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State, city settle
pension dispute

Correcting calculation errors
will save the state and
counties millions

By Gordon Y.K. Pang
Star-Bulletin

The state and the four counties stand to save about $138 million as part of a tentative settlement of a dispute with the state Employees Retirement System.

The retirement system's board of trustees manages the $10 billion pension fund for state and city government employees.

The City and County of Honolulu filed a lawsuit, joined later by Kauai County, against the retirement system, alleging that it was asked to pay $11 million more in contributions than a stipulated formula required.

But as a result of the lawsuit, miscalculations were uncovered involving more than $100 million over three years for the state and all four counties.

Honolulu Mayor Jeremy Harris confirmed the proposed settlement yesterday.

City officials said the state will pay $2.8 million from its general fund this year, then save $65.6 million next year and $28.7 million in 2002.

The city, meanwhile, will not need to pay the $11 million for this year and will realize savings of $24 million in its operating budget during the next two years, Harris said.

As a result, the city will be able to pay the $11 million in wage increases reached during collective bargaining for members of the Hawaii Government Employees Association and the United Public Workers for the current year, Harris said. Also, as a result of the reduced contribution, the city will not have to come up with $8 million for the 2001 operating budget, Harris said.

City budget officials had used $8 million in anticipated revenues from the Block J urban renewal project to help balance that budget, but there is some question whether that money will come in time to be factored into the budget.

According to city officials, Hawaii County will save $6.1 million; Maui County, $5.6 million; and Kauai County, $2.9 million for the years 2000 to 2002.

State Budget Director Neal Miyahira and retirement Administrator David Shimabukuro declined to comment. "We haven't seen the finalized settlement agreement yet," Shimabukuro said.

Any settlement would have to be approved by the retirement system board.

In court documents, Shimabukuro was criticized by Paul Schraff, the city's private attorney in the case, for allegedly instructing actuaries to overcharge the state and the counties.

Schraff recommended the city consider adding Shimabukuro, the actuaries and the retirement system trustees individually as defendants.

But Harris yesterday appeared to back away from Schraff's insinuations of political or malicious intent.

"I think everybody involved was well-intentioned," the mayor said. "I just think there were errors made, and we were fortunate we caught the errors."

The city's case and the proposed settlement evolve from Act 100 of the 1999 Legislature. Act 100 required ERS earnings in excess of a 10 percent yield to be returned to the state and counties.

"They were underestimating the excess earnings," Harris said.