HB2856.DOC

SECTION 1. The purpose of this Act is to address the retirement provisions for new public employees. More specifically, this Act requires the board of trustees of the employees' retirement system to study and recommend legislation on the most effective way to establish a defined contribution plan for new public employees as a substitute for the present defined benefit plan.

The legislature finds that the defined contribution plan is not intended to apply to current or former public employees or their dependents, either as a replacement for or alternative to the present defined benefit plan under chapter 88, Hawaii Revised Statutes.

SECTION 2. For the purpose of this Act:

"Board" means the board of trustees of the employees' retirement system established under chapter 88, Hawaii Revised Statutes.

"Current public employee" means an employee of the State or county who is not a "new public employee."

"Defined contribution plan" means a pension plan under which contributions by and for a new public employee are set by law and benefits to the new public employee cannot exceed the contributions plus or minus net investment income or loss on the contributions.

"New public employee" means a full-time employee of the State or county who first:

(1) Enters full-time service with the State or county after June 30, 2011; or

(2) Entered state or county service before July 1, 2011, but never was an active member of the employees' retirement system under chapter 88, Hawaii Revised Statutes.

SECTION 3. (a) From the effective date of this Act, the board of trustees of the employees' retirement system shall conduct a study for the purpose of establishing a defined contributions plan for new public employees.

(b) By January 1, 2011, the board shall submit to the legislature proposed legislation establishing a defined contribution plan for new public employees. The proposed legislation shall conform to the following general principles:

(1) Participation by every new public employee shall be mandatory;

(2) The public employer's monthly contribution percentage to the defined contributions plan for a new public employee shall be the same as the monthly contribution percentage for a class C member of the employees' retirement system under chapter 88, Hawaii Revised Statutes;

(3) The new public employee shall be allowed to make a monthly contribution to the pension plan from the public employee's salary that does not exceed the public employer's monthly contribution for that new public employee;

(4) The plan shall be designed so that the monthly contributions of both the public employer and new public employee are not taxable as "income" by the federal or state government;

(5) Benefits shall be paid to a former new public employee after retirement from or termination of service with the State or a county, but shall not exceed the sum of the public employer's contributions, new public employee's contributions, and net investment income or loss on those contributions;

(6) Benefits paid to a new public employee after retirement from or termination of service with the State or a county shall be taxable as "income" under federal and state taxation laws;

(7) The board shall be responsible for investing the contributions by and for a new public employee and may develop different investment options from which the new public employee may choose; and

(8) Current public employees shall not be eligible for membership in the defined contribution plan.

The board shall submit with the proposed legislation a report explaining and justifying the proposed legislation.

SECTION 4. (a) During the regular session of 2011, the speaker of the house of representatives and president of the senate shall introduce a bill in each of their respective houses setting forth the proposed legislation submitted by the board. Each bill shall be subject to the legislative process in the respective houses.

(b) If legislation to establish a defined contributions plan for new public employees is enacted, the legislation may differ from that submitted by the board.

(c) Nothing in this Act shall prohibit the legislature from choosing not to enact legislation establishing the defined contribution plan.

(d) If the board fails to submit proposed legislation to the legislature as required under section 3 of this Act, the failure shall not prevent the legislature from enacting legislation establishing its own version of a defined contribution plan.

SECTION 5. (a) Notwithstanding chapter 88, Hawaii Revised Statutes, or any other law to the contrary, every new public employee who qualifies for membership in the enacted defined contributions plan shall become a member of the plan on July 1, 2011, or the effective date of legislation establishing the plan, whichever is later.

(b) If legislation establishing a defined contribution plan is not enacted, no new public employee shall be eligible for membership in or benefits from the defined benefit plan of chapter 88, Hawaii Revised Statutes, nor shall the State or a county make any pension contribution for the new public employee other than that required under the federal Social Security Act, as amended. This provision shall not be construed as prohibiting a new public employee from voluntarily participating in the deferred compensation plan established under chapter 88E, Hawaii Revised Statutes.

SECTION 6. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2856
TWENTY-FIFTH LEGISLATURE, 2010
STATE OF HAWAII