Requires the employees' retirement system to establish procedures and draft proposed legislation to enable the system's acceptance of and compliance with a state equivalent of what are referred to as "qualified domestic relations orders" under the Employee Retirement Income Security Act. Requires the employees' retirement system to submit the report to the legislature prior to the 2007 regular session.

A BILL FOR AN ACT

SECTION 1. The legislature finds that the largest asset a married couple accumulates over the life of their marriage, with the possible exception of a home, is not infrequently a pension plan of one of the parties. The longer the marriage, the greater the chance that the pension amount will increase. For spouses who divorce, access to a former spouse's pension can be a significant financial resource in retirement. It can make the difference between financial security and a slide into poverty.

The legislature also finds that it is well documented that women face a substantial and increasing risk of poverty as they age. Women generally live longer and are more apt to live alone and, therefore, must stretch their financial resources further than men. Longevity, however, is not the only reason women are economically vulnerable. Several factors – historical patterns of economic dependence on men, caregiving responsibilities (women spend approximately ten years out of the workforce due to caregiving responsibilities), intermittent, often low-wage or nonexistent paid employment histories, and limited eligibility and participation in pension plans – have maintained women's disadvantage. Frequently, the economic impact of divorce on women is substantial. For married women who already have limited economic resources, divorce almost invariably means a decline in income.

Although it is difficult to estimate how many marriages will end in divorce, examining the design and efficacy of existing retirement income "safety nets" and "safeguards" is an important first step to addressing the challenge of ensuring the financial security of divorced women as they age.

The legislature believes that what has come to be known under the federal Employees Retirement Income Security Act as "qualified domestic relations orders" can serve as a retirement security "safeguard" for women. A qualified domestic relations order is a domestic relations court order, judgment, or decree under a state domestic relations law that relates to the provisions for a spouse, former spouse, or a dependent of child support, alimony payments, and marital property rights. Qualified domestic relations orders allow retirement benefit distributions to be made to individuals who are not plan participants. Distributions may be made to fulfill family obligations or marital property settlements. However, qualified domestic relations orders apply only to private pension plans qualified under the Employee Retirement Income Security Act.

Unfortunately, the development and implementation of a qualified domestic relations order is a complicated and costly process involving several players with, often, conflicting interests. It is essential to have legal representation that is competent to shepherd, in as timely a manner as possible, the process of identifying, fairly valuing, and dividing a spouse's pension. The decisions women make at the time of a divorce will have long lasting consequences on their financial future and the future of their family.

The legislature realizes, however, that for a number of reasons, it cannot blithely enact legislation requiring the employees' retirement system to implement qualified domestic relations orders on the same basis as the federal law. Such an effort would likely result in forcing a solution that does not fit well. As beneficial to divorcing parties as the availability of such orders may be, the employees' retirement system can be expected to have some concerns that are both reasonable and very legitimate, including:

The legislature is mindful of the fact that the employees' retirement system has done an excellent job of carrying out its fiduciary duties in managing the assets of the retirement system for the benefit of Hawaii's state and county employees and that establishment of a system for recognition of some equivalent of qualified domestic relations orders may primarily benefit people who are not members of the retirement system. However, the legislature also recognizes that its actions with respect to the retirement system cannot always be exclusively for the benefit of state and county employees and retirees. As the policy making body for all of the people of the State of Hawaii, the legislature cannot stand idly by and allow former spouses to sink into poverty and dependence upon the welfare system due to their inability to obtain a portion of what at times may be the only significant asset of a marriage.

It is not the intent of this Act to subject state and county employees to any greater level of property division in the event of divorce than applies under current state domestic relations law. To the extent that pension interests are divisible, state and county employees and retirees are subject to that divisibility like anyone else. The purpose of this Act is to make that divisibility more meaningful by having the retirement system directly involved in the payment of benefits. In at least some cases, the ability of the employee or retiree to have the retirement system make payments directly to a former spouse may be preferable to the expense and difficulty of arranging to pay in a lump sum the present value of the retirement benefits years before those benefits will even be received by the divorcing employee.

The purpose of this Act is therefore to direct the employees' retirement system of the State of Hawaii to develop procedures to implement, as nearly as is reasonably practicable, a state equivalent of what are referred to as "qualified domestic relations orders" under the federal Employee Retirement Income Security Act.

SECTION 2. Prior to December 31, 2006, the employees' retirement system shall develop procedures and draft, if necessary, proposed legislation that enables the employees' retirement system to accept and comply with a state equivalent of what are referred to as "qualified domestic relations orders" under the Employee Retirement Income Security Act.

SECTION 3. The employees' retirement system shall report on its compliance with this Act and submit findings and recommendations, and, if necessary, proposed legislation to the legislature not later than twenty days prior to the convening of the 2007 regular session.

SECTION 4. In enacting this Act, the legislature intends that the employees' retirement system:

SECTION 5. This Act shall take effect upon its approval.