CONFERENCE COMMITTEE REP. NO. 107-04

Honolulu, Hawaii

, 2004

RE: S.B. No. 779

S.D. 2

H.D. 2

C.D. 1

 

 

Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Conference on the disagreeing vote of the Senate to the amendments proposed by the House of Representatives in S.B. No. 779, S.D. 2, H.D. 2, entitled:

"A BILL FOR AN ACT RELATING TO THE EMPLOYEES' RETIREMENT SYSTEM,"

having met, and after full and free discussion, has agreed to recommend and does recommend to the respective Houses the final passage of this bill in an amended form.

The purpose of this measure is to establish a new defined benefit hybrid contributory plan, class H membership, in the Employees' Retirement System (System).

Specifically, the measure:

(1) Establishes a new defined benefit hybrid contributory plan to be known as class H membership in the System;

(2) Amends Chapter 88, Hawaii Revised Statutes, to provide consistency among the three retirement plans;

(3) Authorizes the System to accept moneys from deferred compensation and tax-sheltered annuity plans for the purchase of noncontributory membership service credits;

(4) Appropriates an unspecified amount out of the System's investment earnings for fiscal year 2004-2005 to implement the new hybrid contributory plan;

(5) Makes numerous amendments to the existing retirement system law to improve and clarify the System's existing authority; and

(5) Takes effect on July 1, 2010.

The measure establishes a hybrid or "class H" membership classification of the System that is a blending of the years of service and age requirements of class C noncontributory membership with the salary contribution requirement and pension percentage accrual rates of class A contributory membership. System members who are in active service on June 30, 2006, or return to service after June 30, 2006, may elect to become class H members. Class C members who elect to become class H members are also provided with the option to convert all or a portion of their credited class C service to class H service. All public employees, with the exception of elected officials and judges, whose initial service entry date is after June 30, 2006, will be class H members.

In comparison to class C membership, class H members with the same number of years of service and who earn the same salary or wage will receive a higher pension allowance due to the fact class H members contribute a portion of the wages or salaries toward their pension, whereas class C members do not.

In comparison to class A membership, class H members with the same number of years of service who earn the same salary or wage, will receive the same pension amount as their class A counterparts, contribute less of their salaries or wages toward their pension (six per cent as opposed to class A member's seven and eight-tenths per cent, except for police officers, firefighters, and others who contribute twelve and two-tenths per cent) but will have to wait longer to receive a non-actuarially reduced pension (sixty-two as opposed to fifty-five years of age).

More specifically, a class H member:

(1) Pays six per cent of the member's compensation, except for sewer workers, water safety officers, and emergency medical technicians who contribute 9.75 per cent of their compensation;

(2) Must accrue at least:

(A) Five years of credited service and attain the age of sixty-two years;

(B) Thirty years of credited service and attain the age of at least fifty-five years; or

(C) The minimum years of service required for being a sewer worker, water safety officer, or emergency medical technician;

in order to receive a non-actuarially-reduced retirement benefit; and

(3) Earns two per cent of the member's average final compensation for each year of credited service.

In other respects, such as pension allowance payment options, disability and death benefits, and other related operational and administrative provisions, class H membership is substantially identical to class A and C membership.

The measure also provides the System with the flexibility to alter the mode of a pension allowance elected by a retirant who retires after November 30, 2004, in the occurrence of a:

(A) Retirant who elects a retirement allowance less than the maximum, whose beneficiary dies after the retirant retired but before the retirant's death;

(B) Retirant who dies after filing an application to retire, but before the specified retirement date; or

(C) Retirant who dies within a year after the date of retirement.

Under existing law and under the abovementioned circumstances, the Employees' Retirement System is unable to alter a pension allowance election. The unfortunate outcome in these situations is that, through a good faith allowance mode election and the unexpected passing of the retirant or a beneficiary, the surviving retirant or beneficiary is unable to enjoy the full benefit of the retirant's earned pension. The measure ameliorates this problem for all members of the System.

The measure further provides that for contributory members of the System who possess less than five years of credited service and who cease to be members of the System, upon application to the System's board of trustees, the member may receive all of the member's contributions to the System plus regular interest. Existing law does not allow the System to pay a member interest on refunded contributions. The measure also clarifies that class C members of the System, upon certification, shall have their creditable active military service credited as class C credit at no cost to the member.

Upon further consideration, your Committee on Conference has amended the measure as requested by the Employees' Retirement System by, among other things:

(1) Extending the time period in which Employees' Retirement System members may structure their payroll deduction payments to convert class C service to class H service from five to ten years;

(2) Inserting the amount of $1,580,000 as the amount appropriated out of the Employees' Retirement System's investment earnings to carry out the purposes of the measure;

(3) Changing the effective date from July 1, 2010, to July 1, 2004; and

(4) Making technical, nonsubstantive amendments for the purposes of clarity, style, and correcting a typographical error.

As affirmed by the record of votes of the managers of your Committee on Conference that is attached to this report, your Committee on Conference is in accord with the intent and purpose of S.B. No. 779, S.D. 2, H.D. 2, as amended herein, and recommends that it pass Final Reading in the form attached hereto as S.B. No. 779, S.D. 2, H.D. 2, C.D. 1.

Respectfully submitted on behalf of the managers:

ON THE PART OF THE HOUSE

ON THE PART OF THE SENATE

____________________________

MARCUS R. OSHIRO, Co-Chair

____________________________

BRIAN KANNO, Co-Chair

____________________________

DWIGHT Y. TAKAMINE, Co-Chair

____________________________

BRIAN T. TANIGUCHI, Co-Chair