HOUSE OF REPRESENTATIVES
THIRTY-FIRST LEGISLATURE, 2021
STATE OF HAWAII
A BILL FOR AN ACT
relating to unfunded liabilities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that self-insured or self-funded plans have a number of potential advantages over fully insured plans. According to the National Conference of State Legislatures, currently, 48 states self-fund at least one of the health plan options offered for state employees, and 29 states self-fund all state employee health plan options. Those states that have administered self-insured state employee health plans have been able to eliminate most premium taxes and lower costs while still maintaining a high level of health benefits.
Hawaii's employer-union health benefits trust fund is currently fully insured rather than self-insured. However, health care premiums have risen rapidly over the last decade. Therefore, the legislature believes that it is both prudent and essential for the State to convert the employer-union health benefits trust fund to a self-insured model will result in cost savings.
The legislature additionally finds that as of July 1, 2019, the unfunded portion of the actuarial accrued liability of the Hawaii employer-union health benefits trust fund was $12,436,389,000. This is more than the total revenue that the state collected in taxes for fiscal year 2019, which was around $8,280,000,000.
To address this unfunded liability, Act 268, Session Laws of Hawaii 2013, requires the State and counties to prefund other post-employment health and other benefit plan costs for active employees and retirees and their dependents by making annual contributions to the other post-employment benefits trust fund. State, county, and other public employers' annual contributions to the other post-employment benefits trust fund totals $1,175,022,313 for fiscal year 2020. The balance of the trust fund was $3,735,834,615, as of June 30, 2020.
Clearly, given current and projected revenues, the State and the counties cannot afford to commit several hundreds of millions of dollars each year for the next couple decades to prefund both health and pension unfunded liabilities. A more affordable and less painful solution is necessary.
By not requiring other post-employment benefits prefunding through 2049, this Act will free up monies that could be used toward addressing the many important needs of the State and counties, including balancing the budget, reducing the shortage of doctors, nurses, and teachers in the State, and bringing additional funds to the City and County of Honolulu's rail project. Additionally, savings that come as a result of passage of this Act can help address the effects of the COVID-19 pandemic that occurred in 2020, including reducing the need, or possibly even avoiding entirely, furloughing state workers and reducing the salary of state workers by ten per cent.
Accordingly, the purpose of this Act is to reallocate the amount of prefunding by:
(1) Capping public employer prefunding to the other post-employment benefits trust fund once the separate accounts for each public employer have a combined subaccount balance of at least $2,000,000,000 to serve as a reserve account for the self-insured model; and
(2) Thereafter, transferring any amount of funds over the $2,000,000,000 cap, including any investment income and interest, from the other post-employment benefits trust fund to a newly established stabilization fund, which will:
(A) Provide reserve funding to stabilize the Hawaii employer-union health benefits trust fund at times when that trust fund has insufficient moneys to cover the costs of providing health and other benefits plans for active employees and retirees and their dependents; and
(B) Ensure that health premiums stay level and do not increase in the future.
SECTION 2. Chapter 87A, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§87A- Stabilization fund; establishment; purpose. (a) There is established a stabilization fund to be placed within the employer-union health benefits trust fund for administrative purposes.
(b) The stabilization fund may cover the increasing costs of providing health and other benefit plans for active employees and retirees and their dependents as required by this chapter. A separate account for each public employer shall be established and maintained to accept and account for each public employer's contributions. Unless otherwise specified by law, the stabilization fund shall not be subject to appropriation for any purpose and shall not be subject to claims by creditors of employers or the board.
(c) The stabilization fund shall consist of:
(1) Moneys transferred from the Hawaii employer-union health benefits trust fund established by section 87A-30 and the other post-employment benefits trust fund established by section 87A-42;
(2) Interest from the separate trust fund established to prefund other post-employment health and other benefits plan costs for members and their dependents pursuant to section 87A-42 and interest from the stabilization fund;
(3) Any earnings on investments of the fund; and
(4) Appropriations from the legislature.
(d) The stabilization fund shall meet the requirements of the Governmental Accounting Standards Board regarding employment benefits trusts.
(e) The board may contract with a third-party administrator or enter into an administrative services only arrangement to manage and administer the funds of the stabilization fund in accordance with this section."
SECTION 3. Section 87A-31, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:
The fund, including any earnings on
investments, and rate credits or reimbursements from any carrier or
self-insured plan and any earning or interest derived therefrom, may be used to
stabilize health and other benefit plan rates; provided that the approval of
the governor and the legislature shall be necessary to fund administrative and
other expenses necessary to effectuate these purposes.] All unencumbered and unexpended moneys in
excess of $2,000,000,000 remaining in the fund at the end of each fiscal year
shall be transferred to the stabilization fund established in section 87A- ."
SECTION 4. Section 87A-42, Hawaii Revised Statutes, is amended as follows:
1. By amending subsection (a) to read:
"(a) Notwithstanding sections 87A-31 and 87A-31.5, the board, upon terms and conditions set by the board, shall establish and administer a separate trust fund for the purpose of receiving employer contributions that will prefund other post-employment health and other benefit plan costs for retirees and their beneficiaries. The separate trust fund shall meet the requirements of the Government Accounting Standards Board regarding other post-employment benefits trusts. The board shall establish and maintain a separate account for each public employer within the separate trust fund to accept and account for each public employer's contributions. Employer contributions to the separate trust fund shall be irrevocable, all assets of the fund shall be dedicated exclusively to providing health and other benefits to retirees and their beneficiaries, and assets of the fund shall not be subject to appropriation for any other purpose and shall not be subject to claims by creditors of the employers or the board or plan administrator. The board's powers under section 87A-24 shall also apply to the fund established pursuant to this section. Notwithstanding any law to the contrary, once the separate accounts for each public employer within the separate trust fund have a combined balance of at least $2,000,000,000, any earnings from the $2,000,000,000 remaining in the separate trust fund at the end of each fiscal year shall be transferred to the separate public employer accounts within the stabilization fund established in section 87A- . Unless otherwise specified by law, the $2,000,000,000 and the separate trust fund shall not be subject to appropriation for any purpose and shall not be subject to claims by creditors of employers or the board."
2. By amending subsection (d) to read:
"(d) In any fiscal year [
to the 2017-2018 fiscal year] in which a county public
employer's contributions into the fund are less than the amount of the annual required
contribution, the amount that represents the excess of the annual required
contribution over the county public employer's contributions shall be deposited
into the applicable fund pursuant to subsection (a) from a
portion of all transient accommodations tax revenues collected by the
department of taxation under section 237D-6.5(b)(4). The director of finance shall deduct the
amount necessary to meet the county public employer's annual required contribution
from the revenues derived under section 237D-6.5(b)(4) and transfer the amount
to the board for deposit into the appropriate account of the separate trust
3. By amending subsection (f) to read:
"(f) For the purposes of this section, "annual
required contribution" means a public employer's required contribution to
the trust fund established in this section [
that is sufficient to cover: (1) The normal
cost, which is the cost of other post-employment benefits attributable to the
current year of service; and (2) An amortization
payment, which is a catch-up payment for past service costs to fund the
unfunded actuarial accrued liability over the next thirty years]."
SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 6. This Act shall take effect on July 1, 2021.
Unfunded Liabilities; EUTF; Other Post-Employment Benefits Trust Fund; Stabilization Fund; Establishment
Establishes the stabilization fund. Caps employer contributions to the other post-employment benefits trust fund. Transfers excess funds over the established cap from other post-employment benefits trust fund to the stabilization fund to cover cost increases of providing health and other benefits plans for active employees and retirees and their dependents.
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.