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Public pensions in Hawaii

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Hawaii public pensions
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Pension system
Number of pension systems 1
State pension systems: Employees' Retirement System
System type: Defined benefit plan
Pension health (2012)[1]
Fund value: $12,242,500,000
Estimated liabilities: $20,683,400,000
Unfunded liabilities : $8,440,900,000
Percent funded: 59.2%
Percent funded change: Decrease.svg0.2%[2]
Percent funded rank: 42[3]
Pension fund members (2012)
Total members: 113,282
Active members: 65,599
Other members: 47,683
Other state pension information
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Public pensions
State public pension plans
Public pension health by state
Hawaii public pensions are the state mechanism by which state and many local government employees in Hawaii receive retirement benefits. The Employees' Retirement System (ERS) administers benefits to all eligible full-time and part-time state and county employees in Hawaii.[4]

According to the U.S. Census Bureau, the state also has no locally-administered pension systems.[5]

A 2012 report from the Pew Center on the States noted that Hawaii's pension system was funded at 61 percent at the close of fiscal year 2010, well below the 80 percent funding level experts recommend. Consequently, Pew designated the state's pension system as cause for "serious concern."[6]

The funding ratio for the state's pension systems decreased from 67.5 percent in fiscal year 2007 to 59.2 percent in fiscal year 2012, a drop of 8.3 percentage points, or 12.3 percent. Likewise, unfunded liabilities increased from approximately $5.1 billion in fiscal year 2007 to more than $8.4 billion in fiscal year 2012.


Pension plans

In fiscal year 2012, according to the system's Actuarial Valuation Report, Hawaii had a total of 65,599 active members in its retirement system. Our membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[7]

The following data was collected from the system's 2012 Actuarial Valuation Report. Valuation reports are annual reports produced by outside consultants, using unaudited data provided by the pension systems themselves, in order to determine what employers in the system should contribute in the coming year to maintain or improve the fiscal health of the pension funds. Hawaii's report was produced by Gabriel Roeder Smith and Company, a national actuarial and benefits consulting services firm that focuses on services for the public sector.[8]

The "percentage funded" is calculated by taking the current value of the fund and dividing by the estimated amount of total liabilities. The assumed rate of return used to calculate fund value was 7.75 percent for fiscal year 2012. The Government Accountability Office (GAO) and Pew Research Centers cite a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggests that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."[9][10] The column labeled "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis uses a rate of return of 3.225 percent, which is based upon the 15-year Treasury bond yield. The organization calls this a "risk-free" rate of return that would make it easier for states to achieve their pension funding requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.[11]

Basic pension plan information -- ERS[12]
Current value Percentage funded Unfunded liabilities Membership
State figure SBS figure[13] State figure SBS figure[13]
$12,242,500,000 59.2% 31% $8,440,900,000 $26,951,063,000 65,599 active members

Annual Required Contribution

Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to a report by the Pew Center on the States, in 2010 Hawaii paid 102 percent of its annual required contribution.[6][14]

On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[15] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants will use an actuarially determined contribution or a statutory contribution for reporting purposes.[16]

ARC historical data[12]
Fiscal year ERS
Annual Required Contribution (ARC) Percentage contributed
2012 $654,755,000 83.7%
2011 $582,535,000 91.8%
2010 $536,237,000 102.1%
2009 $526,538,000 109.9%
2008 $510,727,000 95.7%

Historical funding levels

Historical pension plan data - ERS[12]
Year Value of assets Accrued liability Unfunded liability Funded ratio
2007 $10,589,800,000 $15,696,500,000 $5,106,800,000 67.5%
2008 $11,381,000,000 $16,549,100,000 $5,168,100,000 68.8%
2009 $11,400,100,000 $17,636,400,000 $6,236,300,000 64.6%
2010 $11,345,600,000 $18,483,700,000 $7,138,100,000 61.4%
2011 $11,942,800,000 $20,096,900,000 $8,154,200,000 59.4%
Change from 2007-2011 $1,353,000,000 $4,400,400,000 $3,047,400,000 -8.1%

Rate of return

Hawaii presumes a 7.75 percent return rate on its pension investments.[12]


Percent funded status of pension plans
in the 50 states as of November 2013
Public pensions in NevadaPublic pensions in MassachusettsPublic pensions in ColoradoPublic pensions in New MexicoPublic pensions in WyomingPublic pensions in ArizonaPublic pensions in MontanaPublic pensions in CaliforniaPublic pensions in OregonPublic pensions in WashingtonPublic pensions in IdahoPublic pensions in TexasPublic pensions in OklahomaPublic pensions in KansasPublic pensions in NebraskaPublic pensions in South DakotaPublic pensions in North DakotaPublic pensions in MinnesotaPublic pensions in IowaPublic pensions in MissouriPublic pensions in ArkansasPublic pensions in LouisianaPublic pensions in MississippiPublic pensions in AlabamaPublic pensions in GeorgiaPublic pensions in FloridaPublic pensions in South CarolinaPublic pensions in IllinoisPublic pensions in WisconsinPublic pensions in TennesseePublic pensions in North CarolinaPublic pensions in IndianaPublic pensions in OhioPublic pensions in KentuckyPublic pensions in PennsylvaniaPublic pensions in New JerseyPublic pensions in New YorkPublic pensions in VermontPublic pensions in VermontPublic pensions in New HampshirePublic pensions in MainePublic pensions in West VirginiaPublic pensions in VirginiaPublic pensions in MarylandPublic pensions in MarylandPublic pensions in ConnecticutPublic pensions in ConnecticutPublic pensions in DelawarePublic pensions in DelawarePublic pensions in Rhode IslandPublic pensions in Rhode IslandPublic pensions in MassachusettsPublic pensions in New HampshirePublic pensions in MichiganPublic pensions in MichiganPublic pensions in AlaskaPolicypediaPension Health 2013.png
Note: The data in this map was compiled from state CAFR reports and Actuarial Valuation documents. Figures reflect a combination of all of the state pension plans.
Funded ratio of state public pension plans as compiled by State Budget Solutions.

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.[17] Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.[18] When states lower the rate of return in an effort to predict investment earnings accurately, it increases the current plan liabilities, thereby lowering the percent funded ratio and causing the ARC to increase. 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.[19] 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.[20] 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.[21]

The 2008 financial crisis had a devastating effect on pension plans nationwide and has resulted in slower economic growth and increased market volatility. In light of this, some market strategists find the 8 percent assumption to be overly ambitious. Stanford University Finance Professor Joshua Rauh stated that using past investment performance in this economic climate was "dangerously optimistic."[22] Advocates for a lower assumed rate of return argue that the standard 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, the fund would have a surplus and smaller future ARCs, which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.[23][24][25][26][27]

On the other hand, traditional public pension plan advocates argue that the dip observed in recent years is not sufficient proof of 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."[22]

The National Association of State Retirement Administrators compiled data on the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20-, and 25-year periods ending in 2013. While the median annualized rate of return failed to meet the 8 percent assumption that most public pensions assume over the 5- and 10-year periods, it was just shy (7.9 percent) over the 20-year period, and it exceeded 8 percent for the 1-, 3-, and 25-year periods. It is important to note that the NASRA data is reporting the median returns, indicating that even though median annualized returns exceeded 8 percent in the 25-year period, the investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[28]

In September 2013, the nonprofit organization State Budget Solutions published an analysis of state pension funding levels. In its calculations, State Budget Solutions used a 3.2 percent rate of return, the 15-year Treasury bond yield as of August 21, 2013, to discount plan liabilities.

The research found that in all states combined, state public employee pension plans have only 39 percent of the assets they need to cover their promised payments—a $4.1 trillion gap. According to the report, Hawaii's public pension plans were 31% funded, making it the 42nd most funded state.[29]

Moody's report on adjusted pension liabilities

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.67 percent for Hawaii) instead of the state-reported assumed rates of return (8.00 percent for Hawaii as of 2011).[30]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 percent (Nebraska) to 241 percent (Illinois) of governmental revenues in fiscal year 2011.[30]

The adjusted net pension liability for Hawaii in fiscal year 2011 was ranked the 20th highest in the nation.[30] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - Hawaii
Governmental revenue* Personal income State GDP Per capita
State findings 132.5% 18.5% 16.3% $7,923
National ranking 5th 6th 5th 4th
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[30]

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.[31]

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
Alaska 2012 $16,489,643,000 $16,419,886,000 $62,184,233 0.38% 0.86%
California 2012 $397,107,606,000 $388,300,002,000 $960,532,000 0.24% -0.10%
Oregon 2012 $55,794,848,695 $53,659,423,570 $335,163,728 0.60% 1.80%
Washington 2012 $68,311,800,000 $67,887,700,000 $297,354,000 0.44% 1.20%
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."[31]
Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," July 1, 2013


Enacted reforms


H.B. 808

Introduced by House Speaker Joseph Souki (D-District 8), H.B. 808 proposed to amend provisions governing the ERS to preserve the tax-qualified status of the system. The bill also proposed to amend terms related to marriage to include civil unions. Its companion bill in the Senate was S.B. 1038. The bill was enacted on June 18, 2013.[32]

S.B. 886

Introduced by Senator Clayton Hee (D-District 23), S.B. 886 proposed a constitutional amendment to increase the mandatory retirement age for justices and judges from 70 to 80 years of age. The bill was adopted by the legislature on April 4, 2013 and filed with the state Office of Elections.[33]


H.B. 2487

Introduced by Representative Calvin Say (D-District 20), H.B. 2487 proposed to amend the allowance and age requirements for service by water safety officers who become members of the state retirement system after June 30, 2012. The bill also proposed to amend the ordinary disability and death retirement allowance for individuals becoming a class H member after June 30, 2012 and required employers to pay additional costs resulting from significant non-base pay increases. Its companion bill in the Senate was S.B. 2749. The bill was enacted on June 26, 2012.[34]

Proposed reforms


H.B. 807

Introduced by Speaker Souki, H.B. 807 sought to correct anomalies of service requirement, eligibility, and normal and early retirement allowances for judges who became members of the ERS prior to July 1, 2012 and first earned service credit as judges after June 30, 2012. The bill passed the House on February 28, 2013 and moved to the Senate. As of March 19, 2013, the Senate Judiciary and Labor Committee had deferred the measure.[35]


H.B. 1811

Introduced by Representative Say, H.B. 1811 sought to require employers to pay higher contribution rates on their employees' non-base pay than on base compensation effective the fiscal year ending 2014. The House Committee on Labor recommended that the measure be passed with amendments and referred it to the House Committee on Finance, which ultimately recommended that the measure be deferred.[36]

Local public pensions

See also: Local government public pensions

According to the United States Census Bureau, the state has no locally-administered pension systems.[5]


See also: Public pension disclosure and Governmental Accounting Standards Board
  • 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.[37]
  • Pension fund investment performance data is available in the Actuarial Valuation Report.[12]
  • The system discloses the amount of unfunded liabilities.[12]
  • 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.

Recent news

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.

Hawaii Public Pensions News Feed

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See also

Additional reading

External links


  1. Figures below are compiled by adding up all state pension plans
  2. This figure is derived by calculating the percent difference between the current year's funding level and the system's percent funded from the prior year.
  3. Rank is relative to the 50 state pension programs. "1" refers to the healthiest pension plan while "50" would be the least well-funded plan.
  4. Employees' Retirement System of the State of Hawaii, "About the ERS," accessed November 5, 2013
  5. 5.0 5.1 “Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010,” United States Census Bureau, April 30, 2012
  6. 6.0 6.1 Pew Center on the States, "Widening Gap Update: Hawaii," June 18, 2012
  7. Organisation for Economic Co-operation and Development, "Pensions Glossary," accessed November 27, 2013
  8. Gabriel Roeder Smith & Company, Consultants & Actuaries, "About Us," accessed October 29, 2013
  9. United States Government Accountability Office Report to the Committee on Finance, U.S. Senate, "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," September 2007. accessed October 23, 2013
  10. American Academy of Actuaries, "Issue Brief: The 80% Pension Funding Standard Myth," July 2012. accessed October 23, 2013
  11. Governing Magazine, " Is There a Plot Against Pensions?" October 14, 2013
  12. Cite error: Invalid <ref> tag; no text was provided for refs named ERSvaluation
  13. 13.0 13.1 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  14. Government Accounting Standards Board, "Annual Required Contribution (ARC)," accessed October 17, 2013
  15. Reuters, "Little-known U.S. board stokes hot pension debate," July 10, 2012
  16. State Budget Solutions, "GASB's ineffective public pension reporting standards set to take effect," June 5, 2013
  17. "The Widening Gap Update,” Pew Center on the States, accessed October 17, 2013
  18. The New York Times "Public Pensions Faulted for Bets on Rosy Returns," May 27, 2012
  19. Benefits Magazine "Public Pension Funding 101: Key Terms and Concepts," April 2013. accessed October 23, 2013
  20. Crain's Chicago Business "State teachers pension board lowers expected rate of return," September 21, 2013. accessed October 23, 2013
  21. Huffington Post "California Pension Funds Expect Lower Investment Return," March 14, 2012. accessed October 23, 2013
  22. 22.0 22.1 Governing "Expert: Governments Are Masking Their Pension Liabilities ," October 25, 2013. accessed October 25, 2013
  23. The Washington Post "Kansas’s pension funding gap just grew by $1 billion," September 6, 2013. accessed October 25, 2013
  24. Topeka Capital-Journal "KPERS' unfunded liability rises to $10.2B," September 4, 2013. accessed October 25, 2013
  25. Wall Street Journal "Pensions Wrestle With Return Rates," October 10, 2011. accessed October 23, 2013
  26. The Courant "Promising Too Much On Public Pensions," August 10, 2012. accessed October 23, 2013
  27. Business Wire "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," October 22, 2013. accessed October 25, 2013
  28. National Association of State Retirement Administrators "Issue Brief: Public Pension Plan Investment Return Assumptions," October 2013. accessed October 23, 2013
  29. State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  30. 30.0 30.1 30.2 30.3 Moody's Investor Service, "Adjusted Pension Liability Medians for US States," June 27, 2013
  31. Cite error: Invalid <ref> tag; no text was provided for refs named report
  32. Hawaii State Legislature, "HB 808 HD1 SD1," accessed November 5, 2013
  33. Hawaii State Legislature, "SB886," accessed November 5, 2013
  34. Hawaii State Legislature, "HB 2487 HD1 SD2 CD1," accessed November 5, 2013
  35. Hawaii State Legislature, "HB 807," accessed November 5, 2013
  36. Hawaii State Legislature, "HB 1811 HD1," accessed November 5, 2013
  37. State of Hawaii Office of Information Practices, "Uniform Information Practices Act - Chapter 92F, Section 28," accessed November 5, 2013