Hawaii state employees will contribute an additional 2% of their annual pay to their pension plans as part of a bill drafted by the $11.5 billion Hawaii Employees' Retirement System, Honolulu, and signed Thursday by Gov. Neil Abercrombie.
The new law also lowers the system's rate-of-return assumption to 7.75% from 8% and gives the board the authority to adjust the return rate assumption, a duty once held by the Hawaii Legislature.
In addition, the law raises the retirement age for new public employees to 65 from 62, and doubles to 10 the number of years a public employee must work before becoming vested.
The law was drafted by system executives in an effort to address the system's low funding ratio, which stood at 61.4% as of the most recent valuation report in June 2010, Wesley Machida, retirement system administrator, said in a telephone interview.
The provisions of the bill concerning employee contributions, retirement age and vesting go into effect for employees hired after June 30, 2012.
Employee contributions in the police and fire plans will increase to 14.2% of pay from 12.2%; general employee contributions to the contributory plan will increase to 9.8% from 7.8%; and employee contributions to the hybrid plan will increase to 8% from 6%.
“The measure will assist the ERS to achieve a better funded status,” Mr. Machida said. “However, the ERS and its board of trustees recognize this might not be a complete solution. It will have to be closely monitored and evaluated annually to ensure that necessary measures are taken to ensure the financial sustainability of the system.”
Mr. Machida said the law is expected to reduce the amount of time it is projected to achieve full funding to about 30 years or less from about 41.3 years.