County working to alleviate unfunded liabilities burden

Maui County faces $330 million in unfunded pension liabilities and $610 million in liabilities for retiree health benefits as of the end of last June, according to state officials appearing before the County Council on Monday.

But over the last few years, the county has been setting aside funds each year to help ease the burden, according to county officials.

“We’ve still got significant unfunded liabilities, but Maui County is moving forward in a responsible way in both ERS (Employees’ Retirement System) contributions and the contributions to the health fund,” said council Budget and Finance Committee Chairman Mike White. “We’re actually doing more than is suggested.”

In the last fiscal year, the annual required contribution for Maui County was $32.8 million, according to the most recent Aon Hewitt actuarial valuation. The county exceeded those requirements, contributing $34.3 million, according to the county budget office. Since 2008, the county has contributed more than $127.5 million to retirement as well as health benefits for its workers.

But the state of Hawaii, as a whole, still has a lot of catching up to do.

As of the end of June, the state Employees’ Retirement System, or pension benefit program for state and county workers, is facing $8.4 billion in unfunded liabilities, up from $8.1 billion the year before, according to Wes Machida, administrator of the ERS. Maui County’s unfunded pension liability is $330 million.

In terms of health benefits, the Employer Union Trust Fund faces a liability upwards of $11 billion. Maui County faces a shortage of $610 million in these funds, according to state Finance Director Kalbert Young, who also is a former Maui County finance director.

Machida and Young presented their reports on the state and county’s unfunded liabilities to the County Council on Monday morning.

One of the biggest problems is that there are more than half as many retirees claiming pensions as there are active employees contributing to the fund, according to Machida.

In Maui County, there are about 2,000 active employees and 1,100 retirees. Statewide, there are 65,599 active employees and 40,774 retirees who are claiming pension and health benefits.

“The system is still in a delicate state of recovery,” said Machida. “We are currently at 59 percent funded, but if the system ever gets below 50 percent, it could be catastrophic.”

Last year, for the first time, ERS paid out more than $1 billion in pensions statewide.

The amount of unfunded liabilities, both in pension and in health benefits, has grown and will continue to grow based on three factors, said Machida. They are life expectancy, which is currently 82 years old; whether the investment return rate meets the 7.75 percent lawmakers agreed upon in 2011; and employer contributions.

If life expectancy grows, the investment return does not meet its mark or employer contributions decrease, the state’s unfunded liabilities deficit will continue to rise.

There are changes in the works in the Legislature that may help ease the problem, according to Young.

Lawmakers are considering a bill that would “prefund” the EUTF, a step that would add $100 million a year, as proposed by Gov. Neil Abercrombie, to the system. While the governor admitted in his 2013 State of the State Address that it would take $500 million a year, every year for 30 years, to meet unfunded pension liabilities, state officials say the $100 million is a start.

“The state is the biggest animal on the block,” Young said. “If the state isn’t going to hold up its portion, there is very little chance for solvency (of the EUTF system) because the other employers do not have a significant portion of the liability.”

The State of Hawaii is responsible for $8.4 billion of the EUTF, more than all the counties combined.

Both Machida and Young said they are optimistic that it is possible for Hawaii to pay down its billions in unfunded liabilities within the next 30 years.

“Had we not done anything since 2010, 40 or 50 years down the road, the system would not be sustainable,” Young said. “We went from ‘uncertain future’ to ‘within 30 years’ because of what we did in the last two years to make a more sustainable system.”

He cited pension reform, increased employer contribution rates and no added benefits for new hires as issues addressed to help pay down the unfunded liabilities.

“There have been some changes on the positive side,” Young said. “It takes some time for it to be a positive, realized benefit for the state and counties, but the needle is starting to move.”

* Eileen Chao can be reached at