HOUSE OF REPRESENTATIVES

H.B. NO.

2487

TWENTY-SIXTH LEGISLATURE, 2012

H.D. 1

STATE OF HAWAII

S.D. 1

 

Proposed

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO THE EMPLOYEES' RETIREMENT SYSTEM.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


PART I

SECTION 1. Section 88-73, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) Any member who became a member before July 1, 2012, and first earned credited service as a judge after June 30, 1999, [but before July 1, 2012,] and who [has]:

(1) Has at least five years of credited service and has attained age fifty-five; or [has]

(2) Has at least twenty-five years of credited service,

shall become eligible to receive a retirement allowance after the member has terminated service. [Any member who first earned credited service as a judge after June 30, 2012, and has at least ten years of credited service and has attained age sixty or has at least twenty-five years of credited service and has attained age fifty-five shall be eligible to receive a retirement allowance after the member has terminated service.]"

SECTION 2. Section 88-74, Hawaii Revised Statutes, is amended as follows:

1. By amending subsections (c) and (d) to read:

"(c) If a member, who became a member prior to July 1, 2012, has credited service as a judge, the member's retirement allowance shall be computed on the following basis:

(1) For a member who has credited service as a judge before July 1, 1999, irrespective of age, for each year of credited service as a judge, three and one-half per cent of the member's average final compensation in addition to an annuity that is the actuarial equivalent of the member's accumulated contributions allocable to the period of service;

(2) For a member who first earned credited service as a judge after June 30, 1999, but before July 1, 2012, for each year of credited service as a judge, three and one-half per cent of the member's average final compensation in addition to an annuity that is the actuarial equivalent of the member's accumulated contributions allocable to the period of service. If the member has not attained age fifty-five, the member's retirement allowance shall be computed as though the member had attained age fifty-five, reduced for age as provided in subsection (e);

(3) For a member who first earned credited service as a judge after June 30, 2012, for each year of credited service as a judge, three per cent of the member's average final compensation in addition to an annuity that is the actuarial equivalent of the member's accumulated contributions allocable to the period of service. If the member has not attained age [sixty,] fifty-five, the member's retirement allowance shall be computed as though the member had attained age [sixty,] fifty-five, reduced for age as provided in subsection [(i);] (e);

(4) For a judge with other credited service, as provided in subsection (b). If the member has not attained age fifty-five, the member's retirement allowance shall be computed as though the member had attained age fifty-five, reduced for age as provided in subsection (e); or

(5) For a judge with credited service as an elective officer or as a legislative officer, as provided in subsection (d).

No allowance shall exceed seventy-five per cent of the member's average final compensation. If the allowance exceeds this limit, it shall be adjusted by reducing the annuity included in paragraphs (1), (2), and (3) and the portion of the accumulated contributions specified in paragraphs (1), (2), and (3) in excess of the requirements of the reduced annuity shall be returned to the member upon the member's retirement or paid to the member's designated beneficiary upon the member's death while in service or while on authorized leave without pay. The allowance for judges under this subsection, together with the retirement allowance provided by the federal government for similar service, shall in no case exceed seventy-five per cent of the member's average final compensation.

(d) If a member, who became a member before July 1, 2012, has credited service as an elective officer or as a legislative officer, the member's retirement allowance shall be derived by adding the allowances computed separately under paragraphs (1), (2), (3), (4), (5), and (6) as follows:

(1) For a member who has credited service as an elective officer before July 1, 2012, irrespective of age, for each year of credited service as an elective officer, three and one-half per cent of the member's average final compensation as computed under section 88‑81(e)(1), in addition to an annuity that is the actuarial equivalent of the member's accumulated contributions allocable to the period of service;

(2) For a member, who first earned credited service as an elective officer after June 30, 2012, irrespective of age, for each year of credited service as an elective officer, three per cent of the member's average final compensation as computed under section 88-81(e)(1), in addition to an annuity that is the actuarial equivalent of the member's accumulated contributions allocable to the period of service;

(3) For a member who has credited service as a legislative officer before July 1, 2012, irrespective of age, for each year of credited service as a legislative officer, three and one-half per cent of the member's average final compensation as computed under section 88-81(e)(2), in addition to an annuity that is the actuarial equivalent of the member's accumulated contributions allocable to the period of service;

(4) For a member who first earned credited service as a legislative officer after June 30, 2012, irrespective of age, for each year of credited service as a legislative officer, three per cent of the member's average final compensation as computed under section 88-81(e)(2), in addition to an annuity that is the actuarial equivalent of the member's accumulated contributions allocable to the period of service;

(5) If the member has credited service as a judge, the member's retirement allowance shall be computed on the following basis:

(A) For a member who has credited service as a judge before July 1, 1999, irrespective of age, for each year of credited service as a judge, three and one-half per cent of the member's average final compensation as computed under section 88‑81(e)(3), in addition to an annuity that is the actuarial equivalent of the member's accumulated contributions allocable to the period of service;

(B) For a member who first earned credited service as a judge after June 30, 1999, but before July 1, 2012, and has attained the age of fifty-five, for each year of credited service as a judge, three and one-half per cent of the member's average final compensation as computed under section 88‑81(e)(3), in addition to an annuity that is the actuarial equivalent of the member's accumulated contributions allocable to the period of service. If the member has not attained age fifty-five, the member's retirement allowance shall be computed as though the member had attained age fifty-five, reduced for age as provided in subsection (e); and

(C) For a member who first earned credited service as a judge after June 30, 2012, and has attained the age of [sixty,] fifty-five, for each year of credited service as a judge, three per cent of the member's average final compensation as computed under section 88-81(e)(3), in addition to an annuity that is the actuarial equivalent of the member's accumulated contributions allocable to the period of service. If the member has not attained age [sixty,] fifty-five, the member's retirement allowance shall be computed as though the member had attained age [sixty,] fifty-five, reduced for age as provided in subsection [(i);] (e); and

(6) For each year of credited service not included in paragraph (1), (2), (3), (4), or (5), the average final compensation as computed under section 88‑81(e)(4) shall be multiplied by two per cent for credited service earned as a class A or class H member, two and one-half per cent for credited service earned as a class B member, and one and one-quarter per cent for credited service earned as a class C member. If the member has not attained age fifty-five, the member's retirement allowance shall be computed as though the member had attained age fifty-five, reduced for age as provided in subsection (e).

The total retirement allowance shall not exceed seventy-five per cent of the member's highest average final compensation calculated under section 88-81(e)(1), (2), (3), or (4). If the allowance exceeds this limit, it shall be adjusted by reducing any annuity accrued under paragraphs 1, 2, 3, 4, and 5 and the portion of the accumulated contributions specified in these paragraphs in excess of the requirements of the reduced annuity shall be returned to the member upon the member's retirement or paid to the member's designated beneficiary upon the member's death while in service or while on authorized leave without pay. If a member has service credit as an elective officer or as a legislative officer in addition to service credit as a judge, then the retirement benefit calculation contained in this subsection shall supersede the formula contained in subsection (c)."

2. By amending subsection (f) to read:

"(f) If a member, who becomes a member after June 30, 2012, has attained age sixty, the member's maximum retirement allowance shall be one and three-fourths per cent of the member's average final compensation multiplied by the total number of years of the member's credited service as a class A and class B member, excluding any credited service as a judge, elective officer, or legislative officer, plus a retirement allowance of one and one-fourth per cent of the member's average final compensation multiplied by the total number of years of prior credited service as a class C member, plus a retirement allowance of one and three-fourths per cent of the member's average final compensation multiplied by the total number of years of prior credited service as a class H member; provided that:

(1) If the member has at least ten years of credited service of which the last five or more years prior to retirement is credited service as a firefighter, police officer, or an investigator of the department of the prosecuting attorney;

(2) If the member has at least ten years of credited service of which the last five or more years prior to retirement is credited service as a corrections officer;

(3) If the member has at least ten years of credited service of which the last five or more years prior to retirement is credited service as an investigator of the department of the attorney general;

(4) If the member has at least ten years of credited service of which the last five or more years prior to retirement is credited service as a narcotics enforcement investigator;

[(5) If the member has at least ten years of credited service of which the last five or more years prior to retirement is credited service as a water safety officer;

(6)] (5) If the member has at least ten years of credited service, of which the last five or more years prior to retirement is credited service as a public safety investigations staff investigator;

[(7)] (6) If the member:

(A) Has at least ten years of credited service as a firefighter;

(B) Is deemed permanently medically disqualified due to a service related disability to be a firefighter by the employer's physician; and

(C) Continues employment in a class A or class B position other than a firefighter; and

[(8)] (7) If the member:

(A) Has at least ten years of credited service as a police officer;

(B) Is deemed permanently medically disqualified due to a service related disability to be a police officer by the employer's physician; and

(C) Continues employment in a class A or class B position other than a police officer,

then for each year of service as a firefighter, police officer, corrections officer, investigator of the department of the prosecuting attorney, investigator of the department of the attorney general, narcotics enforcement investigator, [water safety officer,] or public safety investigations staff investigator, the retirement allowance shall be two and one-fourth per cent of the member's average final compensation. The maximum retirement allowance for those members shall not exceed eighty per cent of the member's average final compensation. If the member has not attained age sixty, the member's retirement allowance shall be computed as though the member had attained age sixty, reduced for age as provided in subsection (i)."

3. By amending subsection (i) to read:

"(i) Except as provided in subsections (f), (g), and (h), if a member, who becomes a member after June 30, 2012, has not attained age sixty at the date of retirement, the member's retirement allowance shall be reduced, for each month the member's age at the date of retirement is below age sixty, as follows:

(1) 0.4166 per cent for each month below age [fifty-nine] sixty and above age fifty-four and eleven months; plus

(2) 0.3333 per cent for each month below age fifty-five and above age forty-nine and eleven months; plus

(3) 0.2500 per cent for each month below age fifty and above age forty-four and eleven months; plus

(4) 0.1666 per cent for each month below age forty-five;

provided that no reduction shall be made if the member has attained the age of fifty-five and has at least twenty-five years of credited service as a firefighter, police officer, corrections officer, investigator of the department of the prosecuting attorney, investigator of the department of the attorney general, narcotics enforcement investigator, public safety investigations staff investigator, sewer worker, water safety officer, or emergency medical technician, of which the last five or more years prior to retirement is credited service in these capacities."

SECTION 3. Section 88-81, Hawaii Revised Statutes, is amended as follows:

1. By amending subsection (a) to read:

"(a) Average final compensation is the average annual compensation, pay, or salary upon which a member has made contributions as required by parts II, VII, and VIII of this chapter."

2. By amending subsection (f) to read:

"(f) If a member, who becomes a member after June 30, 2012, has credited service rendered as an elective officer or as a legislative officer, the member's average final compensation shall be computed separately for each category of service as follows:

(1) For the five highest paid years of credited service as an elective officer, or if the member has fewer than five years of credited service in that capacity, then the member's actual years of credited service;

(2) For the five highest paid years of credited service as a legislative officer, or if the member has fewer than five years of credited service in that capacity, then the member's actual years of credited service;

(3) For the five highest paid years of credited service as a judge, or if the member has fewer than [three] five years of credited service in that capacity, then the member's actual years of credited service; and

(4) For the five highest paid years of credited service not included in paragraph (1), (2), or (3), or if the member has fewer than five years of credited service in that capacity, then the member's actual years of credited service."

SECTION 4. Section 88-335, Hawaii Revised Statutes, is amended to read as follows:

"88-335 Ordinary disability retirement allowance. (a) Upon retirement for ordinary disability, a class H member who became a member before July 1, 2012, shall receive a maximum retirement allowance equal to the higher of either:

(1) Two per cent of the average final compensation multiplied by the number of years of class H credited service unreduced for age, plus one and one-fourth per cent of the member's average final compensation multiplied by the number of years of class C credited service unreduced for age; or

(2) Twenty-five per cent of the member's average final compensation.

(b) Upon retirement for ordinary disability, a class H member who becomes a member after June 30, 2012, shall receive a maximum retirement allowance equal to the higher of either:

(1) One and three-fourths per cent of the average final compensation multiplied by the number of years of class H credited service unreduced for age, plus one and one-fourth per cent of the member's average final compensation multiplied by the number of years of class C credited service unreduced for age; or

(2) Twenty-five per cent of the member's average final compensation."

SECTION 5. Section 88-338, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Upon receipt by the system of proper proof of a class H member's death occurring in service or while on authorized leave without pay and if no pension is payable under section 88‑339, there shall be paid to the member's designated beneficiary an ordinary death benefit as follows:

(1) [If the member had less than five years of credited service at the time of death, the] The member's accumulated contributions shall be paid to the member's designated beneficiary[;] if:

(A) The member became a member before July 1, 2012, and had less than five years of credited service at the time of death; or

(B) The member became a member after June 30, 2012, and had less than ten years of credited service at the time of death;

(2) [If the member had five or more years of credited service at the time of death, an] An amount equal to the member's hypothetical account balance shall be paid to the member's designated beneficiary[;] if:

(A) The member became a member before July 1, 2012, and had five or more years of credited service at the time of death; or

(B) The member became a member after June 30, 2012, and had ten or more years of credited service at the time of death;

(3) If the member had ten or more years of credited service at the time of death, the member's designated beneficiary may elect to receive in lieu of any other payment provided in this section, the allowance that would have been payable as if the member had retired on the first day of a month following the member's death, except for the month of December when retirement on the first or last day of the month shall be allowed. Benefits payable under this paragraph shall be calculated under option 3 of section 88-83 and computed on the basis of section 88-332, unreduced for age; or

(4) If the member was eligible for service retirement at the time of death, the member's designated beneficiary may elect to receive in lieu of any other payment provided in this section, the allowance that would have been payable as if the member had retired on the first day of a month following the member's death, except for the month of December when retirement on the first or last day of the month shall be allowed. Benefits payable under this paragraph shall be calculated under option 2 of section 88-83 and computed on the basis of section 88-332."

PART II

SECTION 6. Chapter 88, Hawaii Revised Statutes, is amended by adding a new section to part II to be appropriately designated and to read as follows:

"88-   Payment by employers of costs associated with spiking. (a) The contribution payable in each year to the pension accumulation fund by the State and each county shall also include the actuarial present value, as determined by the system, of the excess maximum retirement allowance, payable over the employee's or former employee's actuarial life expectancy, resulting from spiking for each employee or former employee who became a member of the system prior to July 1, 2012, and retired in the previous year.

(b) The last employer of the employee or former employee shall pay the contribution calculated under subsection (a).

(c) An excess maximum retirement allowance resulting from spiking occurs when:

(1) The employee's or former employee's average non-base pay, divided by the employee's or former employee's average base pay, is greater than ten per cent; and

(2) The employee's or former employee's average final compensation non-base pay ratio divided by the comparison period non-base pay ratio is greater than or equal to one-hundred twenty per cent.

(d) The amount of the "excess maximum retirement allowance resulting from spiking" is the amount by which an employee or former employee's maximum retirement allowance exceeds what the employee or former employee's maximum retirement allowance would be if the employee or former employee's average final compensation were equal to the employee's or former employee's average base pay multiplied by the sum of one and the employee's or former employee's comparison period non-base pay ratio."

SECTION 7. Section 88-21, Hawaii Revised Statutes, is amended by adding seven new definitions to be appropriately inserted and to read as follows:

""Average base pay" means the total base pay included in a member's average final compensation, divided by the number of years used to determine average final compensation.

"Average final compensation non-base pay ratio" means the average non-base pay divided by the average base pay.

"Average non-base pay" means the total non-base pay included in a member's average final compensation divided by the number of years used to determine the member's average final compensation.

"Comparison period" means those years in the ten years of credited service prior to termination of service that are not included in the period for determining a member's average final compensation or, if the member has less than ten years of credited service prior to termination of service, the years of the member's credited service that are not included in the determination of the member's average final compensation.

"Comparison period average base pay" means the total base pay for the comparison period divided by the number of years in the comparison period.

"Comparison period average non-base pay" means the total non-base pay for the comparison period divided by the number of years in the comparison period.

"Comparison period non-base pay ratio" means the comparison period average non-base pay divided by the comparison period average base pay."

SECTION 8. Section 88-21.5, Hawaii Revised Statutes, is amended to read as follows:

"88-21.5 Compensation. (a) Unless a different meaning is plainly required by context, as used in this part, "compensation" means normal periodic payments of money for service the right to which accrues on a regular basis in proportion to the service performed; overtime[,] and differentials[, and supplementary payments]; bonuses and lump sum salary supplements; and elective salary reduction contributions under sections 125, 403(b), and 457(b) of the Internal Revenue Code of 1986, as amended. Bonuses and lump sum salary supplements shall be deemed earned when payable; provided that bonuses or lump sum salary supplements in excess of one-twelfth of compensation for the twelve months prior to the month in which the bonus or lump sum salary supplement is payable, exclusive of overtime, bonuses, and lump sum salary supplements, shall be deemed earned:

(1) During the period agreed-upon by the employer and employee, but in any event over a period of not less than twelve months; or

(2) In the absence of an agreement between the employer and the employee, over the twelve months prior to the date on which the bonus or lump sum salary supplement is payable.

(b) Unless a different meaning is plainly required by context, as used in this part:

(1) "Base pay" means normal periodic payments of money for service, the right to which accrues on a regular basis in proportion to the service performed; recurring differentials; and elective salary reduction contributions under sections 125, 403(b), and 457(b) of the Internal Revenue Code of 1986, as amended.

(2) "Non-base pay" means all compensation that is not base pay. Non-base pay includes overtime, non-recurring differentials, bonuses, and lump-sum salary supplements."

SECTION 9. Section 88-81, Hawaii Revised Statutes, is amended to read as follows:

"88-81 Average final compensation. (a) Average final compensation is the average annual compensation, pay, or salary upon which a member has made contributions as required by parts II, VII, and VIII of this chapter.

(b) The average final compensation of members shall be calculated as follows:

(1) For employees who become members before January 1, 1971:

(A) During the member's five highest paid years of credited service, including vacation pay, or the three highest paid years of credited service excluding vacation pay, whichever is greater; or

(B) If the member has fewer than three years of credited service, during the member's actual years of credited service;

(2) For employees who become members after December 31, 1970, but before July 1, 2012:

(A) During the member's three highest paid years of credited service, excluding vacation pay; or

(B) If the member has fewer than three years of credited service, during the member's actual years of credited service; and

(3) For employees who become members after June 30, 2012:

(A) During the member's five highest paid years of credited service, excluding vacation pay; or

(B) If the member has fewer than five years of credited service, during the member's actual years of credited service.

(c) In computing the compensation of a judge, the compensation paid to the judge by the United States as well as by the Territory shall be included.

(d) For service rendered as a member of the legislature from and after November 5, 1968, the actual annual salary of a member shall be the only amount used for determining the member's average final compensation. For service rendered as a member of the legislature prior to November 5, 1968, and after admission of this State into the Union, the annual compensation of a member shall be computed, for the purpose of determining the member's average final compensation, as follows:

(1) During a year in which a general session was held, it shall be deemed to have been an amount equal to four times the salary of a member of the legislature for a general session; and

(2) During a year in which a budget session was held, it shall be deemed to have been an amount equal to six times the salary of a member of the legislature for a budget session.

For service rendered as a member of the legislature prior to the admission of this State into the Union, the annual compensation of a member shall be deemed to have been four times the salary of a member of the legislature for a regular session for each year during the member's term of office.

(e) If a member, who became a member before July 1, 2012, has credited service rendered as an elective officer or as a legislative officer, the member's average final compensation shall be computed separately for each category of service as follows:

(1) For the three highest paid years of credited service as an elective officer, or if the member has fewer than three years of credited service in that capacity, then the member's actual years of credited service;

(2) For the three highest paid years of credited service as a legislative officer, or if the member has fewer than three years of credited service in that capacity, then the member's actual years of credited service;

(3) For the three highest paid years of credited service as a judge, or if the member has fewer than three years of credited service in that capacity, then the member's actual years of credited service; and

(4) For the three highest paid years of credited service not included in paragraph (1), (2), or (3), or if the member has fewer than three years of credited service in that capacity, then the member's actual years of credited service.

(f) If a member, who becomes a member after June 30, 2012, has credited service rendered as an elective officer or as a legislative officer, the member's average final compensation shall be computed separately for each category of service as follows:

(1) For the five highest paid years of credited service as an elective officer, or if the member has fewer than five years of credited service in that capacity, then the member's actual years of credited service;

(2) For the five highest paid years of credited service as a legislative officer, or if the member has fewer than five years of credited service in that capacity, then the member's actual years of credited service;

(3) For the five highest paid years of credited service as a judge, or if the member has fewer than three years of credited service in that capacity, then the member's actual years of credited service; and

(4) For the five highest paid years of credited service not included in paragraph (1), (2), or (3), or if the member has fewer than five years of credited service in that capacity, then the member's actual years of credited service.

(g) If:

(1) A member's average non-base pay, divided by the member's average base pay, is greater than ten per cent; and

(2) The member's average final compensation non-base pay ratio divided by the comparison period non-base pay ratio is greater than or equal to one-hundred twenty per cent,

the amount by which the member's total compensation, pay, or salary during the period used to calculate average final compensation, divided by the number of years used to determine average compensation, exceeds the member's average base pay, multiplied by the sum of one and the member's comparison period non-base pay ratio, shall be excluded from the calculation of the member's average final compensation. This subsection shall apply to members who become members of the system after June 30, 2012.

(h) Subsection (g) shall apply, commencing July 1, 2015, to members who became members of the system before July 1, 2012; provided that:

(1) A member's average final compensation shall not be less than what the member's average final compensation would have been if the member had retired on June 30, 2015; and

(2) Compensation, pay, or salary earned during the period used to calculate average compensation shall not be subject to the exclusion required by subsection (g), if the compensation, pay, or salary was earned before July 1, 2015."

PART III

SECTION 10. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 11. This Act shall take effect on July 1, 2012.


 


 

Report Title:

Employees' Retirement System

 

Description:

Corrects errors. Harmonizes ordinary disability and ordinary death benefits for new members of the Employees' Retirement System with their service retirement benefits. Harmonizes age and service requirements for judges who are currently members of the Employees' Retirement System with the requirements for other contributory plan members. Prevents unexpected increases in pension benefits and in the unfunded actuarial accrued liability of the Employees' Retirement System by limiting the amount of compensation included in the "average final compensation" and requiring employers to pay the additional costs resulting from spiking. (SD1)

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.