The bad news for Hawaii taxpayers is that Hawaii’s state public employee pension system has about $12 billion in unfunded liabilities, which means that if it had to pay off all its beneficiaries with the savings it has on hand, it would be unable to do so.
That would leave our retired state and county public employees and their families up a creek and Hawaii taxpayers on the hook — which would be a social and economic disaster.
The good news for Hawaii taxpayers — and our retired state and county public employees and their families — is that things actually are looking up, if we go by what we heard from Thom Williams, executive director of the Employees’ Retirement System of the State of Hawaii, at a recent public presentation on Maui hosted by the Grassroot Institute of Hawaii.
Thanks to recent legislative reforms and careful investing by the system’s investment managers, the ERS — with assets in 2016 of about $14.9 billion — is looking at a “crisis averted,” Williams said, and seems likely to return to full funding by 2046 “or thereabouts,” compared with the 54.7 percent funding status level that it’s at right now.
But now is not the time to let up. Williams urged vigilance and discipline to make sure the system doesn’t become a threat to the economic health of our beloved Hawaii.
Learn more about this vital issue by watching the video of the entire event or reading the transcription below.
Hawaii’s public pension system:
Crisis averted; what next?
Monday, Oct. 23, 2017, at J. Walter Cameron Center, Wailuku, Maui
Featuring: Thom Williams, Executive director, Employees’ Retirement System of the State of Hawaii
Moderated by: Keli‘i Akina, Ph.D., President and CEO, Grassroot Institute of Hawaii
Joe Kent: Aloha, everyone. Thanks for coming. My name is Joe Kent. I am the vice president of research at the Grassroot Institute of Hawaii.
The Grassroot Institute is a nonprofit public policy think tank that seeks to educate people about the values of individual liberty, economic freedom and accountable government. …
Dr. Keli‘i Akina is the president of the Grassroot Institute. His flight was delayed today. He’ll be joining us maybe in 10 minutes or so. So I am just giving this introduction. And today we’re going to talk about a topic that affects everyone in the state.
Hawaii’s Employees’ Retirement System services over 135,000 members across the state. We’re talking about government workers and taxpayers contribute money into the retirement system to ensure that state retirees get the retirement that was promised to them. Unfortunately, there is this crisis situation, which is that the pension system has an unfunded liability of $12 billion.
Grassroot has talked a lot about this problem, but there is one man who is trying to help fix the crisis situation in Hawaii, and make good on the promises to public workers: Thom Williams is the executive director of the Employees’ Retirement System of the state of Hawaii. Mr. Williams came to Hawaii in 2015, I believe, and previously he was the executive director of the Wyoming Retirement System. So I want you to welcome Mr. Thom Williams. [applause]
Thom Williams: Well, thank you very much, Joe. I’m afraid to touch the mic because you indicated it was little warm, a little “hot.” But in any case, one of the ways I propose we address this $12 billion unfunded liability is start passing around the plate. (Laughter) So for those of you who are members of the system, it’s a small contribution, but we’ll invest it wisely. No, that really won’t work. But, look, I’m really delighted for the invitation to be here by Keli‘i Akina and the Grassroot Institute, Joe in particular.
We’ve talked on a number of occasions about their interest in getting an update on the status of the Employees’ Retirement System.
As was suggested, I’ve had a little bit of experience in the context of public pension plans. I worked for a couple, almost three decades, with the world’s largest private pension fund, TIAA-CREF, for colleges and universities, and managed most of their operations across the U.S. I spent some time developing real estate, and when the real estate markets went crazy in 2008-2009, I decided to get back into the pension business, and I had actually semi-retired and I had an opportunity to manage the assets for the Wyoming Retirement System. It’s about a $7½ billion fund. I did that for about five years, in fact, and sort of semi-retired again.
Then I wasn’t really enjoying myself terribly being semi-retired, and an opportunity arose here. It was really happenstance. I was cleaning out my office, I had these pension and investment magazines, and I had accrued about three or four of them, but I felt an obligation to go through them before I recycled them. I was going through them very, very rapidly, and I passed this ad for the executive director here. And I actually have a young daughter who when I mentioned that Hawaii was an opportunity I couldn’t turn back at that juncture because she began to tell all of my neighbors that we were moving, and I hadn’t even applied. But that’s the way it works.
Again, the title, “Crisis averted.” You know, I think we have, in fact, averted a crisis here in Hawaii, but there is also a crisis more significantly around the nation as it relates (not only) to the management of these public retirement programs, but the availability of retirement plans in general, even in the private sector.
Now we averted our crisis here, I think, in a number of different ways. Back in 2012, I believe, there was an effort at pension reform.
We established a so-called new tier benefit, so that employees — new hires in the state — get lesser benefits, a lower multiplier, if you will. They contribute more to the system.
It takes longer for them to vest,. For example, most state employees vested after five years new employees vest after 10 years in the system. That’s a big move to address the unfunded liability going forward, but it does little if anything to address the existing unfunded liability, because that’s made based on the promises that have been made to the existing employees.
And so nothing changed for the existing employees; they continue to accrue benefits at the pre-reform rates, and that’s going to continue to filter through, flow through the system for the next 40, 50, 60 years or more as people retire and live for a very, very long time here in Hawaii, the highest longevity of any state in the nation by far. So that impacts our pension payout significantly.
But that change was important, and more recently, I guess a year ago, the organization assumed new, more conservative investment-return assumptions. You know, pension plans had been assuming they’d get 7, 8 percent, 9 percent a year, and that’s been gradually coming down. We lowered our earnings assumption in a conservative way to about 7 percent.
We think it’s realistic, but it results in about a 50/50 chance that you’re going to make it, which in terms of probabilities is not a really bad one, but everything has to go right in order for us to be out of the woods as it relates to these unfunded liabilities and to address them.
And so we can talk a little bit down in the program about some of the things that are available to us for discussion. These are not recommendations, but I’ll reflect and share with you some of the things that other funds are engaged in, because all around the country, these public pension funds have experience some of the same circumstance, some of the same hardship, because they were immature plans; they had assets that exceeded liabilities; it was fairly easy to invest the money — you can invest in bonds, and you could achieve a 7 or 8 percent return; it’s significantly more difficult to accomplish that today, and I’ve got some slides that will show you why that’s the case.
But, you know, while it is costly to fund these retirement programs, they do create a significant benefit, and we’ll talk about that as well.
We, I think, take in about $975 million a year, in terms of contributions between employers and employees; we pay out about $1.3 billion in benefits to our members. So, what that translates to is that for every dollar in benefits that we pay, about 60 to 70 percent of those dollars come from the investment earnings.
So contributions are important, but it’s the earnings on those contributions over protracted periods — 10, 15, 20, 30 years — that really generates the majority of the benefit payment.
And it has a very positive effect throughout the entire economy, and it creates stability in the economy, even during in down periods. So when there are recessions, what you’ll find is that these public pension plans continue to provide reliable benefits, sustain and support in the economic growth.
And of course, the role that they play in the context of financial security for the members can not be understated. It’s so vitally important, as I understand it, because, you know, the vast majority of working Americans today don’t have pensions.
I think 45 percent of all Americans, all workers have zero, nothing saved for retirement. Another third of workers have indicated that they’d have to take a loan if they experienced an unexpected expense of $200 a month — actually, just have to take a loan, and there are awful lot of statistics in support of this. And the workers are living, actually, day to day.
So I think it’s important for us to provide these public pension plans because it’s an efficient way of delivering these benefits, and we can talk about why it is efficient and how it is efficient. But at some point, we all pay. You can pay to increase social services and health and, you know, drains on Medicare and Medicaid and hospitals for the uninsured. It’s no way … real way to get around this.
Historically, there were these three important components of a retirement fund:
>> That was Social Security to generate about a third.
>> The public pension or the private pension, if you will, was to generate another third.
>> And then, of course, your personal savings. And it’s very difficult for folks to set aside moneys and personal savings when wages are stagnant, and you’re in a place with such a significant cost of living as it is in Hawaii.
Social Security is not intended to provide a significant portion, just a third for lower-income workers, and the private pension is the real core.
And the private pension for most non-public workers has gone away. Most profit-making entities don’t offer pension plans anymore. They’ve done away with the DB (defined benefit) plans; they’ve gone to defined contribution of 401(K) plans. There’s a lot of data that suggest that those have proven inadequate to provide meaningful levels of retirement income and retirement. So I think that that’s a crisis that is rolling down the track, and that as more and more working Americans approach retirement without any income or adequate income to support them and their beneficiaries, we’re going to have some significant challenges across the country.
But I do want to say, having worked with Dr. Akina and Joe Kent and his colleagues, I’m delighted to be here. I don’t want this to be entirely a dissertation from me. I know that there are some questions that many of you have, and I would encourage you to ask those as we go through the process.
I sort of mentioned — and Joe mentioned some of this in the context of the program itself:
It was established in 1925. We’ve had eight trustees; four of them are elected by our membership, and, in fact, there is a trustee election going on right now. There are three candidates that were nominated by various employer groups, the unions in particular, and there’s some information, a modest amount of information on those candidates in the newsletter that I have copies of available here. It’s called Holomua. It’s the quarterly newsletter that we publish. But it’s here and it has some profiles of some of the members.
And it also has an interesting article on the Ka‘anapali Golf Course, because I’m here to begin some discussions, at least, direct discussions on behalf of the ERS with stakeholders here in Maui who are concerned about the possible redevelopment of that particular project.
But … Let’s see what happened to my … Yes, let’s see here; I think we can use the slides here. …
We were talking about the 135,000 members; that’s about 9 percent of the population here. And I think when you consider the average family size is about 2.8 — I just round it up to 3 — we’re at least about, you know, almost a quarter of the population is directly impacted by the ERS benefits; they’re in households that actually receive those benefits. So, again, a big impact across the state.
The economic benefits, each dollar paid out in pension benefits, there’s a multiplier effect; each dollar ends up generating at least a dollar and 28 cents in total output. And we show here in the bottom bullet, each dollar invested by Hawaii taxpayers who put in a dollar, you get this $4.35 out, and that relates primarily to the impact on the economies as well as the impact on those investment earnings.
Assets of last year, June 30 of 2016, we had an accrued liability, $27.4 billion, and that’s the total of all of the commitments that we made, the promises that we’ve made for services that our membership has rendered. And then of course, we’re to have moneys, assets, to pay those liabilities, and, of course, there’s a mismatch right there because we had $14.9 billion in assets; it’s now about $16 billion because of positive market performance.
But back as of June 30 of our fiscal year, we had an unfunded liability of $12.4 billion, and that’s fairly substantial, at least, as with the funded ratio of 54.7 percent, and that’s not healthy. Healthy pension plans are generally viewed to be about 80 percent funded and moving forward. You can move around that number a little bit, but once you get in the 60 percent range and below, it becomes dicey, because we are a mature plan, as I said; we pay out more in benefits than we’re receiving in contributions, and that puts pressure on investments, and, of course, that results in this liability-asset mismatch.
Expected investment return: We lowered that, as I alluded to moments ago, from 7.55 percent down to 7, and that was one of the major reasons for the increase in the unfunded liability, because we had a lower discount rate. It means that the investments grow at a lower pace, if you will. The liabilities are the liabilities, because they grow based on the years of service and the payroll and all of that.
But this assumed investment return changed, resulting about $2 billion increase in the unfunded liability. There was also an additional $2 billion increase resulting from mortality improvements, because we looked at actual mortality statistics for our membership here in Hawaii, and we know that they live longer than any state or any population in the U.S., by far — 2½, 3½ years in some instances, and women tended to live a little bit longer than the men.
Joe Kent: I just want to help break it down for everyone and for myself. You’re talking about factors that contributed to the unfunded liability, and you’re saying that the people are living longer, and that contributes to the unfunded liability, and also the [unintelligible] — is that right?
Thom Williams: Yes, it’s absolutely right. We start with an assumption that you’re going to have X amount of dollars in benefits, and that we’re going to pay those out for a specific, predictable number of years, and those numbers of years of payouts get increased. And we’ve now adopted new dynamic mortality tables that you don’t just look at every five or 10 years, they have increases built in them every year. And we call them, again, dynamic multi-general mortality tables.
So, yes, the increase in mortality, longevity means we pay benefits for longer than we had anticipated, and that increases the liability.
It’s going to be difficult for you to see (chart) because I’m standing up here, and I can hardly see it, but this is the investment results. We said for the fiscal year ending June 30th. What we see here, of course, is that we had a 13.4 percent return for the fiscal year, which was very, very good. It exceeded our peers and our policy benchmarks.
And you can see here the returns for the one, three, five-year and 10 years. One year 13.4; three 5.5; five-year, 9.2 — the five-year exceeds the 7 percent — but the 10-year was only 5.3, and that’s particularly end-point sensitive because it incorporated the great financial crisis in 2008-2009. After 2018 or so, that’ll drop off, and you’ll see much improved numbers. But we’ve been doing pretty well.
I alluded to this slide a little bit earlier, about the increasing complexity of the investment program. It’s, again, probably difficult for you to see. But what this shows is 1995 in the left column, the center is 2005 and then 2015. So if you had an expected return of 7.5 percent — it’s shown down here at the bottom, the 7.5 percent return — in 1995 you could have accomplished that with just bonds. You didn’t have to take very much risks at all. You could have used governmental and corporate bonds. Simple.
But by 2005, in order to achieve that 7.5 percent, you have to end up with a more complex plan. You had U.S. large cap stocks, small cap, global equities, real estate, private equity, and at those particular ratios. But importantly, what you have to observe as well, is the standard deviation, which is that bottom line, is the measure of risk; it went from 6 percent to 8.9 percent over that 10-year period. So it’s a more complex mix of assets in order to achieve a return, and you’re introducing more risks to the plan.
In 2015, you can see appreciably more complex to achieve that 7.5 percent return, and the volatility is now three times. It’s now 17.2 percent.
Audience member: Could you explain why that standard deviation number is an indicator of risk?
Thom Williams: Well, it supposedly relates to volatility of returns. You’re looking at the returns, the standard ratio of certain types of strategies to others. So volatility is the classic measure of risk, the volatility and the return.
So the volatility and the return of bonds is fairly low because the return differential doesn’t range so terribly much. But as you can get to equities, it gets higher, so there’s more risks. And then the more complex equities, when you get into private equities, these other types of investments, it introduces even more volatility, i.e, more risks.
So the riskiness of the plan had necessarily — not because you wanted to introduce risk, but in order to achieve a given return, you had to create this level of portfolio structure — so it requires expertise and the contacts of our investment professionals and our managers that wouldn’t have been required, say, 15 years prior.
Audience member: Can I just — one word, because I really want to understand the slide. You’re saying that in 1995, it was 100 percent bonds?
Thom Williams: No, no, no. It was 100 percent … Oh, yes, 1995. Not our program was. I’m suggesting that you could have achieved a 7.5 percent return with just bonds, in 1995. So I don’t know what our portfolio consisted of in 1995. But I know we were closed to being fully funded. We were closer to like 96 percent funded as opposed to the 54.7 percent that we are at today.
And this (slide) shows the growth in the actuarial accrued liability from 2005 through 2016. It was $4 billion back in 2005, and you can look at some events like 2009 and the liability went up dramatically to $8 billion, $8.2 (billion). And then with the changes that were made in the investment assumptions and the like, it went to 12.4 in 2016. And the funded ratio did the opposite. So the liabilities are going up, the funded ratio declined, from where back in 1997 it looks like we’re about 91-90. In 2000, we’re about 94-95 percent funded. And now, today, we are at 54.7 percent funded.
And part of the reason for this significant liability relates to the failure of the Legislator to make contributions that were required to the plan. Moneys — when we earned, or the plan earned, returns in excess of the assumed — they were diverted to the general fund. So that was to the tune of about $1.7 billion over a 32-year period. An actuarial study has suggested if we hadn’t done that, we’d be close to full funding, even today, even after the great financial crisis, but you can’t un-ring that bell.
Audience member: The previous slide said billion but on that slide, it said millions.
Thom Williams: This slide?
Audience member: Yes.
Thom Williams: Yes, this, well if it is says millions, these are billions.
Audience member: OK.
Thom Williams: These are actually billions of dollars of unfunded liability.
Audience member: I’m having a hard time understanding the accrued liability because 135,000 is about a million of $12 billion. Are you saying that each retiree is going to consume almost a million dollars?
Thom Williams: I’d say yes.
Audience member: Really?
Thom Williams: Absolutely. You mean pay a retiree a benefit. on average — I think the average benefit is about $28,000 a year. And our retirees are living 35 and more years in retirement, and that’s just the average. We have benefits that are $120,000 a year and more. So the average is sort of a low-ball estimate, quite frankly.
But yes, the liability is very accurately calculated based on our actual membership, and it’s changed every year based on the actual payroll growth, the extra years of services they’ve accrued. So, I wish it were not the case, but it is.
Employer contribution rates: I mentioned that the crisis was averted in part by an increase in contributions. That increase in the unfunded liability changed our funded date, the time to full funding, from 30 years, which the Legislature mandates that it has to be a minimum of 30 years, can’t exceed it, it went to 66 years. So what happens, we go to the Legislature and it says, “What do you need in order to get it back to within a 30-year of funding time-frame?” And that was contribution increases that will change the general employee increases from 17 percent to 24 percent.
Let’s say over a four-year period they’re being phased in, but that’s a 42 percent, I think, increase in general employer-paid contributions, so the employers paying this. So it went from 17 to 24 percent over this four-year period that’s being phased in.
And police and fire have a contribution that went from 24 percent — 25 percent, actually — to 41 percent, a 65 percent increase.
Joe Kent: When you say employer, you’re talking about technically the police department employer, or Maui County the employer, or this individual, this man is paying more?
Thom Williams: Well, the employer in this instance is all of the cities and the counties and the state. The employee contribution was not increased under the legislation. That was a decision that the Legislature made.
Many programs have increased the participation level of employees. They require a little more contribution share in the cost of the funding, the unfunded liability. In this instance, the state just laid that burden, if you will, on the employers, but it’s all state employees, all city and county, Honolulu, Maui, all of state and city and county workers.
This is a massive, massive increase. When you think 42, 65 percent, if you think about the impact of that level of increase on your household, if your expenses had gone up by that amount of money, how would you handle it? Obviously, it’s necessary in order to address this unfunded liability, but at the same time, we know over time it really crowds out other goods and social services that are required, whether it’s education or roads or hospitals, or you name it. There are limited revenues available, and these are commitments that have been made and need to be paid. But when you’ve missed a number of those payments, this is the dramatic impact that it has, is you have to make it up by increased contributions later on.
Audience member: Why is the fire and police increased at a higher rate?
Thom Williams: Well, the police and fire increased at a higher rate because we account for their liabilities separately. They have a separate plan, quite frankly. They have a different benefit multiplier; they can retire at an earlier age. I think historically the police and fire were presumed to be able to work literally no more than, say, age 50, 55, but due to increases in safety equipment and other practices, the police and firemen are living significantly longer, but it’s a benefit formula. They get more benefits, and therefore, it costs more to provide those benefits for police and fire.
Also, we can talk a little bit about elements that are incorporated into compensations. Some of it’s, like, overtime, and so police and fire tend to accrue more overtime than other groups of employees, and so that, too, can add to their increased pension costs.
Audience member: Don’t the police and fire contribute more and the employees contribute more?
Thom Williams: The employees contribute more, and the employers contribute more. But we didn’t, or the Legislature didn’t, change the employee contribution this time out; they changed only the employer contributions.
This (slide) was a projection back in 2016, when I told you our unfunded liability was going to go off the charts, and it would take 66 years in order to fully amortize it. The top line shows what the unfunded liability from 12.4 (percent), and how it would have grown into 2051 to over $45 billion, quite frankly. But with the contribution increase, the bottom line shows you how that unfunded liability will continue to grow for several years, but then begin to decline, and it should be fully funded by 2046. And that’s the power of the contribution increase.
Audience member: As I understand it, the Legislature took money from the Employees’ Retirement System two times, and they were never asked to return it. Why was that? Is that the reason for the unfunded liability reaching out to 66 years?
Thom Williams: Well, the unfunded liability … The numbers of occasions on which the Legislature diverted money that would have been in the fund, I’m unsure of. I think it’s actually more than two. I think that I was told that it was over a 37-year period. And there were different sums each year because, for example, if the fund had assumed 8 percent return, if it earned 10 percent, that 10 percent would not be contributed to the fund in the next year. They would reduce their required contribution by that excess. So there was never a cushion created in the assets of the plan. So when there is a downturn in the market, you had no cushion because assets go up and down. But if you take out all of the ups, you create more likelihood of downturns in the market. So, yeah, I don’t know how many times that happened, but that;s the history as I’m told, that it happened a number of times.
This (slide) is the impact of the higher contribution rates, the lower line if we didn’t get the contribution rates and how it impacts the funding level.
The upper line is with the new contribution rates, again, showing in 2041 that we’d be near full funding, and that the normal cost then applies. That’s about 9 percent. So employer and employee costs will go down dramatically once the unfunded liability is addressed.
This (slide) is the statutory employer rate. I believe for both the — yeah, this is just for the combined statutory employer rate for all employees, as well as the so-called normal cost, and if we weren’t funding an unfunded liability, the lower green bar is what the contribution levels would be today. And that’s what they would be in 2042, it’s down about 5 or 6 percent. But the increase that we see now is related to those unfunded liabilities.
Combined liabilities: A gentleman had asked earlier about the medical plan. We’re not part of nor are we responsible for the liabilities of the medical plan; that’s the employer union trust, the UTF. But they’re a big state entity and they, too, have unfunded liabilities.
We have actuarial accrued liabilities of $27 billion, they have $13 billion, combined $40 billion for the state. Assets, we had $15 billion, approximately. They have$1 billion.
So $16 billion in assets to offset $40 billion in liabilities, underfunded actuarial liabilities $24.6 billion, and a 39.6 percent combined funded ratio for those two plans.
They’re not combined in any way. The ERS is 54 (percent funded), and obviously the EUTF is only 8.5 percent funded.
So, combined contribution rates, this is what the contribution rates look like if you add the retirement plan and the health insurance plan, and those contributions are very, very — Hello, doctor, good to see you. Thank you for joining us — and, as you can see, these contribution levels are at or above 50 percent, and they stay that way until 2045, 2046.
And, again, it’s difficult to know whether state revenues are going to be able to keep up with the level of unfunded liabilities, because the revenue, I think is, and I’m no revenue expert, but I know there’s been some concern expressed as to whether the expected increase in revenues will be able to keep pace with the growth in the unfunded liabilities.
Crisis averted: This is sort of a “stop light” graphic that tends to show when plans are in trouble. And our program, as I would think, is right in the middle. We’re in the caution area.
We think we’ve make the kind of adjustments that are going to lead to the full funding, but it requires, as I said a little earlier, for a lot of things to go right.
We have to have investment markets that deliver to us over this protracted period a 7 percent return. And we’ve have an extraordinary period of market growth, a bull market, for the last 10 or so years.
There’s an inevitable business cycle and a downturn that’s going to occur. When we don’t earn as much as we propose, liabilities go up. So they fluctuate. But we’re taking some steps in terms of the investment program to reduce that risk in the program, and I can talk about that.
But, it shows that, the green light here, that if you’re 80 to 100 percent fully funded, you’re in pretty safe position, quite frankly. But, if you’re in the zero to 20 percent range, you’re essentially in a pay as you go. You really don’t have any assets to cover your unfunded liabilities, and, of course, then there is the range in between. We’re right there in the middle, but moving toward green if everything goes the way we hope.
I mentioned a new tier of benefit. These are some things that I’m not recommending, but other plans around the country look at.
Lower benefit multipliers, we did that for new employees. Sometimes plans are doing that for existing employees. It can occur in some jurisdictions, not in others, because I think in Hawaii benefits are constitutionally guaranteed. There’s a non-impairment clause as it relates to service already rendered.
Now, the question arises as to whether you can change things for service going forward. That hasn’t been tested here. No one has asked that particular question, but that’s one of the ways that many plans around the country who find themselves in difficult positions address the unfunded liability.
And to the extent that the Legislature and others want to talk about these and other ideas, our board is interested in having that conversation. But it really will involve the entirety of the stakeholders — the employees, the unions, the Legislature, and we want input from all.
Higher vesting and age requirements: We mentioned those as taking place already; for new hires, higher member contributions. We increase demployer, but not employee contributions. That’s an option for some plans, and as one for ours, should it be elected.
Post-retirement benefits: I think many of you know that we have post-retirement adjustments that retirees get. I think in the older plan, about 2.5 percent in benefit increase each year in retirement. That’s a very costly benefit. A lot of programs have reduced that or tied the payment of these cost of living adjustments to the health of the plan, so if the plans got solid funding, they pay the benefits out. If they don’t have solid funding, they hold back, and it’s called gain sharing or risk sharing.
But, again, that’s not a part of our program today.
But one of the things we wanted to talk about, and the Grassroot Institute asked me, is to say, what are other funds doing? What are some other programs doing to mitigate the risk of the plan that’s represented by this unfunded liability?
And for our payments for pensions spiking, I think we just talk about overtime being used as a compensation component. Well, one of the big problems is we assume what your salary is going to be, and we think it’s going to grow at 3-3½ percent a year, but then what we find is that in the last couple or three years of a person’s employment, maybe it increases 25 percent or 30 percent as a result of overtime. Then that benefit, which is based on your highest three years average salary, is dramatically higher than it would have otherwise been, and we haven’t funded for it. So that, too, adds substantially to the unfunded liability.
Now, there was an effort, and is an effort in place, to eliminate overtime in the context of this new generation of workers after 2012. But it still exists for the earlier generation of workers.
Now, we try to put in a spiking fee so when there are these egregious levels of spiking, we charge the employer, the intent is to discourage the support for pension spiking. But there still is a considerable amount of it that goes on, and spiking below the threshold level is not reimbursed, is not compensated by the fund. So that’s also a source of liabilities for the program.
Overtime included in compensation: Also, I think one of the features of our plan is we allow sick leave, annual sick leave, to be converted to service.
Many programs do or don’t employ that level of conversion, because the state has paid for that benefit in the first sense, and then you get to convert it from sick leave into a lifetime income with the state and the fund making a guarantee of those benefits for the rest of their life.
Plan design changes: We talked about compensation, average final compensation; there’s annual sick leave, post-retirement, these are all things that we’ve just talked about. Dissociation cost is the last item there. That perhaps has some relevance for you here in Maui, because there was a hospital privatization, I believe.
Kaiser took over the management of a couple of the island’s hospitals. Those employees, 1,500 employees approximate were members of the ERS. And they’re making contributions into the system, and those contributions go to pay toward the unfunded liability in the benefits for new hires and the like. The loss of those people left us with about a $280 million increase in our unfunded liability, because it took people out of the system who would have been contributing toward the unfunded liability.
So one of the things that we attempt to do is to communicate the entire cost of legislative changes to the Legislature, so that when they’re looking at the value of a particular activity, whether it’s privatization, that they look at the impacts not only in terms of operating cost, but the impacts to the pension fund as well.
There is a moratorium on benefits that’s been in place for a number of years. In fact, the Legislature passed a law that said there would be no increases in benefits until the ERS is fully funded. But that hasn’t been strictly adhered to. There are a number of ways in which I have observed, and others have observed, small increases in benefits for different groups of employees — cancer presumptions, or expanded cancer presumptions, and quite a few others. But if we’re going to stabilize the fund, we’ve got to be serious about not increasing benefits, because every increase in benefit comes with a corresponding increase in liability and contribution requirements. So we encourage compliance with the statute as it’s currently written.
Some administrative initiatives that we’re talking about are related to the budget and the investment staff: For the most part, I don’t believe that we’ve got a lot of capacity to increase contributions beyond where we are. The benefits are what the benefits are.
I mentioned investment earnings as playing a key role. I think we need to invest a bit in our investment team and its capacity, because it has an outside impact on the returns of the fund. It’s demonstrated that one of the greatest risks to achieving the full funding is the attraction and retention of qualified investment staff. Particularly that’s important with the complexity of the investment environment that I showed you, that has changed from 1995 through 2015 and is expected to get even more complex going forward.
Joe Kent: Well, I want you to give time for people to ask questions as well. But first, I want to introduce Dr. Keli‘i Akina. He is the president and CEO of the Grassroot Institute and trustee-at-large in the Office of Hawaiian Affairs, and he’ll take us through some key issues.
Thom Williams: Yes. Good. Thank you.
Joe Kent: Let’s give Thom a round of applause. [applause]
Thom Williams: All right. Thank you, guys.
Keli‘i Akina: Keli‘i, thank you.
Thom Williams: Really, thank you.
Keli‘i Akina: We are sorry to cut you off their time.
Thom Williams: No, not at all.
Keli‘i Akina: We’ll let you finish up what you had left to say a little bit. But, everyone, Thomas Williams has done a wonderful job in his role coming into the ERS and leading it, and we’re delighted that he is willing to work with us here at the Grassroot Institute. Thank you for your presentation, we appreciate it.
Thom Williams: My pleasure.
Keli‘i Akina: In a moment or two I’ll let you have that and ask any questions you want of him about the ERS. First, let me say a couple of things. I hope that you can understand how important it is to fight for good government, and we are in this process together. I want to point out that Joe Kent is your director here on the island of Maui for Grassroot Institute. Give him a hand.
Thanks for putting this thing … [Applause] And on staff, Sean Mitsui over here, whom you may have met at the door. We appreciate that. [Applause]
Thom and everybody, I apologize for being late. This is one of those rare occasions where Hawaiian Airlines was late. About almost two hours my plane was delayed due to this weather. Certainly, Thom, I think you and I are going back together tonight. If not, one of these fine folks here will probably put us up.
Thom WIlliams: Thank you. Good. I look forward.
Keli‘i Akina: Our attention to the ERS has been long at the Grassroot Institute. We’ve been concerned about the quality of our state government budget. One of the things that has been a great deal of our research has been the unfunded liabilities. I was very pleased that Thom had followed our research and was aware of some of the things we’ve done in terms of the gaming that goes on in terms of pensions. And when we sat down together in his office on Oahu, I just sensed a real openness as a government servant. He was really transparent, really willing to talk about it and I learned a lot from him. So I want to encourage you to ask whatever questions you’d care to ask of Thom. Thom, I welcome you back up here. And I’m going to start by asking you a question.
Thom WIlliams: Indeed, please.
Keli‘i Akina: We had an interesting conversation. We don’t fill rooms like we did tonight here with boring titles. So at first, I thought of saying you’ll come here tonight and talk about our pension system from crisis — which is always a good word to get people to come — from crisis to solutions, and that echoes the fact that we pointed out that we were in a situation of $12 billion of unfunded liabilities. But you had a better insight. You said, “You know, maybe it’s not from crisis to solution, but crisis averted.” I wonder if you can explain that.
Thom WIlliams: Yeah, I actually talked a little bit about this at the beginning of my commentary, and suggested that, absent the changes that took place in 2012 — the creation of a new tiered benefit, a less generous tier of benefits, as well as the contribution increases, the lowered assumed investment return and the more conservative mortality assumptions that were adopted a year ago — those are the things that put our plan on a footing toward full funding.
It’s not a guarantee that we’ll get there but if everything goes as actually planned, and as investments are scheduled to generate, then those are the things that will fully fund us over time. Those are the things that will avert the crisis. But I think again, I mentioned that there is a crisis, a larger one, and that relates to the national absence of savings for retirement. That one hasn’t been averted and it may be getting worse, in fact.
Keli‘i Akina: Thank you. I’ll ask one more question as you get yourselves ready. A lot of times we think of the ERS kind of the way we think of universities. Many people think what funds universities is the tuition money that goes in. Sometimes people think that what funds the pension system is the contributions of the employees that go in. And they certainly do to some extent. But one of the things that I enjoyed talking with Thomas about in his office was another aspect that really funds the benefits.
The vast majority of benefits — and he made some reference to this — is paid for by the earnings of the trust fund. The money goes into a trust that is managed, and that trust pays for about 70+ percent of all the benefits.
When we realize that, we have a totally different view of what the ERS is. The ERS is not just a piggy-bank into what you put money and then you break it someday in order to get money. What this means is that we may have a means of being able to enhance the power of this ERS and overcome the unfunded liabilities, if we can improve the investment capacity.
But one of the interesting things that Thomas shared with me is that our legislators don’t always see it that way. And sometimes the plea for more workers to handle the investments and so forth, they’re seen as perhaps overhead.
Thom, I wonder if you’d address a bit the investment potential of the ERS, if we have the resources to really build it.
Thom Williams: Yeah, thank you for that intro. I think everything that Keli‘i has commented, I echo entirely. It is fairly common around the country that legislators who oversee public pension plans often times view them almost like any other state agencies. They look at all state agencies as relative consumers of revenue — their resources, fiscal resources — and the agencies eat more than they returned in some respects. So most have a view of the agencies, whether they’re health care or otherwise, to try to contain the cost of those and limit the growth in those particular assets.
But the ERS is a net contributor. We produce money. We obviously bring money in and we invest it, but we generate significantly more than we bring in, in terms of those investment results. And as the doctor suggested, 65, 70 percent of every benefit dollar we pay comes from those investments.
It wasn’t so many years ago the ERS had no investment professionals internal. The decisions were made primarily by external consultants and the executive director, and they did a good job because it wasn’t that complicated back then. You could do all bonds and you could really get the return. But over time, that challenge has grown significantly more complex.
We’ve grown our staff, but it’s really, in my own mind, under-resourced in terms of its opportunities. Because there is technology, there is data, there’s information that if our people are able to better employ it in the decisions they make, in the selection of managers, in the diversification of our portfolio, in the purchase and sale of assets, it can accrue to the benefit of the fund.
But it requires the system to be viewed as an entity into which you want to invest money, because you’re going to get a return on that investment, as opposed to viewing it primarily as a net consumer of state resources.
Keli‘i Akina: Right. That’s good news, because you have greater capacity to overcome the unfunded liabilities. if we develop our investment side.
Now before I open it up the questions, how many of you are members of the ERS? Fantastic. You’re invested stakeholders and even if you’re not, you’re a stakeholder in case it doesn’t go right. [Laughter]
Who’d like to ask a question? Go ahead and just raise your hand. Yes. If you just stand up and shout your name out.
Tamara: Aloha, I’m Tamara.
Keli‘i Akina: Tamara. Aloha.
Tamara: Aloha. I know we talked about this earlier, but I just was wondering if this $343 million number, and you might not know the answer right now, but is that a representative of the 7 percent that you said that we need a minimum of for this, on the development?
Thom Williams: Well, let me try to …
Keli‘i Akina: Thom, use the mic.
Thom Williams: Yes. Let me try to put this into context. There’s a news article, of which we have a quarterly newsletter, there are some copies available to you. There is a golf course that the ERS owns, Royal Ka‘anapali Golf Course. It was not an intentional investment of the ERS. It was actually acquired in foreclosure, as I understand it. It was collateral, that when there was this foreclosure we got a golf course.
We have held on it for a number of years, and we’ve been, we think, good stewards of it. But one of our challenges is to invest all of our monies in the best interests of our members and beneficiaries. And to that end, we are beginning to explore options as to the revitalization or redevelopment of Ka‘anapali.
That’s evoked understandably a great deal of interest on behalf of the neighbors and the community in the island more broadly. I really support that, and we want to create a dialogue.
In the article that has been alluded to by Tamara, is a $343 million figure that some have suggested is the value, if you will, of the entire development when it was completed; that it would create value of $340 million or cost approximately that much. That’s not an accurate figure because we haven’t finished any development plans at all, and the ERS has not invested any of its assets in the redevelopment of Ka‘anapali apart from investments in some consulting services and efforts to create an environmental impact statement and, I think, the necessary permitting so that we can move forward with the process.
But one of the things that I’ve conveyed tonight is a strong willingness on behalf of ERS to be on the ground here and to listen to, and be a part of this dialogue as it relates to the challenges that this opportunity represents for members here and some not represented here. We’re very interested in having that dialogue, and we’ve got a couple of folks here, Gwen Rivera and Micheal Munikio, who are local and consultants to the ERS as relates to the project. I hope you will have an opportunity — they are here when I’m not — to convey your concerns, your thoughts, your questions to them.
There is a regular communication, I think weekly conference calls, and we have a November 3rd meeting on Oahu that we’re going to be updated again on these things.
But that’s a number if, in fact, the entire development were to be created, or finished as proposed there, with housing and retail and golf club and a number of other amenities, that it might cost as much as that, but we’re not spending anything like that.
Keli‘i Akina: I think you have a quick follow-up. Go ahead.
Tamara: So if this is the number, do you know the 7 percent number, or would you get back to us when the 7 percent …
Thom Williams: Oh, the 7 percent is our assumed investment return, that underlies our financing of the system. The funding and the liabilities, in order to figure out what we owe and how much we’ve made, we start off with an assumption, and we assume that we are going to earn 7 percent. So the 7 percent has nothing to do with that number there. That is detached from … has no relationship to the Ka‘anapali Golf Course. That’s the entirety.
Tamara: Do you know how much money that you need to make to be fiduciarily responsible to meet the ERS numbers?
Thom Williams: Well, OK, generally, one has to achieve its assumed return. We try to invest,in broad, with a variety of instruments, that collectively will generate that 7 percent, if not a bit more than that. So, if we are earning nothing on an investment, it’s not really good for the fund, it’s not helping the fund at all, and it really helps the fund most precisely if we earn 7 percent or more on it. Anything less, we’ve less we’ve undershot our assumptions. Anything more, we’ve met our assumptions and maybe even a little bit over.
Keli‘i Akina: Very good. I think there was a question next to Tamara, back there, earlier. Over here, yes. Go ahead and shout out your name.
Pam: I want to follow-up what Tamara said. My name is Pam.
Joe: Thank you. Hi Pam.
Pam: I think you said in the beginning — thank you so much for coming, that you have a $1.3 billion payout per year, something like that.
Thom: Yes. In benefits.
Pam: My question is, and it leads into my real question, is if 7 percent of that is whatever, and that is what we need to have to be responsible for the ERS people, whatever that amount is, my question with regards to golf course development, what a lot of people don’t know and understand is that it still needs to go through a change in zoning, it’s still got to go through an EIS (environmental impact statement), it still got to go through community planning members. There’s a lot of processes it’s got to go through … As a result of all those things, you may not have what you think you are going to get. It may go from here to Mr. Hollywood developer, down to here. So if at that point in time, there must be a point in time when you see it’s not just economically feasible. So then what happens? That would be my question.
Thom Williams: Well, that is a very, very good question, and in fact, you’re absolutely right. We don’t know what we’re going to get. I believe the pursuit of this process is an effort to establish a sense of value — value for the land, undeveloped as it is today, or with these amenities. Again, because the nature of those amenities hasn’t really been fully established yet, that number is moving all the time. And so there are assumptions that underlie what you think you are going to get for housing, or retail, but those are all assumptions and you don’t know, until after — in some instances until you’ve invested the money — that it’s going to be realized. But we try to reduce that uncertainty by the process of underwriting the investment.
Pam: I think what I’m trying to get to is that, because of the regulations that these project still needs to go through, you may not get that housing.
Thom Williams: Indeed, that may be true.
Pam: At that point, do you reach a point where, “Maybe this not be a good idea, this development?” Or it’s just something else?
Thom Williams: Well, I think that one has to look at alternatives. We don’t have blinders on and say this is what we’ve got to do in order to make this thing work. If we can’t make a reasonable return on these investments, then I think the board has to make decisions as to, “Do we retain it? Do we continue to invest money and the maintenance of it, if it’s … perhaps, let’s just say, it’s not making money. Would those monies be deployed better somewhere else? I don’t know. Those are the kind of decisions that inevitably get made as we go through this process. But we don’t have this sense that we will develop this project hell or high water. [Laughs] You know, it has to be reasonable and it has to provide a return to beneficiaries, to our members, and if it doesn’t do that, then we can’t pursue it.
Keli‘i Akina: We’ll go to, I think this gentleman had his hand up, in just a second, but I just want to comment before you ask your question. Thom is pointing out one of the difficulties in managing assets for a fiduciary that needs to do it for the sake of the beneficiaries. And he’s absolutely right. That is what should be happening constitutionally. But unfortunately, he lives in a political world. You know that.
Thom Williams: Indeed. [Laughs]
Keli‘i Akina: We have legislators and we have other stakeholders who weigh-in with a value structure. Sometimes it’s not easy, in any trust situation, to do what is purely for the sake of the beneficiaries, because there’s so many voices, and you are all stakeholders and understand that.
Sir, go ahead, tell us your name.
Gary: I’m Gary Weiss. I’m a 15-year full-time resident on Maui. I just have two questions.
Keli‘i Akina: OK, Gary. Go ahead.
Gary Weiss: First of all, is ERS and the board fully aware of the scope of opposition to the Ka‘anapali project? I personally and many people I know have sent emails, starting over a year ago before we first heard about it; never got any responses. We never hear anything from Honolulu. There is widespread opposition to this project on the west side. There’s been multiple standing-room-only events where all you hear is opposition.
The opposition is occurring in every wake of society, in 20-year-olds and members of the New Club, to 80-year-old retirees. I have two questions. The first is, how much does ERS know that? And I’m asking that because there’s a mainland company that’s been going around talking to different groups, creating a divisive environment, because playing different groups against each other, promising people this is what they’re going to support and not promising that.
So it’s an incredibly divisive process that we’re going through. And for insured resort, there really doesn’t need anymore concrete. Recently, there’s been a multi-fatality accidents because of the traffic on the other side. All the traffic was diverted through Ka‘anapali.
And, you know, you, personally, are doing a great job with this fund. The returns over a decade are extraordinary.
Unfortunately, I think you guys live in a little vacuum over there, where we as a neighbor island that make this commute everyday and depend on this west side single highway, and you’re talking about adding thousands more rental cars to the daily traffic. And in 15 years that I’ve been here, it’s been unbelievable what’s happening to the traffic. It’s a daily, bumper-to-bumper, H-1 experience. My first point, how much …
Keli‘i Akina: Gary …
Thom Williams: Good question.
Keli‘i Akina: Second question?
Gary Weiss: … are you aware of the opposition to this and what’s going on?
Keli‘i Akina: Thank you, Gary.
Thom Williams: Well, thank you. Let me say that this is a very important project to the ERS, and it has monitored very carefully the developments through direct and persistent communications with Lowe Enterprises who is the potential developer of the project there, the manager of the golf course as we speak. We have folks on the ground here who are communicating back to us.
Do we have a perfect understanding? I would likely say, not. I’m committed to try to enhance that awareness. I would imagine that there is a formidable level of opposition. There may be a kernel of support depending on the design. I mean, maybe there’s no way to find consents around any of this, but there is some issues that exist prior to the golf course, or any redevelopment. And my sense is that,we won’ know those impacts until we have the conversations with you. That’s what we’re offering, is that conversation, through this process. And we may very well end up at a place that I think you have arrived at that says, “This is not good for us. This won’t be advantageous to the community.” But I don’t know to get from here to there without having that conversation.
Keli‘i Akina: Thank you. Thank you, Thomas. Barry has a question over here.
Barry: I’m in the ERS system. My question has nothing to do with the golf course. How does the ERS select which investments to go to? Is there a consultant, a private firm, or how does a private firm …
Keli‘i Akina: Good question.
Thom Williams: That’s a very, very good question. There are a range of investments. I talked about the complexity of them. We do have modest investment staff. We have three investment officers and a chief investment officer, but we do employ expert consultants. We have the general consultant, we have a private equities consultant, we have a real estate consultant, and they tend to evaluate hundreds of investment opportunities, and bring to the … the investment committee and the board the best of those opportunities.
There is an investment plan that’s established every year that we try to move toward.
So it’s a disciplined process, it’s heavily recorded and it employs professional not only Oahu, but we have relations with some of the most prominent investment organizations in the world, with the KKRs, with the Blackstones, the Blackrocks, the Carlisles,of all the big banks in the context of economic assumptions and market sectors. You know, what’s going to be growing? What’s going to be contracting? Where are the opportunities globally and otherwise? So it’s a very disciplined process. It’s not me picking my favorites. [Laughs]
Keli‘i Akina: That’s right. In fact, one of the things I think it’s important to keep in mind is that the ERS is about wealth management, about protection of wealth, the growth of wealth and the appropriate use of that wealth. I’ve had a glimpse at what that is over the last nine months as a seated trustee at the Office of Hawaiian Affairs. And the Office of Hawaiian Affairs is precisely a trust, that is responsible for managing land assets, stock portfolio and so forth, for the sake of beneficiaries.
We have time for a few more questions, and I do want to say this at Gary: Thank you for your question earlier, and Thomas and Gwen will be around later on, if you want to ask any more questions, particularly about the Ka‘anapali, but we’d like to take a variety of issues as well. The gentleman at the back has been waiting, and then will go to this lady.
Albert: Hi, my name’s Albert. I was just looking, and I remember earlier I was asking about the risk. I like to think that the small amount of money that I have in your pension plan is invested conservatively. I mean, if we have another stock market crash like we had in 2006, what would happen to your pension; would it survive?
Thom WIlliams: Yes. It would.
Albert: So, what I don’t see … You said you have a plan; where can we access that plan, and how much risk is acceptable before you say, “Tha’s too much?” That’s my first question.
And a related question has to do with that project, but, what happened? Why did that loan go bad? What were they trying to do? Why did you guys lend them the money?
Thom Williams: Well, we purchase securities. Some of those are debt securities. I wasn’t here at the time. I don’t know … is it Amfac? I don’t remember which (was) the firm that actually went bankrupt. But the golf course was a part of the collateral. I couldn’t begin to tell you the rationale why we lent that particular firm money. But, clearly, we must have thought it was a good investment. But all investments don’t pan out. I mean, it would be great if they were all perfect, but that’s just not the case. We want to try to make a lot more good ones than the bad ones, and that’s been our record, quite frankly.
You mentioned the market crash in 2008 and 2009, and you also talked about the level of risk you take. Well, the level of risk that you can take, and must take, really varies considerably based on your fiscal situation.
For example, if you’re 100 percent fully funded, you probably don’t need to take any risk at all, or very little. There’s risk involved with government, or treasury notes. You could achieve much of your return with an over-representation of fixed investments.
But if you’re underfunded, then you’ve got to reach a little bit more than if you were fully funded. But at the same time, you can’t not take risk and get return. I mean, those two things are intractably connected. I mean, there’s a level of risk and we try to reduce, minimize that risk and we try to invest the monies conservatively.
And one of the things that we’ve done is something called — a restructure in our portfolio — is the Crisis Risk Offset, because if you’re fully funded, the next downturn, you can endure, you’ll be OK. If you’re poorly funded, it could bankrupt the fund. It won’t bankrupt our fund. One of the things that we’ve done to mitigate that is we’ve created a strategy, and it’s going to hold 20 percent of the portfolio and invest in strategies that perform positively in market declines, sustained market declines.
We’re talking about crisis here, and we call that the Crisis Risk Offset, and it’s made up of systematic trend-following strategies. It’s the alternate premier investments, as we say, and long bonds. And when markets go down, these tend to perform positively against the market. So we’re trying to hedge our bets so that we won’t have that kind of decline that we experienced in 2008.
Albert: Where do we access the …
Thom Williams: I believe it’s on our website. The investments, the strategies, the portfolio, all of the investments are listed on our website.
Keli‘i Akina: Is this one one of the items, Thomas, that Glenn can help with?
Thom Williams: Well, yeah. We have so many publications, but, yes, all of our investment managers, the allocation of assets, that we’re talking about here tonight, is available on our website.
Keli‘i Akina: OK. Ma’am, thank you for waiting. Appreciate it.
Elaine Gallant: Hi, no problem. My name is Elaine Gallant … God willing, the project does not go through for those of us who, you know … What are your alternatives? What are your other options that you’re looking at that can help fund us without the golf course to be redeveloped and Ka‘anapali being a part of that?
Thom Williams: Well, let me say, that’s a very good question. And I don’t think we are at that point of having exhaustively explored all of our alternatives. My sense is that these are some recommended approaches to achieving a solid return, but, again, if this does not move forward, if there’s a failure to achieve the necessary permitting, or there’s opposition of such a degree that it doesn’t make it viable for us to do, we will look at alternatives. But I wouldn’t want to say what those are because we haven’t actually identified them yet.
But, could we sell the property to someone else? That’s always an option, but the ERS has elected not to do that at this juncture, because they’ve wanted to be the steward of this property, recognizing its importance to this community.
Keli‘i Akina: We have time for just two more real fast questions, if you’ll keep them (short). This gentleman over here and then that gentleman over there, and then afterward Thomas will be around for further questions. Go ahead, sir.
Allan: My name is Allan, and I want to ask a question about the returns that you showed on the real estate component — it had 13 percent, sort of the expectation within your 7½ percent or 7 percent overall that you’re going to achieve. When you think about the Ka‘anapali situation, originally the debt was about $70 million. My understanding is it’s been paid down to about 26 million. So do you think of the 13 percent return on 26, or 13 percent of the original 70? How do you look at that?
Thom Williams: Yes, again, that’s a good question and it’s a level of analysis that I’m really not prepared to respond to.
We look at real estate investments and there’s not a single rate of return that we’re expecting, because we have different types of investments. You know, there’s commercial, there’s residential, multi-family hospitals, senior-care, a whole range, and they all provide a different level of return, and I’m personally not familiar with what the expected return from the Ka‘anapali Course is.
Dr. Keli’i: Thank you. Our last question.
Jeff: My name is Jeff. I’d just like to confirm that the changes that was done in the Legislature, the first Leg, that upped the contribution requirements from the employer, did I see the chart correctly that, if that will go through 2041, that was just a four-year increase, or is that an increase that’s going to carry until such time that we reach 100 percent?
Thom: The contribution increase is expected to be permanent. So it was not sort of a one time and then it goes back to the former level. It was a constant. Once it achieves the 24 percent in terms of employer contribution, general employees, it stays there until it’s fully funded. And that was forecast to be that 2046 or thereabouts.
Keli‘i Akina: Thank you very much. Everyone, give Thomas Williams a big hand. [Applause]
Thom Williams: Thank you.
Keli‘i Akina: I appreciate it. You know, at the Grassroot Institutes, we are watchdogs. If you saw the Honolulu Star Advertiser this morning, we came out with evidence that the city, of Honolulu, actually made a case for more funding with false information. We were willing enough to go out and point a finger. So if you read the Honolulu Star Advertiser this morning, that’s front page news, and it impacts you, because out here on Maui, you’re going to end up paying for the Honolulu Rail System, so you should have a stake in that.
I just mentioned this because in the spirit of trying to hold the government accountable, I also want to be fair. Thomas is the chief employee of the ERS, which means he’s the expert who runs things. So I’m just so glad he was willing to come here to be able to give the best explanations. When it comes to setting policies, such as ultimate policy with regard to Ka‘anapali, or any other kind of issue, it’s the board that does that. With that said, go a little light on him tonight. [Laughter] He’s a good guy. And we need public servants like that as well. Give Thomas Williams another big hand.
Thom Williams: Thank you guys. Thank you again.
Keli‘i Akina: From the Grassroots Institute, aloha. You’ll find a copy of this on our website and we hope that you’ll become avid readers of the research and work done by the Grassroot Institute. I’m Keli‘i Akina. Thank you for being here tonight.
Thom Williams: Yes. All right, Thank you.
Keli‘i Akina: One more announcement.
Thom: Well, yes, just let me say in closing. I think that I mentioned that article our newsletter that has an article in it on Ka‘anapali. Gwen has a Q&A that relates to the development. It’s not going to answer all of your questions obviously, but it’s the best information that’s available based on the moment, and to the extent you have more questions, take these and then raise those questions back with Gwen and Michael who get them to our board.
Keli‘i Akina: Thank you. And by the way you were all a civil audience tonight. (Laughter)