|
Kaho'ohanohano v. State Page 4 of 46
<br /> out specific duties with regard to the property. The trustee owes a fiduciary duty to the beneficiary." (Citing Reinecke v. Smith,289
<br /> U.S. 172, 53 S.Ct. 570,77 L.Ed. 1109 (1933))[.]
<br /> Id. at 343, 120 P.3d at 242 (emphases added).
<br /> Under HRS chapter 88, Trustees engage an actuary to determine the employers' normal cost and accrued liability
<br /> contributions for each fiscal year. HRS §§ 88-122, 88-123. Trustees are responsible for calculating the annual
<br /> contributions that the State and counties must pay into the ERS pursuant to HRS §§ 88-122 and -123. Trustees are to
<br /> certify those amounts to the governor and the county councils, who must then include those amounts in their annual
<br /> budgets. HRS §§ 88-124 (1993), 88-126 (Supp. 2002). Trustees must also allocate the ERS' earned interest in
<br /> accordance with HRS § 88-107 (Supp. 2006).
<br /> II.
<br /> The State has historically mandated that Trustees apply earnings of the ERS funds in excess of a specified investment
<br /> yield rate of eight percent to offset the employer contributions of the State and counties. See HRS §§ 88-107, 88-122,
<br /> 88-127. This offset was coupled with a requirement that government employers pay any additional amount needed to
<br /> meet the specified yield rate if earnings were not sufficient to meet the rate in a particular year. See 1925 Haw. Sess.
<br /> L. Act. 55, § 7 at 63. Trustees state that "[i]n other words, excess investment earnings in 'peak' years might [have
<br /> been] used to offset future employer contributions if investment earning shortfalls in 'valley' years were made up by
<br /> the government employers." Trustees refer to this practice of taking the "peaks," also known as, earnings in excess of
<br /> specified yield rates, as "skimming." As set forth in Trustees' complaint, "When the earnings of high-return years are
<br /> skimmed, . . . the ERS loses the benefit of high yields that would offset market cycles in low-return years and is
<br /> denied the benefit of full, ongoing [e]mployer funding."
<br /> In 1994, the legislature altered this practice to address the rising level of unfunded ERS obligations. It amended HRS
<br /> § 88-107 (1993) to require that the excess earnings be applied to the pension accumulation funds in increasing
<br /> amounts, rather than be credited against employer contributions. 1994 Haw. Sess. L. Act 276, § 6 at 863. The
<br /> legislation provided that, after ten years, one hundred percent of any excess earnings be "allocated and deposited in
<br /> the pension accumulation fund." Id. Act 276 of the 1994 legislative session added, in part, the following language to
<br /> HRS § 88-107:
<br /> Beginning with actual investment earnings in fiscal year 1995 in excess of the investment yield rate,to address outstanding unfunded
<br /> pension obligations,ten per cent of such excess earnings shall be deposited in the pension accumulation fund;remaining excess
<br /> earnings shall be applied to the amounts to be contributed under section 88-123.In each succeeding fiscal year,another ten per cent,
<br /> cumulatively up to one hundred per cent,of any excess such earnings shall be similarly allocated and deposited in the pension
<br /> accumulation fund.
<br /> Id. (emphases added). The Ways and Means Committee explained that the intent of the Committee was "to liquidate
<br /> the unfunded benefit obligations by the year 2003 and then begin to use the moneys in the pension accumulation fund
<br /> to provide benefits exclusively for ERS beneficiaries." Stand. Comm. Rep. No. 2948, in 1994 Senate Journal, at 1171.
<br /> For fiscal year 1995, ERS investment yields were significantly below the statutory investment yield rate, and, thus, the
<br /> ERS faced a shortfall of$99.4 million, which the State and counties were obligated to make up in fiscal year 1997.
<br /> See Stand. Comm. Rep. No. 486, in 1997 Senate Journal, at 1092. Despite this, the legislature further amended HRS §
<br /> 88-107 in 1997 and eliminated the obligation of the State and counties to make up any future shortfalls in investment
<br /> yields. See Stand. Comm. Rep. No. 835, in 1997 Senate Journal, at 1223.
<br /> However, Act 327, 1997 Haw. Sess. L. Act. 327, § 2 at 774 [hereinafter, Act 327], allowed the ERS to retain one
<br /> hundred percent of its investment earnings beginning in fiscal year 1997, and accelerated the ten-year time frame
<br /> within which the ERS would be allowed to retain all of its investment earnings:
<br /> Your Committee believes that it is incumbent upon the State to protect the financial integrity of the state retirement program by
<br /> reducing its$1.6 billion unfunded liability.However,understanding the current fiscal crisis the State faces,your Committee feels it
<br /> prudent to eliminate the requirement that the state and county governments make up the$99.4 million shortfall from FY 1995.Your
<br /> Committee also believes that the ERS must begin to retain all of its investment earnings from FY 1997 in order to begin the systematic
<br /> liquidation of its unfunded liability.
<br /> http://v,Tww.state.hi.us/jud/opinions/sct/2007/26178.htm 8/12/2008
<br />
|