LIHUE — The state of Hawaii’s pension plan is underfunded, and if the problem isn’t resolved the crisis could get worse.
That’s what Joseph Kent, vice president of research at the Grassroot Institute of Hawaii, told the Kauai County Council Wednesday as he presented a report he authored about the issue.
Currently, there’s about $12.9 billion missing from the pension fund, leaving state and county government retirees depending on a fund that is 46 percent empty, the report said.
“That means that for every dollar that we owe our public retirees at the county or state level, we only have about 54 cents,” he told The Garden Island.
One of the solutions would be to create a new public pension plan that would reduce, and ideally eventually eliminate, the state’s public pension debt while offering more flexibility for the government employees the system is supposed to benefit, the report says.
The plan also over-promises and under-delivers, he said.
“We pay more attention to the money that we’re promising going out rather than paying attention to the money that’s coming in and matching that to the money going out and that makes another debt problem,” Kent said.
Another reason the pension plan is underfunded is because of pension spiking, and one thing that could make a difference is to divorce spiking from the pension calculation, he said.
Pension spiking is when an employee works overtime near the end of his or her government career and thereby increases their annual income for those final few years. Retirement pensions are based on average annual incomes and years of service, so spiking income in the final years of a career increases a retiree’s pension amount.
In some cases, an employee can be making $30,000 or $40,000 per year just in overtime, which raises their retirement pay.
“If you get overtime, or sick pay or vacation pay, employees are able to calculate that into their pension calculation, and if you can spike your pay you can spike your pension, and that creates a big problem,” he said
Kent said Kauai County has the highest salaries on average compared to the rest of the counties, and there’s a lot of overtime given here, he said.
“Sometimes $30,000, sometimes $40,000 in overtime. When you combine that (hourly wages) with overtime, sometimes, some employees are making close to $100,000 a year. Not all employees are making that, but some employees are, and the question is ‘Who are these employees and why are they making so much?’” he said.
Sometimes overtime is necessary, he said.
“For example, during a hurricane, and I know you folks had some emergency overtime that was needed recently, but other times there are ways to abuse the overtime system and we want to stop the bad overtime and keep the good overtime,” Kent said.
What spiking means for the people of Kauai is that every time a tax increases it increases taxpayer contributions.
“That means that the $8 million that’s required by the county every year extra is money that could have been used for homelessness, housing or environmental causes, and it’s now just going to pay off the debt so it means county taxpayers are paying more but they’re getting less for their money,” he said.
Councilmember JoAnn Yukimura asked whether management of overtime under the present structure can solve the problem.
“I think you need to fix the mechanism that overtime is included into pension calculations. If that were fixed then you could just give overtime as needed. Sometimes you need overtime,” Kent said.
But since it is calculated into the pensions, the only way to manage it is to try to limit overtime, which may not be best for the county either, he said.
“At the very least, though, you can try,” Kent said. “Overtime abuse, which I’m told is a problem, there are ways to abuse it.”
Yukimura said that’s what she meant by overtime management. “You would stop the abuse,” she said.
The fact of the matter is the numbers look high, said Council Chair Mel Rapozo.
“A lot of the numbers may not reflect abuse. It reflects entitlements the state has agreed to,” he said. “That is the issue. I don’t want to paint this ugly black flower for our county safety people because they’re getting what they’re entitled to. The question is, ‘Are we doing our best job at the collective bargaining table?’”
When Vice Chair Ross Kagawa said that, when he was on Council Services staff, the highest-ranking police officers and firefighters were treated almost like management so they didn’t collect overtime.
“You took that high-management job with the higher salary and you left the overtime to the subordinates, so I don’t know what between 1995 and now something happened and they didn’t give up their overtime now, they can get both high salary plus,” he said.
Kent suggested creating a new pension plan based on best practices from other states, ensuring active employees wouldn’t have to worry about their benefits, and incentives to enroll in a new plan as possible solutions.
