Post-Employment Benefits Are King

Post-Employment Benefits Are King

We’ve earlier written about State pensions and other post-employment benefits. We’ve mentioned that the liabilities are potentially huge, but we haven’t yet spoken much about constitutional protection. The Hawaii Constitution says, “Membership in any employees’ retirement system of the State or any political subdivision thereof shall be a contractual relationship, the accrued benefits of which shall not be diminished or impaired.” This provision dates from the Hawaii Constitutional Convention of 1950, where delegates were concerned that the government had some funding lapses in the past and might be tempted to do so again. In 2007, the Supreme Court of Hawaii held that our constitution protects not only benefits accrued under the Employees’ Retirement System (ERS), but also the funding sources for those benefits. In 2010, that court held that this constitutional protection also extended to benefits under the Hawai‘i Employer–Union Health Benefits Trust Fund (EUTF). In other words, state government employees who have worked for the state and have accrued benefits under ERS or EUTF are guaranteed to have those benefits and are guaranteed that those benefits will not be reduced or taken away. Constitutional protection for these benefits might seem like a good thing. After all, we want to take care of those loyal, dedicated public servants who have sacrificed their lives for the well-being of our people, right? But let’s take a look at the depth of what constitutional protection really means. Recently, there was a case decided in May of this year by the Supreme Court of Illinois. Illinois has a public pension system and a constitutional provision protecting of pension benefits that is worded similar...
Hawaii’s Pension Woes Mark Its Sinkhole Status

Hawaii’s Pension Woes Mark Its Sinkhole Status

In the past, Grassroot has reported on how the state’s unfunded liabilities have affected our economic outlook–and created a burden that every state taxpayer will eventually have to bear. A recent article from Danny Mahoney of Truth in Accounting, lays out exactly why Hawaii makes it into the top 5 “sinkhole states” … and the accounting tricks that have been used to mask the problem. Five States’ Slumping Financial Conditions Reflect Widespread Pension Problems Financial conditions in many states have shown improvement in the years since the recession began in 2008, but the economies of Connecticut, Hawaii, Illinois, Massachusetts, and New Jersey have continued to deteriorate. These five states are being called “sinkholes” because they have the highest debt per taxpayer after available assets are tapped. … In 2013, each Massachusetts taxpayer was liable for $28,000 in debt per person. In New Jersey, each taxpayer was responsible for paying $36,000 in liabilities. Each Illinois taxpayer was on the hook for $43,400, and each Connecticut taxpayer was liable for $48,100. Hawaii taxpayers were responsible for paying $27,000 per person in unfunded debt, the lowest per capita amount among the five sinkhole states. These five states are now in this dire financial situation because they did not make sufficient contributions to their state pension and retirement health care funds when they had the funds available to do so. This debt should be of grave concern to the citizens of these states. … One example of a state using an accounting gimmick to fool taxpayers can be found in Hawaii. At first glance, Hawaii seems to have burdened its taxpayers with less...
Hawaii is Addressing Liabilities, but There’s a Long Way to Go

Hawaii is Addressing Liabilities, but There’s a Long Way to Go

Regardless of party, most Hawaii policymakers will acknowledge that the state’s unfunded liabilities must be addressed. And there have been some efforts to do so. The state has been increasing its contributions, attempting to reach the point where the pension fund is considered healthy (at least 80% funded). Unfortunately, it’s a slow journey–currently, the state pension plan is only about 61% funded, a very low number in a nation full of pension systems in crisis. As this report from the Associated Press details, we’ve seen a few small steps in the right direction, but there’s a long road ahead: Hawaii is taking small steps toward paying off its $20 billion unfunded liability for retiree pensions and health benefits. Actuaries say the state has $8.6 billion less than it should have to pay its pension obligations to current and future retirees. But its preparation to pay retiree health care benefits is worse. Hawaii’s state and county employees have just 2 percent of projected retiree health care expenses set aside. The shortfall for retiree health benefits in Hawaii stands at $11.2 billion, according to an analysis by Gabriel, Roeder Smith and Co., an actuarial consulting firm. By contrast, the state’s pension plan is 61.4 percent funded, and that’s considered low. A retirement fund is generally considered healthy if it’s 80 percent funded, according to the National Association of State Retirement Administrators. The plan is for the state to ramp up its contributions, eventually to $500 million a year, for retiree health care costs to become fully funded within the next three decades. The state contributed $100 million in the fiscal year that...
Hawaii Unfunded Liabilities Could Become a “Broken Promise”

Hawaii Unfunded Liabilities Could Become a “Broken Promise”

Research puts state in bottom ten for funding ratio/per capita liability A recent report from State Budget Solutions, evaluating the unfunded liabilities of every US state found Hawaii in the bottom ten for both funding ratio and per capita liability, suggesting that the state may one day be forced to break the promise it made to its employees regarding their pensions and benefits. Entitled Promises Made, Promises Broken, the survey of the growing pension crisis considered both the large scale and state-by-state implications of underfunded pension programs. Though Hawaii is not one the top ten states for total fair market valuation of unfunded liabilities, when the size and funding ratio of the state is taken into account, a more alarming picture develops. The funded ratio (which is a more accurate indication of the health of a state’s pension plan) in Hawaii is only 29%. Moreover, if the fair market value of the state’s total unfunded liabilities were viewed on a per capita basis, the average Hawaii citizen would be responsible for $21,852 (the seventh highest per capital share in the nation). “Even by its own numbers, Hawaii’s Retirement System says it is only 60% funded,” stated Joe Luppino-Esposito, author of the study. “That is unacceptable. What’s worse is that when looking at the situation using a risk-free rate, Hawaii’s plan hits only 29%. That is a serious problem for both the retirees who were promised a pension, as well as Hawaii’s residents, who will see taxes rise and watch vital government services get cut.” “The State of Hawaii has a responsibility to fulfill promises it has made to state employees...
Retired Government Employees Haunting for More Paychecks

Retired Government Employees Haunting for More Paychecks

Something spooky is haunting the halls of the Hawaii State Capitol.  Government retirees seem to be coming back to life — returning to work, collecting a pension check and a paycheck at the same time.  This process of getting two government checks is commonly known as “Double Dipping”. Like ghosts, these government employees seem to be rising from the dead, flying into government offices, and punching in again.  One can imagine a ghost saying, “I’d like to collect a check as long as I live — and beyond!” Governor Neil Abercrombie is like one of these ghosts back from retirement.  He receives three paychecks: a state pension of $29,330 per year, along with a federal pension of $47,829 per year, and to top it all off, he also receives an annual salary of $117,312. Other notable “pension ghosts” include House Speaker Joe Souki and State Senate President Donna Mercado Kim.  In 2013, KHON2 found at least 100 other taxpayer funded double dippers across the state.  Many of these government workers receive pension payments in the double digits, along with salaries as high as $111,000. This is frighteningly high, considering the average private pension in the United States is only about $8,600. Double dipping is banned or restricted in 32 states.  However, it’s legal in Hawaii, which is odd considering that the Employee Retirement System is underfunded by 8.4 billion dollars. Federal Hawaii Representatives are also haunting the halls of Congress as ”pension ghosts”.  Mazie Hirono receives $46,556 a year in state retirement benefits on top of her $174,000 annual federal salary.  And Brian Schatz also receives a pension, although...