STAND. COM. REP. NO.  1193-12

Honolulu, Hawaii

                , 2012

RE:   S.B. No. 2751

      H.D. 1

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Sixth State Legislature

Regular Session of 2012

State of Hawaii

Sir:

     Your Committee on Labor & Public Employment, to which was referred S.B. No. 2751 entitled:

"A BILL FOR AN ACT RELATING TO THE EMPLOYEES' RETIREMENT SYSTEM,"

begs leave to report as follows:

The purpose of this measure is to protect the future sustainability of the Employees' Retirement System, especially during a period of economic decline or stabilization, by modifying the experience requirements of the members of the Employees' Retirement System Board of Trustees.  Specifically, this measure changes the requirement that one member of the three members of the Board of Trustees of the Employees' Retirement System representing the citizens of the State of Hawaii who are not employees be a responsible bank officer to a requirement that this member have substantial experience providing financial services, including investments, to public, corporate, or private clients.

The Board of Trustees of the Employees' Retirement System and Department of Budget and Finance testified in support of this measure.

     The Employees' Retirement System of the State of Hawaii was established in 1926 to provide retirement allowances and other benefits to State and county government employees.  While contributions from employers and employees are two sources of money received to help fund the System, investments made by the Board of Trustees of the Employees' Retirement System play a large role in funding the System.

     Currently, the Employees' Retirement System has over $11 billion in domestic and international investments.  However, the System also has an unfunded actuarial accrued liability of approximately $8.2 billion.  Since investment decisions made by the Board of Trustees of the Employees Retirement System concerning the $11 billion of investments are critical to the current and future funding of the System, it appears logical that one of the members of the Board of Trustees of the Employees' Retirement System have investment experience.

     Your Committee finds that while it is imperative that one of the members of the Board of Trustees of the Employees' Retirement System have investment experience as investments are critical to the funding of the Employees' Retirement System and have a great impact on the future sustainability of the System, especially during a period of economic decline or stabilization, it would be more prudent if two members of the Board had at least three years of investment experience.  As such, your Committee has amended this measure by requiring that two of the three members of the Board representing the citizens of the State of Hawaii who are not employees have at least three years of experience providing financial services, including investments, to public, corporate, or private institutional clients.

     Technical, nonsubstantive amendments were also made for clarity, consistency, and style.

     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 S.B. No. 2751, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2751, H.D. 1, 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