HOUSE OF REPRESENTATIVES

H.C.R. NO.

184

TWENTY-FIRST LEGISLATURE, 2002

 

STATE OF HAWAII

 
   


HOUSE CONCURRENT

RESOLUTION

 

Establishing a joint senate-house investigative committee to investigate the state's employees' retirement system of the state of hawaii.

 

 

WHEREAS, the Employees' Retirement System of the State of Hawaii (ERS) was established by the Territorial Legislature in 1925 to provide retirement, disability, and survivor benefits for territorial and county employees including teachers, professors, police officers, firefighters, judiciary employees, judges, and elected officials; and

WHEREAS, today, ERS pays for the pensions of thousands of retirees and their beneficiaries; and

WHEREAS, on March 31, 2001, the ERS' total membership of 93,068 consisted of 59,992 active members, 2,416 inactive vested members, and 29,660 retirees and beneficiaries; and

WHEREAS, as the population ages, Hawaii government pensioners are increasing in number, living longer, and requiring even greater monthly payments as the cost of living also increases; and

WHEREAS, it has been estimated that the ERS will require more than $500,000,000 per year in State and county contributions by 2009, equating to approximately one in every ten dollars in state tax revenues being contributed to the ERS; and

WHEREAS, the ERS' investments in the stock market performed extremely well in the late 1990s but has faltered in the recently sluggish economy; and

WHEREAS, since mid-2000, the ERS' $8,400,000,000 portfolio has lost approximately 15 percent of its value, which is equivalent to $1,400,000,000; and

WHEREAS, last year alone, the ERS lost $400,000,000, or 5.2 percent of its value, causing the ERS to become one of the worst performers among 42 comparable pension funds nationwide; and

WHEREAS, even with the strong investment returns the ERS experienced in the 1990s, the fund has only managed to grow at an annual rate of 6.8 percent over the last five years, well below the fund's target rate of 8 percent growth; and

WHEREAS, for years the ERS portfolio has been globally diversified with over 22 percent of investments being made in international and equity bond markets; and

WHEREAS, in 2001, these international equity investments lost 19.5 percent of their value, or $285,000,000; and

WHEREAS, over the past five years, ERS' international stock investments averaged 1.6 percent growth, compared with 9 percent annual returns for domestic stocks; and

WHEREAS, for decades the ERS has put hundreds of millions of dollars into Asian stocks, and subsequently lost 5 percent per year over the last 5 years, totaling approximately $40,000,000; and

WHEREAS, despite a Japanese recession and unrest in Southeast Asia over the last ten years, and a late 1990s Asian economic crisis, the ERS continued to invest in the Asian market; and

WHEREAS, 3Bridge, a San Francisco Bay area firm classified by ERS as a value fund manager and in charge of $330,000,000 in state moneys, had been tasked with seeking out quality stocks at bargain prices, but acted more like a growth stock fund, investing in riskier stocks rather than the typical value fund; and

WHEREAS, the 3Bridge portfolio has lost $90,000,000 since December of 1999; and

WHEREAS, for several years, 3Bridge has been at the top of a watch list of four or five of the ERS' most poorly performing investment managers; and

WHEREAS, the principals of 3Bridge include a former ERS administrator; and

WHEREAS, Callan Associates, Inc., an investment adviser utilized by the ERS, recently advised the ERS to terminate its ties to 3Bridge, for losing tens of millions of dollars in poor investments; and

WHEREAS, the ERS trustees generally move quickly to terminate firms on its watch list if they fail to show rapid improvement and continue to do poorly; and

WHEREAS, despite these concerns and recommendations, ERS trustees voted to halve the assets under the management of 3Bridge, while keeping them in charge of $165,000,000 in state funds; and

WHEREAS, this action has raised questions regarding the impartiality of ERS trustees towards 3Bridge and a possible conflict of interest on the part of both the trustees, the former ERS administrator and 3Bridge; now, therefore,

BE IT RESOLVED by the House of Representatives of the Twenty-first Legislature of the State of Hawaii, Regular Session of 2002, the Senate concurring, that:

(1) The Legislature hereby establishes a joint Senate-House investigative committee pursuant to Chapter 21, Hawaii Revised Statutes (HRS), to investigate the ERS;

(2) The joint Senate-House investigative committee shall be composed of twelve members, of which six shall be members of the State Senate, appointed by the Senate President, and six shall be members of the State House of Representatives, appointed by the Speaker of the House;

(3) The purpose and the duties of the joint investigative committee and the subject matter and scope of its investigatory authority shall be to investigate, gather information, assess, and make recommendations to the Legislature concerning:

(A) The investment policies and procedures used by the ERS;

(B) The total amount of revenue lost by the ERS and the reasons for these losses; and

(C) The propriety of the ERS maintaining a business and investment relationship with 3Bridge.

(4) The joint investigative committee shall have every power and function allowed to an investigating committee by law, including without limitation the power to:

(A) Adopt rules for the conduct of its proceedings;

(B) Issue subpoenas requiring the attendance and testimony of witnesses and subpoenas duces tecum requiring the production of books, documents, records, papers, or other evidence in any matter pending before the Committee;

(C) Hold hearings appropriate for the performance of its duties, at such times and places as the Committee determines;

(D) Administer oaths and affirmations to witnesses at hearings of the Committee;

(E) Report or certify instances of contempt as provided in Section 21-14, HRS;

(F) Employ professional, technical, clerical, or other staff and expend such funds appropriated for Senate and House of Representatives operating expenses for 2002 as necessary for the proper performance of its duties; and

(G) Exercise all other powers specified under Chapter 21, HRS, with respect to investigating committees;

(5) The joint investigative committee shall be appointed by the Senate President and Speaker of the House of Representatives exclusively from the membership of their respective bodies;

(6) The joint investigative committee shall provide by rule for the submission, by a witness's own counsel and counsel for another individual or entity about whom the witness has devoted substantial or important portions of the witness' testimony, of written questions to be asked of the witness by the Co-chairs;

(7) The joint investigative committee shall provide by rule for the submission of proposed questions at a hearing in accordance with Section 21-11(b), HRS;

(8) The joint investigative committee shall provide by rule that each witness intended to be called be given ten days notice of:

(A) The date and time of the witness's appearance;

(B) A short, plain statement of the areas to be inquired into with respect to that witness's anticipated testimony; and

(C) A list of or copies of the principal documents about which that witness may be questioned; provided that these requirements shall not limit the joint investigative committee's discretion to inquire into related matters.

The rule may provide that the Co-Chairs may waive the ten days notice if the witness so agrees;

(9) The joint investigative committee shall provide by rule that a draft report of the investigative committee's findings and conclusions concerning any matter that is the subject of its hearings shall be made available to all those entities or persons who were the subjects of or who were witnesses who testified at any hearing. Any person or entity to whom a draft report is made available shall be given a period of no less than fourteen days within which to make written responses to the draft findings and conclusions. The written responses, if any, shall be included as an appendix to the final report of the joint investigative committee; and

(10) The joint investigative committee is authorized to exercise its powers continuously throughout the 2002 regular session, the interim between the 2002 and 2003 Regular Sessions, and shall thereafter be dissolved unless further extended by the Senate and House of Representatives;

and

BE IT FURTHER RESOLVED that the Senate President and the Speaker of the House of Representatives, from time to time, may refer to the joint investigative committee specific matters that are within the scope of the Committee's jurisdiction, and that the Committee shall work in cooperation with the President and Speaker for the purposes stated in this Concurrent Resolution; and

BE IT FURTHER RESOLVED that the joint investigative committee shall submit its written findings and recommendations to the Legislature twenty days prior to the convening of the Regular Session of 2003; and

BE IT FURTHER RESOLVED that certified copies of this Concurrent Resolution be transmitted to the President of the Senate, Speaker of the House of Representatives, Governor, the ERS administrator, and the ERS Board of Trustees.

 

 

OFFERED BY:

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Report Title:

Establishing a joint Senate-House investigative committee to investigate the State's Employees' Retirement System.