HONOLULU — The state of Hawaii is taking small steps toward paying off its $20 billion unfunded liability for retiree pensions and health benefits.
Actuaries say the state has $8.6 billion less than it should have to pay its pension obligations to current and future retirees.
But its preparation to pay retiree health care benefits is even worse.
Right now, Hawaii’s state and county employees have just 2 percent of projected retiree health care expenses set aside.
The shortfall for retiree health benefits in Hawaii stands at $11.2 billion, according to an analysis by Gabriel, Roeder Smith and Company, an actuarial consulting firm.
By contrast, the state’s pension plan is 61.4 percent funded, and that’s considered low.
A retirement fund is generally considered healthy if it’s 80 percent funded, according to the National Association of State Retirement Administrators.
The plan is for the state to ramp up its contributions, eventually to $500 million a year, to become fully funded within the next three decades.
The state contributed $100 million in the fiscal year that ended mid-2014, and committed another $117 million to pay in the current fiscal year. Based on those contributions and strong investment returns, along with reduced benefits for new public employees, the payoff period fell to 26 years, down from a projection of 28 years a year ago.
“That’s what you want to see. You want to see improvement every year,” said Joe Newton, senior consultant with Gabriel, Roeder Smith and Company. “This is a huge financial arrangement.”
Gov. David Ige’s administration is putting together the budget for fiscal years 2016 and 2017, when the state’s contribution is slated to increase to $200 million and $300 million, respectively, said Kalbert Young, the outgoing state finance director.
“These are just drops of water in the ocean, really, because the state is just starting two steps into the thousand-mile journey,” Young said.
Counties are in better shape than the state when it comes to health care costs because they began making payments toward future retiree health care obligations in 2008, Young said.
For example, Maui County’s retiree health care benefits are considered 23 percent funded, compared to state employees’ retiree health benefits, which when taken alone are considered zero percent funded, according to the actuarial analysis.
Within five to six years, increasing medical costs could lead to a scenario where retirees are contributing to the costs of their health care premiums, Newton said.
Sam Slom, the lone Republican in the state Senate and often a fiscal watchdog, credited Young for changes that put the state on a path to pay down its liabilities. But Slom’s optimism was measured.
“We’re still talking about a lot of billions of dollars here, and over a 26-year period, a lot can happen,” he said.
