Addresses employees' retirement system's unfunded liability by appropriating funds to lower the unfunded liability and establish a mechanism to channel funds towards paying off the unfunded liability during years of revenue surplus.

A BILL FOR AN ACT

SECTION 1. The legislature finds that in fiscal year 2000, the employees' retirement system's funded pension ratio stood at almost ninety-five per cent. As of June 30, 2005, the system's funded pension ratio has declined to approximately sixty-seven per cent. At present, the employees' retirement system estimates that an infusion of $3,900,000,000 is needed to fully fund the system's pension liability--thereby ensuring the system's ability to pay all benefits earned by state and county employees. When compared to other large public pension plans in the nation, the employees' retirement system is among the bottom ten per cent in terms of the percentage of funded pension liability.

The legislature also finds that the decline in the employees' retirement system's funded pension liability ratio is not solely attributable to the system itself. In the recent past, the periodic diversion of the employees' retirement system's excess investment earnings by the legislature, poor investment market conditions, and other unforeseeable circumstances all have contributed to the funded pension ratio's decline.

However, the legislature believes that the full funding of the employees' retirement system's pension liability is not only attainable, but imperative to the long-term financial well-being of the State. Once the employees' retirement system's pension liability is fully funded, the legislature would be able to concentrate on other public employment concerns, such as improving and maintaining the benefits and solvency of the employer-union trust fund so that health benefits for active and retired public employees will be ensured.

The legislature further finds that, although the State clearly has a myriad of needs upon which it could expend excess revenues accrued by the State in times of economic prosperity, fully funding the employees' retirement system's pension liability is a unique and important priority because:

The purpose of this Act is to reserve and appropriate at least twenty per cent of the total amount of excess revenues realized by the State in qualified economically prosperous fiscal years to the employees' retirement system for the purpose of paying down the system's unfunded pension liability.

SECTION 2. Chapter 37, Hawaii Revised Statutes, is amended by adding a new section to part IV to be appropriately designated and to read as follows:

"§37- Disposition of excess revenues; unfunded liability of the employees' retirement system; reduction. (a) Whenever the state general fund balance at the close of a fiscal year exceeds five per cent of general fund revenues for the fiscal year, the legislature in the next regular session shall reserve and appropriate at least twenty per cent of the total amount of the excess revenues to the employees' retirement system for the purpose of paying down the system's unfunded pension liability.

(b) The director of finance shall be responsible for including the twenty per cent appropriation required under subsection (a) as a part of the executive budget request for the respective fiscal year.

(c) This section shall be inoperative upon a finding executed in accordance with sections 88-105 and 88-122, and a declaration by the employees' retirement system, that the system's pension liability is fully funded and that no future liability shall accrue against the public employer.

(d) If, after a finding and declaration under subsection (c) has been executed, the employees' retirement system determines that it is necessary to reinvoke the operation of subsections (a) and (b), the system shall notify the governor, the legislature, and the director of finance of the need and the reasons therefor, and the director of finance, with the approval of the governor, shall execute the director's responsibilities under subsection (b)."

SECTION 3. There is appropriated out of the general revenues of the State of Hawaii the sum of $250,000,000, or so much thereof as may be necessary for fiscal year 2006-2007, for the purpose of paying down a portion of the employees' retirement system's unfunded liability.

SECTION 4. The sum appropriated shall be expended by the employees' retirement system for the purposes of this Act.

SECTION 5. This Act shall take effect on July 1, 2006.