STAND. COM. REP. NO. 964-04

Honolulu, Hawaii

, 2004

RE: S.B. No. 2878

S.D. 2

H.D. 1

 

 

 

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Labor and Public Employment, to which was referred S.B. No. 2878, S.D. 2, entitled:

"A BILL FOR AN ACT RELATING TO THE FEDERAL TAX LIMIT ON COMPENSATION APPLICABLE TO THE EMPLOYEES' RETIREMENT SYSTEM,"

begs leave to report as follows:

The purpose of this bill is to preserve the tax-qualified status of the state Employees Retirement System (ERS) by conforming state law to the provisions of Section 401(a)(17) of the Internal Revenue Code (IRC). This bill:

(1) Applies the federal tax limits on pension compensation effective July 1, 1996;

(2) Adds a nontax-qualified arrangement to protect benefits accrued in excess of the federal tax limits for the period July 1, 1996, through June 30, 2004; and

(3) Appropriates $357,350 to pay the nontax-qualified benefits.

The Department of Budget and Finance and Board of Trustees of ERS testified in support of this measure.

Your Committee finds that the enactment of this bill is essential for the State to retain its tax-exempt status on ERS investment income and retirement benefits. While your Committee has concerns on whether the State will be obligated to continue to pay for the benefits of 19 individuals out of the general fund well after this bill is enacted, your Committee understands that the financial ramifications these 19 individuals pose cannot compare to the millions in revenue that would be lost if the State is deemed not to be in compliance with the IRC.

After careful consideration, your Committee has amended this bill by deleting its substance, and inserting the provisions of House Bill No. 2403, House Draft 1.

As amended, this bill is substantively the same as Senate Bill No. 2878, Senate Draft 2, except that:

(1) The appropriation amount was left blank to facilitate continued discussion; and

(2) Various technical, nonsubstantive revisions were made for clarity, consistency, and style.

Your Committee urges the State to negotiate a settlement with the 19 individuals so that this loophole will effectively be closed.

As affirmed by the record of votes of the members of your Committee on Labor and Public Employment that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2878, S.D. 2, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2878, S.D. 2, H.D. 1, and be referred to the Committee on Finance.

Respectfully submitted on behalf of the members of the Committee on Labor and Public Employment,

 

____________________________

MARCUS R. OSHIRO, Chair