EDITORIAL
ERS funding battle: Lingle is the wild card
The public Employees' Retirement System was fair game for corner-cutting politicians between 1998 and 2001. No wonder: It's worth billions of dollars.
By cutting their contributions to their retired employees' retirement fund, the state and the counties, loath to curtail services or raise taxes in the face of falling revenues, were able to fund union pay raises and balance their budgets.
In this sense, the diversion of ERS contributions had the same motivation as the "raids" by the governments on special-purpose funds. The difference is that money wasn't removed from the retirement fund; instead, contributions were reduced below what actuaries said was required.
Alarmed that this diversion may cause the retirement fund to fall short of obligations to more than 90,000 current and retired beneficiaries sometime in the future, the police union filed a lawsuit in April. The retirement fund's board filed a similar lawsuit last week.
They seem to have cause for worry: The fund has dropped in value from $9 billion to $7 billion in the last couple of years. Actuaries said as of June 30, 2001, it was underfunded by 9.4 percent.
Central to the dispute is a law passed by the Legislature in 1999 — in effect trimming the contributions by the state and counties by any amount earned by ERS investments above 10 percent. It was, as state Auditor Marion Higa put it, "detrimental to the system's unfunded actuarial liability."
In those years when investments were performing well, in other words, the state and counties created a new source for covering their own budgetary shortcomings.
We've heard an array of officials soothe that pensioners shouldn't be too concerned about the diversion of funds because the governments will always keep enough money in the ERS to pay retirees' benefits. We're certain that is the intent.
But the fact is that if the annual contributions to the fund are insufficient and if the return on invested funds is insufficient, the ERS will at some point be unable to meet its obligations. At that point, lawmakers would be unable to prevent a shameful default.
The ERS lawsuit seeks to have the courts declare the diversion of ERS contributions unlawful, so that it can't happen again. The ERS board should be pleased by the election of Linda Lingle, since that's exactly the position she espoused in her campaign.
The SHOPO lawsuit, on the other hand, also seeks the return to the ERS of $350 million that was diverted. Although Lingle no doubt will be sympathetic to that lawsuit, since SHOPO endorsed her, we have no idea how Lingle or anyone else could come up with that much money in today's economy.
The larger lesson is that state and county governments will have to stop raiding funds and shorting obligations and begin to live within their means. And this position, too, was advocated by candidate Lingle.
