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Kaho'ohanohano v. State Page 14 of 46
<br /> chapter[.]" HRS § 88-23. In that regard, "[i]t is axiomatic that a corporation's directors and officers assume fiduciary
<br /> duties." Honda 11, 108 Hawaii at 343, 120 P.3d at 242 (citations omitted).
<br /> As recounted previously, the ERS funds are funded through employee and employer contributions, and investment
<br /> earnings. In this respect, Trustees "shall be trustees of the several funds of the system and may invest and reinvest
<br /> such funds as authorized by this part and by law from time to time provided." HRS § 88-110 (1993); see Honda II,
<br /> 108 Hawai'i at 344, 120 P.3d at 243.
<br /> Furthermore, "any and all sums contributed or paid from whatever source to the system for the funds created by this
<br /> part, and all funds of the system including any and all interest and earnings of the same, are and shall be held in trust
<br /> by [Trustees] for the exclusive use and benefit of the system and for the members of the system and shall not be
<br /> subject to appropriation for any other purpose whatsoever." HRS § 88-127; see Honda 11, 108 Hawaii at 344, 120
<br /> P.3d at 243. Hence, "Trustees, by definition, are imbued with fiduciary duties." Honda 11, 108 Hawaii at 343, 120
<br /> P.3d at 242 (citations omitted) As we have stated, "[Trustees] owe[ ] a 'trust' duty to not just the 'system' as a whole . .
<br /> . but to 'members of the system' as well." Id. at 344, 120 P.3d at 243 (emphasis in original).
<br /> Hence, "[i]t is within the power, and is the duty, of a trustee to institute action and proceedings for the protection of
<br /> the trust estate and the enforcement of claims and rights belonging thereto, and to take all legal steps which may be
<br /> reasonably necessary with relation to those objectives[,]" Brisnehan v. Cent. Bank& Trust Co., 299 P.2d 113, 115
<br /> (Colo. 1956) (citation omitted). Moreover, "[it] is always the duty of a trustee to protect the trust property, and for that
<br /> purpose institute actions, intervene in actions pending, and, in any other way, in accordance with orderly procedure,
<br /> protect such property." Brenizer v. Supreme Council, Royal Arcanum, 53 S.E. 835, 838 (N.C. 1906) (emphasis
<br /> added). Thus, charged with general administration and responsibility for the proper operation of the retirement system,
<br /> and the protection of the res Trustees have a legal duty to protect the pension accumulation fund from diminishment
<br /> and impairment, for the viability of the retirement system itself.
<br /> XXI.
<br /> On the face of their complaint, it appears that Trustees have sufficiently alleged "an actual or threatened injury as
<br /> a result of the [State's alleged] wrongful conduct." See Akinaka, 91 Hawaii at 55, 979 P.2d at 1081 (citation omitted).
<br /> First, as Trustees allege in paragraph 20 of the complaint, "[w]hen earnings of high-return years are skimmed,
<br /> however, the ERS loses the benefit of high yields that would offset market cycles in low-return years and is denied the
<br /> benefit of full, ongoing [e]mployer funding." Such an allegation, if taken as true, sufficiently establishes an injury-in-
<br /> fact for purposes of standing, in that the ability of the ERS to offset "low-return years" both in the past and in the
<br /> future is adversely altered. Because "[f]ull ongoing [e]mployer funding . . . is needed to assure stability and operation
<br /> of the ERS on an actuarially sound basis," as Trustees state in paragraph 41 and reiterate in paragraph 42, it would be
<br /> legally imperative for Trustees to bring suit and to question the validity of any statute which negatively impaired the
<br /> ERS' continued stability and operation.
<br /> Second, Trustees alleged that they had a reasonable expectation of retaining all investment earnings in reliance on Act
<br /> 327, which states that "[b]eginning in fiscal year 1997, one hundred per cent of the investment earnings shall be
<br /> deposited in the pension accumulation fund." 1997 Haw. Sess. L. Act 327, § 2 at 774. Act 100 removes that
<br /> expectation and thus inhibits Trustees' discretion in making investment choices that would be in the best interests of
<br /> the ERS and its members.
<br /> Third, Trustees further claimed that by the enactment of Act 100, the State "unlawfully diminished and impaired the
<br /> ERS funds," including investment earnings for fiscal years 1997 and 1998, in a retrospective fashion. Such
<br /> impairment, Trustees claim, "deprives [the ERS] of the stability and security intended by the Hawaii State
<br /> Constitution and Hawaii law."
<br /> Fourth, Trustees alleged that in addition to article XVI, section 2, "members of the ERS are entitled to an actuarially
<br /> sound retirement system and to protection of funds held by or committed to the ERS" under "provisions of[HRS c]
<br /> hapter 88." Under such circumstances, Trustees rightfully maintain that they are legally obligated to protect the system
<br /> and, thus, would have standing to challenge Act 100 in their capacity as fiduciaries. Cf. Hawaii Medical Assoc.,
<br /> http://www.state.hi.us/jud/opinions/sct/2007/26178.htm 8/12/2008
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