STAND

STAND. COM. REP. NO. 292-04

Honolulu, Hawaii

, 2004

RE: H.B. No. 2403

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Labor and Public Employment, to which was referred H.B. No. 2403 entitled:

"A BILL FOR AN ACT RELATING TO THE FEDERAL TAX LIMIT ON COMPENSATION APPLICABLE TO THE EMPLOYEES' RETIREMENT SYSTEM,"

begs leave to report as follows:

The purpose of this bill is to preserve the tax qualified status of the State Employees' Retirement System (ERS) by conforming state law to the provisions of the Internal Revenue Code (Code).

This bill:

(1) Applies the federal tax limit on compensation that may be taken into consideration in determining pension benefits under ERS's retirement plan;

(2) Establishes a non-tax-qualified pension benefit plan that allows ERS members who accrued benefits in excess of the limits under Code provisions to retain those benefits; and

(3) Appropriates the sum of $357,350 to pay ERS members of the State for any shortfalls in accrued benefits due to the State's conformance with these Code provisions.

The ERS and the Department of Budget and Finance testified in support of this bill.

Your Committee finds:

(1) That chapter 88, Hawaii Revised Statutes, should be amended to apply the federal tax limit on compensation in accordance with the Code;

(2) Compensation to ERS members is necessary, because Article XVI, Section 2 of the State Constitution requires that:

"Membership in any employees' retirement system of the State or any political subdivision thereof shall be a contractual relationship, the accrued benefits of which shall not be diminished or impaired.";

and

(3) The funds to be appropriated will protect benefits accrued in excess of the federal tax limits for the period from July 1, 1996, when these federal provisions took effect, through June 30, 2004.

As affirmed by the record of votes of the members of your Committee on Labor and Public Employment that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 2403 and recommends that it pass Second Reading and be referred to the Committee on Finance.

Respectfully submitted on behalf of the members of the Committee on Labor and Public Employment,

		____________________________ MARCUS R. OSHIRO, Chair