ERS pension
supplement plan
to be discussed

State and county employees
could contribute 6 percent of
their wages to retirement

State and county employees may find themselves with a little extra in their retirement fund if legislation circulating at the Capitol is approved.

Similar House and Senate measures, which offer a defined benefit contributory plan with a hybrid feature, would give 55,000 current state and county workers the option of supplementing their Employees' Retirement System noncontributory pension plan with 6 percent of their wages.

New employees after the implementation of the plan in October 2005 would be required to make the 6 percent contribution. About 7,000 workers, such as elected officials, firefighters and police officers, who are enrolled in a pre-1984 contributory plan would not be eligible to join.

"We think it's a good idea because it's going to enable employees to have a bigger pension when they retire, but then they are paying for that increase," ERS Administrator David Shimabukuro said. "It's good because it will make their retirement years better."

Shimabukuro said the impetus for such a bill, which has the backing of the Lingle administration, came about because of the low interest rate environment and the bear market for stocks.

The ERS initially had a contributory plan when it was formed in 1926, but switched to a noncontributory plan in 1984 when interest rates soared and individuals could earn 11 percent in a money market certificate of deposit. When the switch was made, according to Shimabukuro, employees felt they would be able to take the money they would have contributed to the ERS plan and get better returns from CDs or other investments.

But with interest rates today hovering around 1 percent and stock-market investing difficult for many individuals, the Legislature asked the ERS board to conduct a feasibility study to look at going back to the contributory plan as a means to attract and retain public employees. Another element of the Legislature's request was that there would be no additional cost to the employer.

"We presented it at the past Legislative session and there was a lot of support for the bill," Shimabukuro said. "They asked the ERS to prepare the statutory provisions to create this new plan. We've been working on it since."

The bill, which may be heard as early as Tuesday by the House Labor and Public Employment Committee, has no known opposition, Shimabukuro said.

With a 6 percent contribution (employees don't have the option to select other percentages), an employee for each year of service would be entitled to a 2 percent multiplier times the employee's average monthly salary in the highest three years of wages. In other words, an employee working 10 years would multiply his length of service by 2 percent and get a 20 percent rate. If an employee's highest average monthly salary over the highest three years of wages was $1,000, 20 percent of $1,000 would equate to a $200 monthly pension.

Five years of service is required to be eligible for the pension, with a minimum retirement age of 62 unless an individual has 30 years of service and is at least 55 years old.

Using the same scenario under the current noncontributory pension plan, an employee working 10 years multiplies that by a 1.25 percent multiplier to get a 12.5 percent rate.

That 12.5 percent, multiplied by a $1,000 a month average salary, would give the pensioner a $125 monthly pension. Ten years of service is required to be eligible for that pension.

"The 6 percent (offered by the hybrid plan) is really the employee putting in money to kind of finance their retirement to make up that difference for the .75 percent multiplier," Shimabukuro said.


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