HB3144

SECTION 1. The State of Hawaii deferred compensation plan ("plan") is a supplemental retirement plan that is authorized under section 457 of the Internal Revenue Code of 1986, as amended, and chapter 88E, Hawaii Revised Statutes. The plan is available to employees of the State of Hawaii and participating counties who are eligible to participate in the employees' retirement system of the State of Hawaii. Under the plan, participating employees can contribute a part of their compensation on a tax-deferred basis. The plan allows employees to supplement the retirement income they will receive from the employees' retirement system and the United States Social Security Administration. Currently, the counties of Hawaii, Maui, and Kauai participate in the plan.

The State and the counties of Hawaii, Maui, and Kauai have a combined workforce of approximately 57,103 who are eligible to participate in the plan. However, of the number of eligible employees, only approximately thirty-five per cent of active employees participate in the plan. The plan's board of trustees ("board") is concerned about the plan's low participation rate because industry experts and financial consultants believe that relying on retirement income from an employee's pension and social security alone may not be sufficient to keep up with rising inflation costs. Thus, to assist employees in taking advantage of this important employee benefit and saving more for retirement, the board proposes to automatically enroll all new state and participating county employees into the plan. To accomplish this, the bill proposes to deduct one per cent of each employee's gross monthly wages and deposit it into a default investment option selected by the board.

However, the bill also provides flexibility to those employees who do not want to participate in the plan by allowing these employees to opt out of the plan within ninety calendar days after being automatically enrolled into the plan. Employees who timely opt out of the plan shall receive their contributions without a penalty, subject to changing market prices and the payment of all applicable federal and state taxes.

SECTION 2. Section 88E-2, Hawaii Revised Statutes, is amended to read as follows:

"[[]§88E-2[]] State deferred compensation plan[.]; automatic enrollment. (a) The State may establish a deferred compensation plan in accordance with section 457 of the Internal Revenue Code of [~~1954,~~] 1986, as amended, for the benefit of employees to defer a portion of their compensation to a future period of time. [~~Participation in the plan shall be by written agreement between the employee and the State.~~] The county may enter into a formal agreement with the State to extend the plan to employees of the county; provided that the agreement designates one of the county's agencies to locally coordinate the plan. [~~Participation in the plan by a county employee shall be by written agreement between the employee and the county. An employee may authorize~~ ~~deductions to be made from the employees' wages for the purpose of participation in the plan.~~]

(b) Prior to July 1, 2009, participation in the plan shall be voluntary. State employees may participate in the plan by entering into a written agreement with the State and authorizing deductions to be made from the employee's gross monthly wages and contributed to the plan. County employees may participate in the plan by entering into a written agreement with the county and authorizing deductions to be made from the employees' gross monthly wages and contributed to the plan.

(c) Effective on July 1, 2009, all state and participating county employees who are hired on or after July 1, 2009, shall be automatically enrolled into the plan. Participation in the plan shall be mandatory, with a mandatory payroll deduction of one per cent of each employee's gross monthly wages, which shall be contributed to the plan; provided that:

(1) Participation in the plan shall be effective on the date the employee is hired;

(2) The mandatory contributions shall be deposited into the default investment option selected by the board;

(3) The board may increase the mandatory payroll deduction up to a maximum of three per cent without complying with the rulemaking requirements of chapter 91;

(4) State and participating county employees who are automatically enrolled into the plan on and after July 1, 2009, may, within ninety calendar days after being automatically enrolled into the plan, opt out of participating in the plan. Employees who timely opt out of participating in the plan shall have all of their mandatory contributions returned to them without a penalty, subject to changing market prices, and the payment of all applicable federal and state taxes."

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

SECTION 4. This Act shall take effect on July 1, 2009.

INTRODUCED BY:

_____________________________

BY REQUEST

HOUSE OF REPRESENTATIVES	H.B. NO.	3144
TWENTY-FOURTH LEGISLATURE, 2008
STATE OF HAWAII