Hawaii State Pension Unfunded Liability Rises to Record $13.4 Billion

Actuary forecasts it will take 25 years for retirement system to become fully funded.

The unfunded liability of the Hawaii Employees’ Retirement System rose to a record high of $13.4 billion in 2018, and is expected to continue to increase over the next four years before it starts to improve, according to the system’s most recent actuarial valuation.

This is despite the fact that for the fiscal year ended June 30, 2018, the retirement system reported a 7.9% return, raising its market value to just under $16.6 billion from $15.7 billion at the same period last year, while its funded level edged higher to 55.2% from 54.9%.

The most recent actuarial report for the system forecasts that the unfunded liability will continue to rise until 2023 and peak at just under $14.2 billion before slowly improving to a surplus of $281 million and a market value of $60.6 billion by 2043.

“We have determined that the funding period for paying off the UAAL of the System (in aggregate) is 25 years,” GRS Retirement Consulting, the system’s actuary, wrote in its report to the system’s board of trustees. “Because this period is less than 30 years, the objectives set in state statute are currently being realized.”

According to Hawaii state law, the employer contribution rates are subject to adjustment when the funding period is greater than 30 years. The employer contribution rate for Police and Fire employees is scheduled to increase to 31% in FY2019, 36% in FY2020, and 41% in FY2021. Meanwhile, the employer contribution rate for all other employees is set to increase to 19% in FY2019, 22% in FY2020, and 24% in FY2021.

However, the actuary said that its forecasts are contingent on returns meeting the current assumptions, and employers meeting the contribution requirements established by the 2017 Legislature.

“The 25-year funding period assumes all of the currently scheduled contribution increases occur and remain in effect throughout the period,” said GRS. “It is imperative that the increases occur as scheduled to meet the current projected obligations of the system.”

GRS also warned that “future changes to the actuarial assumptions or future changes to reduce the contribution requirements could significantly change the outlook of the system, and the expectation on when the system will reach a 100% funded level.”

The system has a new CIO, Elizabeth Burton, who joined in October from the Maryland State Retirement and Pension System, where she had been managing director of the quantitative strategies group. She replaced Vijoy Chattergy, who resigned as CIO in February.

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