by Andrew Walden
Hawai has an unfunded pension liability to the government Employees Retirement System estimated by the American Legislative Exchange Council in excess of $5 billion dollars. But a September 9, 2010 Procurement exemption request filed by State vendor KMH LLP suggests that liability will be cut by reducing benefits during the 2011 legislative session.
The State’s Chief Procurement Officer October 5 denied KMH’s request for exemption from competitive bidding. But the description of its contract proposal is revealing nonetheless. In a contract which was to run from September 15, 2010 through January 1, 2011, KMH was, “To conduct diagnostic process review of the entire retirant pension benefit payment process from the initial application to computation of final benefit payment calculation.”
KHM explains the failings of the current benefit calculation system:
When an ERS member retires, the retirant receives an estimated benefit until the retirant’s benefits are ‘finalized’ – ie the actual benefit is determined…. At the present time, most finalizations take more than six months.
At this time there are over 3,000 benefit files to be finalized. there were 317 retirements on June 1, 2009 whereas in recent years there have been an average of 60 retirements in June. Each year an estimate of approx. 1,600-1,800 members retire from the State and counties….
Some have been waiting up to 2 years to be finalized.
Of course, this is typical of may State offices. But the inefficiency creates a looming problem for KMH and the other company contracted to ‘finalize’ benefits:
In addition because of the economic conditions, pension funds (public and private) globally are looking into benefit changes. The ERS is also taking a hard look into making statutory changes in the 2011 legislative session. As such this will have a dramatic impact on the ERS as all members eligible to retire will secure their benefits by taking early retirement whether they are ready to retire or not.
And how does KMH’s study fit into this process?
The ERS Board of trustees has directed staff to engage a consultant to review the finals process and to make recommendations to make the final processing more efficient and to improve it to meet best practices. The recommendations may include statutory as well as procedural changes…
Time is of the essence in this matter so that any recommended statutory changes can be proposed in the 2011 legislative session.
Although the surge would boost pension outlays, the reduction in benefits would reduce the ERS' unfunded liability. Any net attrition allowed to occur after the departure of so many government employees would allow for expenses to be reduced dramatically in these tough budget times.
PDF: KMH Procurement Exemption request