Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Labor, to which was referred S.B. No. 1052 entitled:

begs leave to report as follows:

The purpose of this measure is to statutorily set the salary growth assumption rate that the Employees' Retirement System uses to compile actuarial valuation data.

Testimony in support of the measure was received from the Department of Budget and Finance. The Employees Retirement System submitted comments on the measure.

Your Committee finds that the measure deletes the variable salary growth assumption rate and the requirement that teachers, police, firefighters, and corrections officers, and all other employees have separate salary growth assumption rate calculations. The measure replaces the deleted language with a single salary growth assumption rate for all employees. The salary growth assumption rate is unspecified in the measure.

Your Committee also finds that salary increases have a direct relationship to retirement benefits provided by the Employees' Retirement System because retirement benefits are based on a member's average final salary. For valuation purposes, an assumption must be made with regard to how an employee's salary will increase throughout the employee's career.

The Employees' Retirement System is required by existing law to utilize a variable salary growth assumption rate. Because the present three-year rolling average salary growth assumption changes with each actuarial valuation, it results in significant fluctuations in annual appropriations required of state and county employers to cover employee retirement benefit contributions.

Your Committee believes that adopting a single salary growth assumption rate will assist the Employees' Retirement System in making reasonable long-term actuarial valuations, thus reducing the short-term volatility of fluctuating employer contributions to the Employees' Retirement System.

As affirmed by the record of votes of the members of your Committee on Labor that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1052 and recommends that it pass Second Reading and be referred to the Committee on Ways and Means.