SR21.DOC

WHEREAS, recent payroll data for the agency that operates ambulances in the City and County of Honolulu revealed that the ten highest-paid employees worked extensive amounts of overtime, more than doubling their annual average base salary of $63,252 to an average of nearly $140,000 annually; and

WHEREAS, at the state Department of Public Safety, which runs the prison system and has between 2,200 and 2,400 workers, seventy-five employees worked more than 1,000 hours of overtime in fiscal year 2009 and twenty-five did so the following year –- the equivalent of 125 eight-hour work days; and

WHEREAS, while these cases were unusual, they highlight a problem that is contributing to a severe funding shortfall in Hawaii's retirement system for county and state workers; and

WHEREAS, employees who earn substantially more than their base salary near the end of their careers in order to boost future retirement pay – a practice known as pension spiking –- are adding to the financial problems of Hawaii's Employees' Retirement System; and

WHEREAS, while pension spiking is not against the law -- the overtime hours, after all, are authorized by supervisors -- it is one of multiple factors that have created an unfunded liability estimated at roughly $8,200,000,000; and

WHEREAS, a small number of excessive overtime cases can have a significant effect in driving up the projected costs for the retirement system; and

WHEREAS, the amount employees and their employers are required to contribute to the system each year is determined in part by their base salaries, while the actual pension payments are calculated based on the three years with highest overall compensation, including overtime, differentials, and other supplemental pay; and

WHEREAS, the wider the gap between base salary and supplemental pay, the more the system's funding will fall short of promised benefits; and

WHEREAS, for example, if the ten highest-paid emergency medical services workers were to retire soon, their cases would add an estimated $4,000,000 to $5,000,000 to the unfunded liability total, according to an Employees' Retirement System consultant's projections; and

WHEREAS, given the strong possibility of similar cases throughout government agencies, the overall impact is much larger and virtually unknown; now, therefore,

BE IT RESOLVED by the Senate of the Twenty-sixth Legislature of the State of Hawaii, Regular Session of 2012, that the Auditor is requested to conduct an audit of state departments with high rates of additional compensation paid to employees, including:

(1) A review of the use of overtime pay, and any excessive use of sick leave and other forms of compensation such as compensatory time, which may directly or indirectly contribute to increased overtime for employees, and the impact of the use of additional compensation on pension payments;

(2) A description of any specific instances of "pension spiking";

(3) An identification of any patterns of abuse of additional compensation by either employees or their supervisors; and

(4) Recommendations for addressing the issues raised in the audit; and

BE IT FURTHER RESOLVED that in conducting the audit, the Auditor may focus the initial efforts on those departments that have been identified as paying substantial additional compensation to employees; and

BE IT FURTHER RESOLVED that the Auditor is requested to submit the findings and recommendations of the audit to the Legislature no later than twenty days prior to the convening of the Regular Session of 2013; and

BE IT FURTHER RESOLVED that certified copies of this Resolution be transmitted to the Auditor and the Administrator of the Employees' Retirement System.

	OFFERED BY:	_____________________________

Report Title:

Audit; Overtime; Pension Spiking

THE SENATE	S.R. NO.	21
TWENTY-SIXTH LEGISLATURE, 2012
STATE OF HAWAII