SB2073 SD1 SSCR2486

STAND. COM. REP. 2486

Honolulu, Hawaii

, 2004

RE: S.B. No. 2073

S.D. 1

Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committees on Labor and Education, to which was referred S.B. No. 2073 entitled:

"A BILL FOR AN ACT RELATING TO THE UNIVERSITY OF HAWAII,"

beg leave to report as follows:

The purpose of this measure is to clarify the law that allows the University of Hawaii (UH) to implement an optional retirement system for its employees.

Specifically, this measure:

(1) Clarifies that part-time and temporary UH employees are not eligible for membership in the optional retirement system;

(2) Requires the State to remit to UH an amount equal to six percent of an employee's compensation on behalf of an employee electing to participate in the optional retirement system; and

(3) Prohibits an employee who switches from membership in the ERS to the optional retirement system, after its establishment, from thereafter transferring from one system to the other.

Testimony in support of this measure was submitted by the University of Hawaii, the University of Hawaii Professional Assembly, and AIG VALIC.

Testimony in opposition to this measure was submitted by the Department of Budget and Finance (DB&F) and the Hawaii Government Employees Association.

Your Committees find that under the current law the employer's contribution to the optional retirement plan cannot exceed the amount for any group covered by the Employees' Retirement System (ERS). Your Committees further find that this limitation has rendered the implementation of an optional system impossible in that the amount of the employer's contribution fluctuates based on market conditions. Your Committees determine that this limitation should be removed and replaced with language requiring the State to remit to UH an amount equal to six percent of the employee's contribution, an amount determined to be the normalized employer contribution rate for the ERS, in lieu of any contribution it would have made to the ERS on the employee's behalf.

Your Committees also determine that in order to better serve the needs of the employees, UH should be required to contract with multiple vendors for the provision of investment options for the employees, a practice that is widely utilized nationwide. Additionally, as UH will be responsible for obtaining funding for any plan costs that exceed the amount of the State's remittance to UH, the option should be available for the employee and employee organization to negotiate for a contribution amount in excess of six percent. Your Committees also believe that the benefits of the optional retirement system should be extended to include employees who are appointees of the UH Board of Regents.

However, although it is UH's position that a fixed contribution rate will not increase the cost to the State, but will instead allow UH to establish an optional retirement system on par with those provided at mainland universities, it is the contention of DB&F that additional costs to the State will be incurred. DB&F contends that, due to the fact that pension accumulation costs are actuarially determined with appropriations based upon a three-year lag, the State would be required to make double contribution payments on behalf of employees enrolled in the optional retirement system. As the issue of increased costs to the State and other matters remain unresolved, your Committees determine that this measure should continue in the legislative process as a vehicle for further discussion.

Accordingly, your Committees have amended this measure by:

(1) Requiring UH to designate at least three companies to provide annuity contracts, mutual fund accounts, or similar investment products under the program, and to require the designation to be based upon the following criteria:

(A) The nature and extent of the rights and benefits to be provided by the contracts or accounts, or both, of participants and their beneficiaries;

(B) The relation of the rights and benefits to amount of contributions to be made;

(D) The ability and experience of the designated companies in providing suitable rights and benefits under the contract or accounts, or both; and

(E) The ability and experience of the designated companies to provide suitable education and investment options;

(2) Authorizing the inclusion of UH employees appointed by the Board of Regents in the optional retirement system;

(3) Authorizing the negotiation, between an employee and employee organization, of a contribution amount to the optional retirement system that is larger than six percent of an employee's compensation;

(4) Removing the restriction that an employee who is a member of the ERS, but who upon establishment of the optional retirement system switches to being a member of the optional retirement system, may not thereafter transfer from one system to the other;

(5) Allowing an employee hired after the establishment of the optional retirement system, who has elected participation in the ERS, the opportunity to opt out of the ERS and become a member of the optional retirement system within thirty days of the date of hire; and

(6) Changing the effective date of the measure from being effective upon approval to July 1, 2050, to promote further discussion on the measure.

As affirmed by the records of votes of the members of your Committees on Labor and Education that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 2073, as amended herein, and recommend that it pass Second Reading in the form attached hereto as S.B. No. 2073, S.D. 1, and be referred to the Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committees on Labor and Education,

____________________________ NORMAN SAKAMOTO, Chair		____________________________ BRIAN KANNO, Chair