City concerned about worker compensation plan

By Kevin Dayton
Advertiser Capitol Bureau Chief

The dispute over a tax-deferred compensation plan negotiated for about 12,000 members of the United Public Workers union last year apparently won't be resolved anytime soon.

City officials plan to go to court to try to determine if the tax-deferred plan is legal, and may also seek a ruling by the U.S. Internal Revenue Service before they release any money to pay for the plan. That could take a year or longer.

Maui County officials said they also plan to put money for the deferred compensation plan into an escrow account until legal questions are resolved.

However, Gov. Ben Cayetano says the state doesn't see any legal problems with the plan, and said state officials will support it along with the rest of the UPW contract.

"The UPW contract, as far as the state is concerned, that is a legal contract," Cayetano said Monday. "The attorney general has indicated to us that the condition of the contract which relates to deferred compensation, I believe, is legal."

Union leaders and negotiators for the state and counties struck a deal on Dec. 26 that requires the state and counties to deposit up to $156 a year for each UPW member during the two-year contract into a tax-deferred savings account. The money is to be used for the employees' retirement.

The money would be kept in a trust fund overseen by trustees appointed by United Public Workers State Director Gary Rodrigues, who would also serve as one of the trustees.

Rodrigues and his daughter Robin Haunani Rodrigues Sabatini have been indicted on charges they took money from the union's dental and health benefit programs. Rodrigues has pleaded not guilty to federal embezzlement charges in the case, and both Rodrigues and his daughter pleaded not guilty to additional mail fraud and money laundering charges.

Cayetano has repeatedly praised the new UPW contract as a good deal for the state, in part because the union agreed to reduced vacation and sick leave benefits for new UPW members hired by the state and counties.

But a private lawyer hired by city officials has raised three potential legal problems with the plan, said Honolulu Corporation Counsel David Arakawa.

One issue is whether Hawai'i labor law authorizes the counties and state to negotiate a deferred compensation program. Arakawa said that issue is pending before the Hawai'i Labor Relations Board, and arguments on the matter are scheduled for Friday.

A second concern is that state law sets up a single pension fund for state and county employees. It is not clear whether the law permits a second system that is financed by the state and counties and run by the union, Arakawa said.

He said the city will file in Circuit Court in the next two weeks to ask for a ruling on that issue.

Finally, city officials aren't clear on whether the deferred compensation plan is permitted under federal law, Arakawa said. He said city officials and representatives of the Neighbor Island counties will meet to decide whether to seek guidance from the IRS on that issue.

Arakawa said the city wants to pay the money to the UPW members, but is worried the tax-deferred plan may be illegal.

"Everybody wants to see the employees get the money. The mechanism by which they get it, that is the issue," Arakawa said.

The Honolulu City Council is scheduled to vote today on a resolution that would pay for the new UPW contract and earmark about $1 million for the deferred compensation plan. The resolution would not allow release of the deferred compensation money until there has been a "final judgment" that the plan is legal under Hawai'i law.

Jon Yoshimura, chairman of the council, said the concerns about the deferred compensation plan do not signal a dispute between the city and the UPW.

"I just want to make it very clear this is not a rap against the union," he said.

Maui Councilman Alan Arakawa said the county's officials agreed to place money for the compensation plan in an escrow account while the legal questions are sorted out.

Big Island officials said they approved the money for the deferred compensation plan with no strings attached, meaning the funding will be available for the plan after the new fiscal year starts on July 1.