Court Grants ERS Temporary Restraining Order and Stays Implementation of 2016 Hawaii Laws 2nd Sp. Sess. Act 1 (S.B. 2077)

News Release from Hawaii ERS

August 23, 2016 Yesterday, the Honorable Jeannette Castagnetti, judge of the First Circuit Court of the State of Hawaii, granted the Motion for Temporary Restraining Order filed by the Board of Trustees of the Employees' Retirement System of the State of Hawaii (ERS) in Civil No. 16-1543-8 (ERS Lawsuit). The Motion for TRO sought to stay the implementation of 2016 Hawaii Laws 2nd Sp. Sess. Act 1 (Act 1) which, if implemented, could jeopardize the tax exempt status of the ERS. The TRO would prevent Act 1 from taking effect until the court could hear the ERS’s Motion for Preliminary Injunction, which was also filed today.

In granting the TRO, the court found that the ERS had successfully established that the ERS was likely to prevail on the merits of the ERS Lawsuit as Act 1 could violate the Hawaii State Constitution by giving certain state employees an improper election of either a cash severance payment or special early retirement benefits under the ERS. The United States Internal Revenue Code does not allow the State to offer employees such an election. By offering an election that includes benefits under the ERS as one of the choices, Act 1 could result in the ERS plan being disqualified by the Internal Revenue Service (IRS).

Further, Judge Castagnetti ruled that the balance of harm supported the granting of the TRO as the results of such a disqualification could cause irreparable harm to the almost 120,000 members of the ERS as all State and county employees would lose the benefit of tax deferral that is fundamental to the ERS plan, as well as other benefits associated with a qualified plan.

Finally, Judge Castagnetti ruled that the public interest supported the issuance of a TRO as it is in the public interest to maintain the ERS’s tax-qualified status and to avoid any impairment of benefits to the ERS’s members.

Accordingly, Judge Castagnetti granted the ERS’s motion and temporarily stayed the effect of Act 1 so the ERS can seek guidance from the IRS as to the potential impact of the election offered by Act 1.

In granting the TRO, Judge Castagnetti made it clear that, as requested by ERS, the TRO would neither stay, nor have any impact on, the ongoing proposed transfer of Maui Memorial Medical Center, Kula Hospital & Clinic and Lanai Community Hospital hospitals from the Hawaii Health Systems Corporation to Kaiser Permanente Hawaii. The ERS had clearly stated that it was not seeking such relief from the court.

Thomas Williams, Executive Director for the ERS, stated “We are pleased that the court took action today and look forward to getting a response from the IRS as soon as possible. As we have maintained all along, our sole objective is to protect the State and county employees’ retirement benefits.”

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PDF: Court Order 

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