Posted on: Friday, February 6, 2004

ERS may change pension plan

By Deborah Adamson
Advertiser Staff Writer

State and county employees could soon have the ability to augment their state pensions by contributing a portion of their pay.

Two bills winding their way through the Legislature allow the state Employees' Retirement System, or ERS, to create a retirement plan combining the elements of a traditional pension and a 401K.

Among other things, the hybrid retirement plan would let employees contribute 6 percent of their pay. They could also get access to their benefits after just five years service, instead of the current 10 years.

For those who contribute the extra 6 percent of pay, their monthly benefit upon retiring would be higher — 2 percent of the average monthly salary over the highest three years of income multiplied by total years of service. The traditional pension, which employees don't contribute to, requires at least 10 years of employment and pays 1.25 percent of the pay-service calculation.

"It will be beneficial to members at no cost to the government," said ERS Administrator David Shimabukuro.

He said that the hybrid plan has the support of Gov. Linda Lingle. If approved, the plan should take effect in October 2005.

Last year, the Legislature asked ERS to look into creating a retirement plan that allows public employees to contribute additional money. Shimabukuro said workers had wanted this option as a way to boost their retirement savings.

The plan would be open to 62,000 currently employed state and county workers. About 7,000 of these workers are in a pre-1984 contributory plan — police officers, fire fighters, elected officials. But it's not open to workers hired after 1984. The hybrid plan would give the public workforce the option of contributing money toward their retirement with a payout that is guaranteed.

Also, workers with at least five years of service who leave before the normal retirement age of 62 get two options in the hybrid plan: They can leave their money in and start collecting at 62, or they can cash out with 4.5 percent interest plus an additional 50 percent of the final balance. For example, after five years, an employee who has $1,000 in contributions and interest would get another $500 for a total of $1,500 upon leaving.

The hybrid plan is different from the Deferred Compensation Plan, now called Island Savings Plan, which government employees can contribute to and functions like a 401K or 403B. In the latter, the money invested by the employee is not guaranteed but depends on investment performance.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.