State says use of pension fund legal
By John Duchemin
Advertiser Staff Writer
A landmark $350 million class-action lawsuit against the Hawai'i government reached an important stage yesterday, with state Circuit Judge Gary Chang hearing lawyers' arguments on a state motion to dismiss the lawsuit.
Arguments continue today in Kaho'ohanohano v. State of Hawai'i. The suit charges that lawmakers in 1999 diverted about $350 million in profits from the state pension fund illegally to make up budgetary shortfalls.
The state wants Chang to rule summarily in its favor. The lawsuit was filed last spring by the State of Hawai'i Organization of Police Officers, which wants the government to return the money to the Employees' Retirement System.
SHOPO argues that the state government has no right to divert money from the $7 billion pension fund, which pays for the retirement of more than 93,000 state employees, retirees and beneficiaries. SHOPO alleges that the state violated pensioners' constitutional right to a sound retirement system.
"In 1999 the state transformed a benefit system based on sound actuarial principles into one that isn't," said Peter Maassen, a lawyer based in Anchorage, Alaska, who is representing the police union.
"When the state begins to knock out the underpinnings of a sound system, you'll eventually get to an unsound system," Maassen said during yesterday's hearing.
ERS has joined the lawsuit, and demands a court order prohibiting the state from again diverting money from the pension fund.
ERS does not, however, seek to recover the $350 million.
Lawyers for the state and counties, which are co-defendants in the case, argued that the Hawai'i Constitution only requires the governments to pay for retirees' pensions as needed. The governments are not required to maintain a constant level of financial soundness, argued Archie T. Ikehara, the lawyer representing the state.
In the hearing yesterday, Chang initially expressed skepticism about the plaintiffs' arguments, but after three hours of questioning ended the session demanding more information from the state and counties. Arguments resume today at 8 a.m.
Chang ruled on Friday that the police union could proceed with the lawsuit as a class action, bringing in other plaintiffs, which could include most or all ERS members.
Chang is now considering several motions by the state and the plaintiffs to summarily end the lawsuit in favor of one party. The case is almost certain to reach the state Supreme Court regardless of Chang's decisions, as both sides indicated plans to appeal on the complex constitutional issues involved in the case.
Reach John Duchemin at jduchemin@honoluluadvertiser.com or 525-8062.
