Hawaii Retirement System Looks to Curb Pension Scams
Hawaii’s public employees may no longer be able to boost their retirement benefits by “spiking” their pay through things like overtime.
The Hawaii Employees’ Retirement System is looking at drafting legislation to deter the scam known as pension spiking.
“This would target anyone who might be trying to game the system or trying to boost their pension in their final years of service,” ERS Administrator Wes Machida told Civil Beat Thursday. “We’re looking into what can be used to prevent that from happening, and so that these types of situations don’t continue. It’s something the board is concerned about.”
Pension benefits are calculated by averaging an employee’s highest three or five years of compensation, depending on their hire date. Compensation, as currently , includes base pay, overtime, differentials and supplementary payments, bonuses and lump sum salary supplements.
Unions Opposed Similar Bill
During the 2011 legislative session, that aimed to redefine compensation for future public employees to include only base pay ultimately stalled. It could be revived next year.
That bill received considerable pushback from labor union leaders, including the State of Hawaii Police Officers union, which argued that the change would deter recruitment of new hires.
Kalbert Young, the state’s budget director, had that the move to count only base pay for future hires would save the state about $13.2 million a year and save the counties $19 million collectively. It would also reduce the ERS’s unfunded liability by $500 million, Young wrote.
Machida said the ERS can’t clearly gauge whether there’s rampant abuse, but said any efforts to cut down on the system’s estimated $9 billion unfunded liability are crucial. The system has 111,000 members, with close to 37,000 retirees and beneficiaries.
Addressing $9 Billion Unfunded Liability
“We’re more recently aware of these kinds of things because of the growing unfunded liability and we need to address it,” Machida said. “We’re trying to at least make a concerted effort to address it. But obviously the employers are the ones approving the overtime pay, so the discussion has always been that employers should control that.”
To highlight how spiking works, Machida gave the hypothetical example of an employee who puts in 30 years with the state. If the employee earned an average $40,000 salary for his first 27 years, and in his last three years boosted his salary to $100,000 through working overtime, his pension would be calculated using the $100,000 salary.
“But the employer was funding their pension at $40,000,” he said. “So the system would have been underfunded for the first 27 years because the employer contributions would not have been adequate. That’s what contributes to the higher unfunded liability.”
A legislative subcommittee of the ERS board of trustees took up the proposal at its Thursday meeting. The two-member committee — trustees Jackie Ferguson-Miyamoto and Wayne Yamasaki — decided they needed more information before recommending a draft to the full board.
Machida said the group is seeking information from its actuary on exactly how the ERS’s funded status will be impacted by excluding various payments from an employee’s compensation. It’s also studying anti-spiking provisions in other states.
“This future proposal will definitely be discussed at future board meetings,” he said.
