HB1065.DOC

SECTION 1. The purpose of this Act is to require payment to the employees' retirement system of the State of Hawaii of the actuarial cost of the loss of members when the State or a county separates a significant number of employees from service, including by transferring facilities or services to an entity other than an employer whose employees are entitled to membership in the employees' retirement system.

The legislature finds that the elimination of State and county employee positions, through privatization or closure of State or county facilities or through workforce restructuring, can have an adverse impact on the funded status and sustainability of the employees' retirement system. Currently, contributions by State and county employers to the employees' retirement system are based on a percentage of each employer's payroll and include payments toward the system's accrued pension liability. If an employer reduces the employer's payroll by eliminating employee positions, the employer's contributions to the system are reduced, including payments towards the accrued pension liability. The reduction in the payments towards the accrued pension liability would impede the reduction of the system's unfunded accrued liability. In order to prevent extension of the funding period for the system's unfunded liability, contributions to the system by all State and county employers would have to be increased.

The purpose of this bill is to ensure that an employer, who separates a significant number of employees from public service, bears the economic responsibility to the employees' retirement system for the consequences of such action.

SECTION 2. Chapter 88, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§88- Payment of actuarial costs of separating a significant number of members from service. (a) If an employing agency separates a significant number of employees from service, the employing agency shall pay to the system an amount equal to the actuarial cost to the system resulting from the separation from service and the associated fees for the determination by the system's actuary of the actuarial cost to the system resulting from the separation from service. Payment shall be made before October 1 of the second fiscal year following the separation from service; provided that the board may, on such terms as the board deems reasonable, extend the time for payment and permit payment in installments. The system may also charge an employing agency for, and the employing agency shall pay to the system, the associated fees for the preparation of any estimates provided by the system to the employing agency of the actuarial cost to the system of any proposed separation from service of a significant number of the employing agency's employees.

(b) The actuarial cost to the system resulting from the separation of employees from service shall include:

(1) The expected payments towards the unfunded actuarial accrued liability over the period described in paragraph (1) of subsection (c) below; and

(2) The present value of any actuarial liability loss, measured using the actuarial assumptions in paragraph (2) of subsection (c) below.

(1) Based on an amortization period equal to the shorter of twenty-five years or the remainder of the amortization period used for the current employer contribution rate under section 88-122; and

(2) The actuarial assumptions in effect for the valuation of the system as of the end of the fiscal year during which the separation from service occurred; provided that the investment return assumption shall be reduced by one percentage point.

(d) For the purposes of this section:

"Employing agency" means a department of the State, the Hawaii health systems corporation, the University of Hawaii, the office of Hawaiian affairs, a department of a county, and any administrative agencies, boards, and commissions attached to a State or county department for administrative purposes.

"Separation from service" means to cause an individual's employment to be terminated by abolishing the position held by the employee, including the transfer of all or a portion of an employing agency's functions, services, or facilities to a private entity or the closure of a facility operated by an employing agency or by terminating the inclusion in the system of an employing agency's employees.

"Significant number" means a number equal to or greater than the lesser of (1) the number of employees equal to one per cent of all active members of the system as of the end of the fiscal year immediately prior to the fiscal year during which the positions are abolished; or (2) the number of employees equal to five per cent of the positions to which the employing agency was entitled at the end of the fiscal year immediately prior to the fiscal year during which the positions are abolished."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.

INTRODUCED BY:

_____________________________

BY REQUEST

HOUSE OF REPRESENTATIVES	H.B. NO.	1065
TWENTY-NINTH LEGISLATURE, 2017
STATE OF HAWAII