Implements an Internal Revenue Service approved special pay plan for all eligible employees of the State and county which will not enhance or diminish existing special pay benefits. Allows employees under the age of fifty-five who elect early withdrawal from the special pay plan within sixty days of the effective date of separation from service to be reimbursed by the employer the difference between the Federal Insurance Contribution Act (FICA)and any Medicare tax savings to the employee and any early withdrawal penalty imposed by the Internal Revenue Service. (SD1)

A BILL FOR AN ACT

SECTION 1. The purpose of this Act is to amend section 78-23 of the Hawaii Revised Statutes to implement an Internal Revenue Service approved special pay plan for all eligible employees of the State and county, which shall enhance and not diminish existing special pay benefits. A special pay plan is a qualified retirement plan, under section 401(a) of the Internal Revenue Code, that reduces the federal tax burden on special compensation payments made on behalf of state employees which, if paid directly to an employee, would be compensation income within the meaning of the Internal Revenue Code.

SECTION 2. Section 78-23, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

"(d) Whenever an employee is to be discharged, voluntarily or involuntarily, the employee, at the option of the appointing authority, [may] shall be discharged and paid forthwith, in lieu of the employee's vacation allowance, the amount of compensation to which the employee would be entitled or which the employee would be allowed during the vacation period if the employee were permitted to take the employee's vacation in the normal manner, through a contribution to a qualified retirement plan under section 401(a) of the Internal Revenue Code which is considered supplemental compensation for each full day of accumulated vacation leave which is credited on the effective date of separation from service, and in such case the employee's position may be declared vacant and may be permanently filled by a new appointee before the expiration of any vacation period following the date of the discharge. Any employee under the age of fifty-five may withdraw the employee's contribution to the special pay plan within in sixty days of the effective date of separation from service; provided that the employer shall reimburse the employee an amount equal to the difference between any Federal Insurance Contribution Act (FICA) and medicare tax savings to the employee, and any early withdrawal penalty imposed by the Internal Revenue Service. For an employee hired after June 30, 1997, who is to be discharged, voluntarily or involuntarily, the amount of compensation to be paid in lieu of vacation allowance under this section shall be computed using the rate of pay and amount of accumulated and accrued vacation on the date the employee is discharged. Prompt notice upon such forms and in such manner as may be required shall be given by the department head of any action taken under this provision."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.