfunded liabilities.
- Pay to play (the practice of investment managers contributing to officials with influence over public pension fund decisions) information is unavailable. Relationships with lobbyists, if any, are not readily disclosed.
This section displays the most recent stories in a Google news search for the term "Hawaii + public + pensions"
- All stories may not be relevant to this page due to the nature of the search engine.
- Historic Hawaii pension information
- Hawaii state budget and finances
- Tax policy in Hawaii
- Pension statistics
- Public pension health by state
- Public pensions
- United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2013," accessed March 23, 2015
- Morningstar, "The State of State Pension Plans 2013: A Deep Dive Into Shortfalls and Surpluses," accessed September 16, 2013
- The Pew Charitable Trusts, “The Fiscal Health of State Pension Plans Funding Gap Continues to Grow,” accessed April 8, 2014
- U.S. Census, "2013 Survey of Public Pensions: State Data," accessed April 16, 2015. Note: To access this data, navigate to the bottom of the page and click "Unit ID file."
- Investopedia, "Cash investment definition," accessed April 6, 2015
- Investopedia, "Short-term investments definition," accessed April 6, 2015
- Investopedia, "Securities," accessed April 6, 2015
- The Pew Charitable Trusts, “The Fiscal Health of State Pension Plans: Funding Gap Continues to Grow,” accessed April 16, 2015
- ‘’’Pewtrusts.org’’’, “The Fiscal Health of State Pension Plans Funding Gap Continues to Grow,” accessed April 8, 2014
- State Budget Solutions, "About SBS," accessed October 31, 2013
- State Budget Solutions, "Promises Made, Promises Broken 2014: Unfunded Liabilities Hit $4.7 Trillion," by Joe Luppino-Esposito, accessed November 12, 2014
- The Widening Gap Update, "Pew Center on the States," accessed October 17, 2013
- The New York Times, "Public Pensions Faulted for Bets on Rosy Returns," accessed May 27, 2012
- Benefits Magazine, "Public Pension Funding 101: Key Terms and Concepts," accessed October 23, 2013
- Crain's Chicago Business, "State teachers pension board lowers expected rate of return," accessed September 21, 2013
- Huffington Post, "California Pension Funds Expect Lower Investment Return," accessed March 14, 2012
- Governing, "Expert: Governments Are Masking Their Pension Liabilities," accessed October 25, 2013
- The Washington Post, "Kansas’s pension funding gap just grew by $1 billion," accessed September 6, 2013
- Topeka Capital-Journal, "KPERS' unfunded liability rises to $10.2B," accessed September 4, 2013
- Wall Street Journal, "Pensions Wrestle With Return Rates," accessed October 10, 2011
- The Courant, "Promising Too Much On Public Pensions," accessed August 10, 2012
- Business Wire, "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," accessed October 22, 2013
- National Association of State Retirement Administrators, "Issue Brief: Public Pension Plan Investment Return Assumptions," accessed October 23, 2013
- Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," accessed July 1, 2013
- State of Hawaii Office of Information Practices, "Uniform Information Practices Act - Chapter 92F, Section 28," accessed November 5, 2013
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