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The Honolulu Advertiser
Posted on: Monday, April 12, 2010

Isles' state retirement funding trails most states

BY Greg Wiles
Advertiser Staff Writer

A new study on state and local pension funding shows Hawai'i's Employees' Retirement System lags behind most of the rest of the nation.

The study by the Center for State and Local Government Excellence shows the pension plan for state and county workers has a funding ratio well below the average of the 126 plans studied and is among the bottom 20 when it comes to comparing assets to liabilities.

In general, the report found most public pension plans had suffered during the stock market downturn in late 2008 and early 2009 with their investment portfolios taking a hit. It said this will in turn affect funding ratios this year and in coming years.

"While states and localities were on a path toward full funding of their pension liabilities, they were seriously knocked off track by the financial crisis," said the report. "The first glimpse of the dimension of the damage is becoming evident with the actuarial valuations for 2009."

The Hawai'i ERS has been working to improve its ratio after under-funding and other factors led to its decline in recent years. The pension plan receives its funding from the state and county government employers and also invests in stocks, bonds, real estate and other investments.

The report estimated the ERS assets for fiscal 2009 slipped to 62.9 percent of what's expected to be owed in retirement benefits. That's lower than the 78 percent average for all of the public pension plans studied.

It also was 19th lowest of the 126 included in the report, though the report noted that ratios can't be strictly compared across plans because of variations in actuarial methods used to determine values.

The funding ratio included in the report differed from the ratio given to the ERS in December by its actuary. At that time, the ERS' trustees were told the ratio was at 65 percent, with its unfunded liability on an actuarial basis at $6.24 billion.

The trustees were told the funding ratio was in the bottom quarter of public retirement systems nationally and that its unfunded liability was expected to increase this year because of the way the actuarial formula calculates the number.

The liability, while a concern to trustees, doesn't mean the ERS is having problems paying benefits to its current retirees. Late last year the ERS fund stood at about $9 billion, or more than enough for benefit payments to current retirees.

The Center's report said there is no easy solution for the funding shortfalls faced by the public plans. It said increasing contributions to the plans from state and local governments wasn't possible in many locales because of the economic downturn.

Increasing employee contributions to their retirement also is difficult, it said, as is looking to increase taxes to fund shortfalls.