State denies pension fund raid
By John Duchemin
Advertiser Staff Writer
The state has asked a judge to dismiss a $350 million class-action lawsuit filed earlier this year by the state police union that accuses lawmakers of illegally draining money from the state pension fund to help balance the budget.
The state says in its motion that the Legislature and Gov. Ben Cayetano did nothing wrong in voting in 1998 to limit the state's annual contribution to the Employees' Retirement System, an $8 billion investment fund that pays pension benefits for more than 90,000 government workers, retirees and family members.
The motion, which is scheduled to be heard in October by Circuit Court Judge Gary W.B. Chang, is the state's first response to the lawsuit, filed in April by the State of Hawaii Organization of Police Officers and several current and retired officers.
The lawsuit has widespread fiscal implications in that it demands the government return $350 million — enough to pay for one-tenth of the state's annual general fund budget — that the Legislature refused to contribute to the pension fund in the late 1990s.
The lawsuit argues that legislators violated pensioners' constitutional right to a financially sound retirement system. They say lawmakers helped create a dangerous financial situation at ERS by putting only $185 million into the fund between 1999 and 2001, instead of the required contribution of $522 million, as determined by independent financial experts.
ERS has lost hundreds of millions of dollars in the stock market in recent years and risks falling as much as $2.8 billion behind its future obligations to retirees by 2005 — an expected shortfall that pension board members and ERS staffers blame partly on the cut in contributions.
As a result, ERS says it will require as much as $500 million in state contributions each year by 2009 — triple current state financing levels.
Lawyers for the police union cite landmark cases in California, Washington and Alaska in which pensioners fended off government attempts to tap pension money at the expense of workers' benefits.
But the state says in its motion that the Hawai'i constitution gives lawmakers leeway in deciding how much money to put into the fund in any given year. Withholding money one year is no big deal as long as the government ultimately pays retirees what they are due — which it always has — the state said in its motion.
Members of the police union can't show they've been harmed, so the lawsuit lacks merit, the state said.
State attorneys provided no additional comment on their motion. Clyde Matsui, a Honolulu attorney defending the state in this case, said yesterday that he preferred to let the filing speak for itself.
Plaintiffs plan to file a response to the state's motion, said Peter Gruenstein, an Alaska-based pension specialist and the lead plaintiffs' attorney. He would not comment further.
Reach John Duchemin at 525-8062 or jduchemin@honoluluadvertiser.com.
