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Governor signs bill ensuring severance benefits for affected hospital workers

Gov. David Ige has signed into law a bill that would provide severance benefits to employees affected by the privatization of three Maui County public hospitals.

On May 23, Ige signed Act 18, which allows employees at Maui Memorial Medical Center, Kula Hospital and Lanai Community Hospital to receive severance in the form of a one-time lump sum cash bonus. The severance is expected to cost the state $30.6 million.

The passage of the new law comes almost a year after a lawsuit put hospital employee severance options in limbo.

“It was an essential component for us to complete the transition because that’s what we had agreed to,” West Maui Sen. Roz Baker said Thursday. “So I was delighted that the governor signed it early, and that should help reassure folks that the transition is in fact happening and reassure the public employees who were concerned about losing some of their benefits if they went from public to private. This severance benefit is something that should give them some comfort.”

According to the new law, each affected hospital employee of the quasi-public Hawaii Health Systems Corp. Maui Region “shall receive a one-time lump sum cash bonus severance benefit, to be calculated at the rate of 5 percent of the individual employee’s annual base salary for each year of service worked up to and including July 20, 2016.” It can not exceed 10 years or total more than 50 percent of the employee’s annual base salary.

The benefit also goes along with “any payment owed to the employee upon separation from service, including accumulated unused vacation allowances and compensatory time credits.”

Last year, a similar bill providing severance and early retirement options to hospital employees passed the state Legislature, setting off a struggle between the governor, lawmakers and the state Employees’ Retirement System.

On July 11, Ige vetoed the bill, saying the measure could cost the state $60 million and jeopardize the tax-exempt status of the retirement system.

The problem was that the bill allowed employees to choose between a lump-sum cash payment, which is taxable, and a special employer subsidized early retirement benefit. Internal Revenue Code does not allow for this, a memo from ERS Executive Director Thomas Williams explained.

But lawmakers, fearing another union lawsuit that could further delay the hospitals’ transition, overrode the veto on July 20.

Shortly after, the ERS filed a lawsuit against the bill, leading a judge to block the state from putting the new law into action. Both lawmakers and the ERS sought answers from the IRS. On March 9, the IRS issued a letter confirming that the state could not provide a choice between cash and subsidized early retirement benefits.

Thus, Act 18 takes out the latter option and repeals last year’s disputed law.

Baker said that “even though some of us didn’t think it was necessary to repeal,” the governor, his budget and finance director and other officials asked lawmakers to do so. With the new law, the ERS’ tax exempt status is no longer at risk, she said.

The transition of the three hospitals to Kaiser Permanente is set to take place July 1.

• Colleen Uechi can be reached at cuechi@mauinews.com.

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