Hawaii’s Unfunded Pension Liability 10th Worst in Nation

Hawaii is among 34 states that currently have what experts consider a significant shortfall in funding for retirement liabilities.

According to a study released Monday by the Pew Center on the States, a division of the non-profit Pew Charitable Trusts, Hawaii has funded 61% of its $18.5 billion obligation for pensions for government workers. Only nine states had lower levels.

Experts say that a fiscally sustainable pension system should be at least 80% funded, the Pew Center said.

The 34 states that had failed to meet that threshold in the 2010 fiscal year was up from 31 the year before. Twenty-two states were below that level in 2008.

Just four states — North Carolina, South Carolina, Washington and Wisconsin — were funded at 95% or better. Only Wisconsin is fully funded.

“States continue to feel the impact of the Great Recession, and have lost more ground in their efforts to cover the long-term costs of their employee’s pensions and retiree health care,” said David Draine, the center’s senior researcher.

Like 16 other states, Hawaii also has not funded any of its future retiree health care obligations, the center said. The state’s liability for that stands at $14 billion.

Nationally the state’s average funding for those obligations is only 8%, and only seven states have funded at least 25% of their long-term retiree health-care liability.

The gap nationwide for both pension promises and obligations for retiree health care is $1.38 trillion, the center said. The majority — $757 billion — is for pension payments.

The 2010 figures do not factor in legislation instituted between 2009 and 2011 by 43 states – Hawaii included – to limit future obligations.

Last year, the Hawaii Legislature approved pension benefit cuts for newly hired government workers, increased the contributions paid into pension funds by both the worker and taxpayers, and reduced cost-of-living increases for future retirees, the center said.

Also, most new employees hired in Hawaii after July 1 will see a raised retirement age for certain new employees. For some it will be increased from 55 to 60 years old, and for most others from 62 to 65 years old.

Lawmakers also increased the period required for state employees to be “vested” to receive retirement benefits from five years to 10 years.

The center said most cost-cutting efforts are aimed future hires, since it can be legally difficult to reduce benefits for current employees and retirees. However, in the past two years, 10 states have changed cost of living increases for current retirees; judges in two of those have upheld the cuts while legal challenges are pending in the others.

Hawaii did relatively well in its most recent payment in the center’s study. Its 2010 payment of $536 million into the pension fund was 102% of its recommended contribution; only five states paid a higher percentage.

Pension health-care contributions also have been a hot-button issue in Hawaii County.

The issue has been what are GASB 45 obligations, short for a form from the Governmental Accounting Standards Board.

In 2006, the board began requiring municipalities to report estimated liabilities for health-care payments for future retirees for accounting purposes. During the next four years, Hawaii County made about $61 million in estimated payments.

However, for the past two years, Mayor Billy Kenoi has opted to postpone $34 million in GASB payments in order to balance the county’s budget.

The Kenoi administration notes that the county has covered its obligations for current retirees, and is not required to make the GASB payments. It also notes that the state, Maui County and City and County of Honolulu have not made any GASB payments.

Kenoi was criticized for the action by County Council Chairman Dominic Yagong, who is among the candidates seeking to unseat Kenoi in the upcoming election.

Yagong recently attempted to have the council pass a bill that would make payment of a portion of the GASB amount mandatory, but did not secure enough votes to override a possible Kenoi veto.

At least so far, the GASB deferrals have not had an impact on the county’s rating for general obligation bonds.