Report Title:

Defined benefit pension system; study

WHEREAS, defined benefits plans are pension plans that pay a defined or specified retirement benefit based on formulas taking into account a myriad of factors such as life expectancy, average salary, and years of service; and

WHEREAS, a majority of states, including Hawaii, currently enroll public employees in defined benefit pension plans; and

WHEREAS, defined benefit pension plans require actuaries to estimate payments into the plan in order to meet future payment obligations; and

WHEREAS, pension payments from the plan bear little relationship to the actual market performance of the investments backing the plan, causing fiscal distress for state budgets in times of market downturn and underfunding of pension plans; and

WHEREAS, defined contribution pension plans, patterned after 401(k) plans, are gaining popularity in several states as a viable option for public employee pension plans; and

WHEREAS, full portability, quicker vesting, individual control over investing decisions, comparative outperformance against defined benefit pension plans, fairness to certain demographic groups such as working women, and flexibility in estate planning are advantages often cited when comparing defined contribution pension plans to defined benefit pension plans; now, therefore,

BE IT RESOLVED by the House of Representatives of the Twenty-first Legislature of the State of Hawaii, Regular Session of 2001, that the Legislative Reference Bureau is requested to study the advisability and feasibility of moving the state pension system from a defined benefit pension system to a defined contribution pension system; and

BE IT FURTHER RESOLVED that the Legislative Reference Bureau is requested to submit a report of its findings, conclusions, and recommendations to the Legislature no later than twenty days prior to the convening of the Regular Session of 2002; and

BE IT FURTHER RESOLVED that certified copies of this Resolution be transmitted to the Acting Director of the Legislative Reference Bureau, the board of trustees of the Employee Retirement System, and the Director of Labor and Industrial Relations.