STAND. COM. REP. NO.  343

Honolulu, Hawaii

                , 2011

RE:   H.B. No. 1036

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Sixth State Legislature

Regular Session of 2011

State of Hawaii

Sir:

     Your Committee on Labor & Public Employment, to which was referred H.B. No. 1036 entitled:

"A BILL FOR AN ACT RELATING TO FEDERAL TAX QUALIFICATION REQUIREMENTS FOR THE EMPLOYEES' RETIREMENT SYSTEM,"

begs leave to report as follows:

     The purpose of this bill is to protect the status of the Employees' Retirement System (ERS) as a tax-qualified retirement plan under section 401(a) of the Internal Revenue Code (IRC) by adding a new section to Hawaii's ERS law to include provisions required by federal law.  Among other things, this bill:

     (1)  Inserts specific language into Hawaii's ERS law that addresses the requirements contained in the Heroes Earnings Assistance and Relief Tax Act of 2008 requiring a tax-qualified retirement plan to provide the survivors of a member with any additional benefits (other than benefit accruals relating to the period of qualified military service) provided under the member's ERS plan had the member resumed and then terminated employment on account of death in the case of a member who dies while performing qualified military service; and

     (2)  Establishes the requirements for minimum pension distributions in accordance with section 401(a)(9) of the IRC.

     The ERS Board of Trustees testified in support of this bill.

     Hawaii's ERS is currently a tax-qualified retirement plan under the IRC.  Loss of this status would be detrimental to both the ERS and its members, resulting in the pre-tax treatment on member contributions to be eliminated and requiring ERS members to pay federal income taxes annually on the value or increase in value of a member's account without receiving a distribution.  This could amount to thousands of dollars in taxes for members.  Because of this consequence, your Committee finds that passage of this measure to conform state law to federal requirements is extremely important.

     As affirmed by the record of votes of the members of your Committee on Labor & Public Employment that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1036 and recommends that it pass Second Reading and be referred to the Committee on Finance.

Respectfully submitted on behalf of the members of the Committee on Labor & Public Employment,

____________________________

KARL RHOADS, Chair