Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Transportation, Military Affairs and Government Operations, to which was referred S.B. No. 1038, S.D. 1, entitled:

begs leave to report as follows:

The purposes of this measure are to transfer the Deferred Compensation Program from the Department of Human Resources to the Employees' Retirement System (ERS), and to require the payment of interest on a member's retirement allowance if payment has not commenced within ninety days following the member's retirement.

Your Committee received testimony in support of this measure from the Department of Budget and Finance. The ERS submitted testimony supporting the transfer of the Deferred Compensation Program, but opposing the interest payment provisions.

Your Committee finds that transferring the Deferred Compensation Program to the ERS is appropriate and will lead to more efficient administration of both the full time and part time deferred compensation programs.

Your Committee also understands the reasoning behind the interest payment provisions, which were inserted by your Committee on Labor. Many retirees in the past, particularly during periods of mass retirement in a short time span, were frustrated because their retirement allowances took a long time to process.

Based on the testimony of the Administrator of the ERS, however, your Committee believes that the ERS diligently processes each member's retirement allowance as fast as possible. Well within three months of a person's retirement, the ERS provides an estimated payment based on calculations made by the ERS prior to the person's retirement. Following commencement of the estimated payment, the ERS begins to calculate the retiree's actual average final compensation, taking into account sick leave, vacation data, and other factors based on a thorough review of the retiree's work history.

The calculation of the average final compensation is sometimes delayed because the government agency for which the retiree worked is tardy in submitting the necessary data to the ERS. Once the ERS receives that data, it processes the average final compensation and finalizes the retirement allowance. There is often a very small discrepancy between the estimated payments that began soon after the person's retirement, and the ultimate payment amount.

Your Committee, working with the ERS, interprets the interest payment provisions as applying only if the ERS fails to provide any payment to the retiree within ninety days of retirement, which rarely occurs. Your Committee agrees that interest payments are appropriate if no payment whatsoever has been made within ninety days of a member's retirement. Your Committee amended this measure to clarify that interest will only accrue if no initial payment has been made within ninety days.

Your Committee also amended this measure to set the interest rate at eight per cent, rather than tying it to the national prime rate under section 478-2, Hawaii Revised Statutes. Your Committee believes that eight per cent is fair to the retiree and will enable the ERS to accurately prepare an internal budget. Your Committee also inserted language specifying the date from which calculation of the ninety day period begins for ordinary disability and service-connected disability retirements.

As affirmed by the record of votes of the members of your Committee on Transportation, Military Affairs and Government Operations that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1038, S.D. 1, as amended herein, and recommends that it pass Third Reading in the form attached hereto as S.B. No. 1038, S.D. 2.