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The Honolulu Advertiser
Posted on: Tuesday, December 15, 2009

ERS funding gap widens


BY Greg Wiles
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser

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The Hawai'i Employees' Retirement System's yawning long-term funding problems widened during the state's latest fiscal year, though the public retirement plan's situation isn't as bad as it is in some other states.

That was the assessment issued yesterday by the ERS' actuarial consultant, which noted the funding problem is likely to worsen this year even if investment returns rebound.

Consulting firm Gabriel Roeder Smith & Co. told ERS trustees the amount of what the pension plan potentially owes workers in the years ahead versus what it has in assets widened by a little more than $1 billion in the year ended June 30, 2009.

What's known as unfunded actuarial liability stood at $6.24 billion at the end of the year, and may increase to more than $7 billion this year, Gabriel Roeder's Lewis Ward said.

The bad news had been expected because of the striking declines in stocks that occurred last year, and because of higher-than-forecast spending related to employee salaries. Lewis reported the value of ERS' investment assets measured on an actuarial basis fell by $808.7 million, or 18 percent.

"That's not a very good return, nor was it for anyone else," said Ward, noting across-the-board public pension fund losses in the past year.

Since the end of the fiscal year the investment returns have improved, with the ERS fund growing by 13.5 percent since July 1.

The trustees are hoping for an even stronger rebound to ensure the ERS pension fund remains healthy into the future. For now there is plenty of money within the fund to pay retirees' benefits.

Still, trustees may have to look at seeking increased funding from government employers in the future if it wants to improve the plan's long-term funding. But it can afford to wait a couple of years to see what action it needs to take.

"As negative as this report seems, it's actually a very positive report compared to the other reports we've had to give," said Gabriel Roeder's W. Michael Carter.

"You have the ability to wait a few years to see what is the best solution."

For now, the ratio of funding compared to what's expected to be owed is at 65 percent, down from about 69 percent last year.

At that level, the pension plan is in the bottom 25 percent of public retirement systems, Gabriel Roeder reported.

The state and counties paid $578.6 million to the ERS in the past fiscal year to cover their contributions toward employee retirement benefits.

That may have to increase in coming years to narrow the long-term funding shortfall.

ERS Administrator David Shimabukuro said a proposal to increase what's paid may be presented to the Legislature in 2012 depending on several factors, including investment returns and employee salaries.