Sunday, May 26, 2019
Hawai'i Free Press

Current Articles | Archives

Saturday, March 30, 2019
PEW: Hawaii Pension Fund Positioned to Withstand Next Recession
By Selected News Articles @ 5:11 PM :: 1346 Views :: Hawaii State Government, Labor

Hawaii’s Pension Fund Positioned to Withstand Next Recession

Stress tests help validate increases in state, worker contributions

by Greg Mennis and Kate Kemmerer, PewTrusts.org, March 29, 2019

Like many states, Hawaii has faced challenges in recent years setting aside enough money to fulfill pension promises made to its public employees. In 2017, the state reported $15.7 billion in assets to cover $28.6 billion in liabilities, just over half the amount needed. That was a stark contrast from 2000, when the retirement system was 94 percent funded.

Two years later, Hawaii’s funding projections are on a better trajectory—and policymakers have a much clearer sense of potential future scenarios. The state government has taken steps to boost employer and employee contributions. And it has been an early adopter of required annual stress testing. This analytical tool looks at a range of scenarios for economic projections and investment returns to provide much better insight into potential long-term liabilities and costs.

Hawaii has not been alone in grappling with escalating pension debt. In 2016, states reported a cumulative $1.4 trillion in unfunded pension liabilities. And that gap is likely to widen in the face of economic uncertainties. After nine years of growth and stock market gains, many analysts think the U.S. may be due for a recession. Without sufficient assets on hand, state pension funds are more vulnerable than ever to market volatility.

Policymakers need to know how pension funds will perform under different economic circumstances, and what the impact might be on already strained government budgets. Because investment earnings typically make up the largest share of pension fund revenue, lower returns or losses must be offset by higher contributions from the state government and workers. Rigorous stress testing can illustrate how a downturn could affect pension balance sheets and, in turn, states’ ability to fund other core government services, such as schools, public safety, and infrastructure.

In response to concerns about the fiscal health of the pension fund, Hawaii enacted changes in 2017 that increased state contributions annually over a four-year time frame. For general employees, contributions will rise from 17 percent of payroll in 2017 to 24 percent in 2021, while rates will jump from 25 percent to 41 percent of payroll for police officers, firefighters, and corrections officers over the same period. Contributions will remain at these levels until the system is fully funded.

In 2017, lawmakers also unanimously passed legislation to require annual stress test reporting, making the state one of the first to routinely use this tool to monitor the fiscal health of its fragile pension system and help protect it from inevitable market volatility. California, Colorado, Connecticut, New Jersey, Virginia, and Washington have similar requirements in place.

The latest stress test report shows that the increased contributions will go a long way toward sustaining the economics of the system. Hawaii published these results on Dec. 28, 2018, in the second report since the law went into effect. The analysis found that, under current contribution policies and annual return assumptions of 7 percent, the pension plan should be fully funded in fiscal year 2044.

The report also provided guidance on what would happen if return assumptions are not met. If actual returns came in at 5 percent each year, the state would have to increase contributions to stay on a path to fully fund the retirement system by 2047, its 30-year projection window. But even with 5 percent investment returns, the system’s funded ratio would stay fairly level at around 56 percent if the state followed the currently prescribed funding policy.

The Pew Charitable Trusts independently examined Hawaii’s stress testing analysis and found similar results. The outcomes underscored how the increased pension contributions required by the 2017 reforms should protect the system from insolvency.

Pew found that, at previous contribution rates, Hawaii’s funded ratio would have declined significantly in a low-return scenario—and could have fallen below a sustainable level without increased contributions. This analysis demonstrates how the increased pension contributions required by the 2017 legislation were an important change to keep the system solvent.

As Hawaii’s analysis shows, requiring stress tests as part of regular pension reporting can help assess contribution policies and provide an early warning if problems arise. Routine stress testing can help improve budgetary planning, allow better assessment of proposed pension changes, and avoid costly mistakes.

---30---

Greg Mennis is a director and Kate Kemmerer is a senior associate with The Pew Charitable Trusts’ public sector retirement systems project.

Related: Act 268 Hawaii Unfunded Liabilities Plan: Pot of Gold for Corrupt Union Leaders

Links

TEXT "follow HawaiiFreePress" to 40404

Register to Vote

2aHawaii

808 Silent Majority

808 State Update AM940

ABCDEFG Blog

ACA Signups Hawaii

ACCE

Affordable Hawaii Coalition

ALEC

Alliance Defending Freedom

Aloha Conservative Alliance

Aloha Life Advocates

Aloha Pregnancy Care Center

American Council of Trustees and Alumni

American Mothers of Hawaii

AMVETS-Hawaii

AntiPlanner

Antonio Gramsci Reading List

A Place for Women in Waipio

Audit The Rail

Ballotpedia Hawaii

Better Hawaii 

Blaisdell Memorial Project

Broken Trust

CAFR Hawaii

Castaway Conservative

Children's Alliance Hawaii

Children's Rights Institute

Christian Homeschoolers of Hawaii

Citizens for Recall

Cliff Slater's Second Opinion

Coffee Break

Conservative Forum for Hawaii

CSIS Pacific Forum

DAR Hawaii

DeedySupport.com

DVids Hawaii

E Hana Kakou Kelii Akina

E Māua Ola i Moku o Keawe

Farmers For Choice Hawaii

FIRE

Fix Oahu!

Follow the Money Hawaii

Frank in Hawaii

Front Page Magazine

Frontline: The Fixers

Genetic Literacy Project

Get Off Your Butts!

God, Freedom, America

Grassroot Institute

Habele.org

Hawaii Aganst Assisted Suicide

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii Coalition Against Legalized Gambling

Hawaii ConCon Info

Hawaii Credit Union Watch

Hawaii Crime Victims' Rights

Hawaii Crop Improvement Association

Hawaii Debt Clock

Hawaii Defending Marriage

Hawaii Defense Foundation

Hawaii Families for Educational Choice

Hawaii Family Advocates

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federalist Society

Hawaii Federation of Republican Women

Hawaii Firearm Community

Hawaii Fishermen's Alliance

Hawaii Future Project

Hawaii Gathering of Eagles

Hawaii History Blog

Hawaii Homeschool Association

Hawaii Jihadi Trial

Hawaii March for Life

Hawaii Meth Project

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Right to Life -- Big Island

Hawaii Right to Life -- Oahu

Hawaii Shield Law Coalition

Hawaii Shippers Council

Hawaii Smokers Alliance

Hawaii State Data Lab

Hawaii Together

Heritage Foundation

HI Coalition Against Legalized Gambling

HIEC.Coop 

HiFiCo

Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Homeless Crisis

Honolulu Navy League

Honolulu Traffic

Horns of Jericho Blog

House Minority Blog

House Republican Caucus YouTube

HPACC

Hump Day Report

I Vote Hawaii

If Hawaii News

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

Investigative Project on Terrorism

Iowa Meets Maui

Jackson v Abercrombie

Jihad Watch

Judgepedia Hawaii

July 4 in Hawaii

Kahle v New Hope

Kakaako Cares

Kau TEA Party

Kauai Co GOP

Keep Hawaii's Heroes

KeyWiki

Land and Power in Hawaii

Legislative Committee Analysis Tool

Lessons in Firearm Education

Lingle Years

Malulani Foundation

Managed Care Matters -- Hawaii

Malama Pregnancy Center of Maui

Mauna Kea Recreational Users Group

MentalIllnessPolicy.org

Middle East Forum--The Legal Project

Mililani Conservatives for Change

Military Home Educators' Network Oahu

Missile Defense Advocacy

MIS Veterans Hawaii

Muslim Brotherhood in America

NAMI Hawaii

NARTH

Natatorium.org

National Christian Foundation Hawaii

National Parents Org Hawaii

National Wind Watch

New Zeal

NFIB Hawaii News

No GMO Means No Aloha

Northwest Economic Policy Seminar

Not Dead Yet, Hawaii

Now What I Really Think

NRA-ILA Hawaii

Oahu Alternative Transport

ObamaCare Abortion Hawaii

Obookiah

OHA Lies

Opt Out Today

OurFutureHawaii.com

Pacific Aviation Museum

Patients Rights Council Hawaii

PEACE Hawaii

People vs Machine

Pritchett Cartoons 

Pro-GMO Hawaii

P.U.E.O.

RailRipoff.com

Rental by Owner Awareness Assn

Republican Party -- Hawaii State

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

Robotics Organizing Committee

Salvage The Rail

Save the Plastic Bag

School Choice in Hawaii

SenatorFong.com

SIFE Remington

SIFE W. Oahu 

Sink the Jones Act

Smart About Marijuana--Hawaii

St Marianne Cope

State Budget Solutions Hawaii

State Policy Network

Statehood for Guam

Tax Foundation of Hawaii

The Harriet Tubman Agenda

The Long War Journal

The Real Hanabusa

Time Out Honolulu

Truth About Trade & Technology - Hawaii

UCC Truths

Union Members Know Your Rights

US Tax Foundation Hawaii Info

Valor in the Pacific

VAREP Honolulu

Waagey.org

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii

Yes2TMT