SB3099 SD1

SECTION 1. The legislature finds that employees who became members of the employeesꞌ retirement system before July 1, 2012, commonly referred to as "Tier 1 members", are required to have a minimum of five years of credited service to be eligible for vested benefit status, which, among other things, permits a member to receive a retirement allowance upon service retirement. By contrast, employees who become members after June 30, 2012, commonly referred to as "Tier 2 members", are required to have a minimum of ten years of credited service to be eligible for vested benefit status.

Although the two-tier member structure has assisted the employees' retirement system in its efforts to achieve full funding of its actuarial accrued liability, actuaries have determined that reducing the minimum number of years of credited service Tier 2 members must have to be eligible for vested benefit status from ten years to five years to match Tier 1 members would increase the projected full funding period only by an estimated four additional months and would not require an increase in contribution rates.

The legislature also finds that reducing the minimum number of years of credited service Tier 2 members must have to be eligible for vested benefit status from ten years to five years would help State and county employers with the recruitment and retention of qualified employees. Reducing employee turnover and retaining employees on the job longer may also help to reduce employer costs. The legislature further finds that these benefits outweigh the impacts on the employees' retirement systems' unfunded liability and projected full funding period.

Notwithstanding section 88-99, Hawaii Revised Statutes, the purpose of this Act is to reduce the minimum number of years of credited service qualified Tier 2 members must have to be eligible for vested benefit status for service retirement allowance purposes from ten years to five years.

SECTION 2. Section 88-62, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) [~~For~~] Notwithstanding section 88-99, for members who become members after June 30, 2012:

(1) If a former member who has fewer than ten years of credited service and who has been out of service for a period of four full calendar years or more after the year in which the former member left service, or if a former member who withdrew the former memberꞌs accumulated contributions returns to service, the former member shall become a member in the same manner and under the same conditions as anyone first entering service; however, the former member may obtain membership service credit in the manner provided by applicable law for credited service that was forfeited by the member upon termination of the member's previous membership. If the member did not withdraw the former memberꞌs accumulated contributions prior to the former memberꞌs return to service, the accumulated contributions shall be returned to the member as part of the process of enrolling the member in the system if the memberꞌs accumulated contributions are $1,000 or less at the time of distribution. If the accumulated contributions for the service the member had when the member previously terminated employment are greater than $1,000 and the member does not make written application, prior to or contemporaneously with the memberꞌs return to service, for return of the accumulated contributions, the member may not withdraw the memberꞌs accumulated contributions, except as provided by section 88-96 or 88-341, until the member retires or attains age sixty-two. The member shall not be entitled to service credit by reason of the systemꞌs retention of the memberꞌs accumulated contributions for the service the member had when the member previously terminated employment. To be eligible for any benefit, the member shall fulfill the membership service requirements for the benefit through membership service after again becoming a member, in addition to meeting any other eligibility requirement established for the benefit; provided that the membership service requirement shall be exclusive of any former service acquired in accordance with section 88-59 or any other section in part II, VII, or VIII;

(2) If a former member with fewer than ten years of credited service and who did not withdraw the former memberꞌs accumulated contributions returns to service within four full calendar years after the year in which the former member left service, the former member shall again become a member in the same manner and under the same conditions as anyone first entering service, except that the member shall be credited with service credit for the service the member had when the member terminated employment:

(A) If the member returns to service as a class A or class B member, the memberꞌs new and previous accumulated contributions shall be combined; or

(B) If the member returns to service as a class H member, section 88-321(b) shall apply; [~~and~~]

(3) If a former member [~~with ten or more years of credited service who did not withdraw the former member's contributions~~] who has vested benefit status as provided in section 88-96(b) returns to service, the former memberꞌs status shall be in accordance with the provisions described in section 88-97[.]; and

(4) If a former member who has fewer than five years of credited service and who has been out of service for a period of four full calendar years or more after the year in which the former member left service, or if a former member withdrew the former memberꞌs accumulated contributions returns to service and remains in service as of July 1, 2025 or returns to service after June 30, 2025, the former member shall become a member in the same manner and under the same conditions as anyone first entering service; provided that the former member may obtain membership service credit in the manner provided by applicable law for credited service that was forfeited by the member upon termination of the member's previous membership. If the member did not withdraw the former memberꞌs accumulated contributions prior to the former memberꞌs return to service, the accumulated contributions shall be returned to the member as part of the process of enrolling the member in the system if the memberꞌs accumulated contributions are $1,000 or less at the time of distribution. If the accumulated contributions for the service the member had when the member previously terminated employment are greater than $1,000 and the member does not make written application, prior to or contemporaneously with the memberꞌs return to service, for return of the accumulated contributions, the member may not withdraw the memberꞌs accumulated contributions, except as provided by section 88-96 or 88-341, until the member retires or attains age sixty-two. The member shall not be entitled to service credit by reason of the systemꞌs retention of the memberꞌs accumulated contributions for the service the member had when the member previously terminated employment. To be eligible for any benefit, the member shall fulfill the membership service requirements for the benefit through membership service after again becoming a member, in addition to meeting any other eligibility requirement established for the benefit; provided that the membership service requirement shall be exclusive of any former service acquired in accordance with section 88-59 or any other section in part II, VII, or VIII; and

(5) If a former member who has fewer than five years of credited service and who did not withdraw the former memberꞌs accumulated contributions returns to service and remains in service as of July 1, 2025 or returns to service after June 30, 2025, and who returns to service within four full calendar years after the year in which the former member left service, the former member shall again become a member in the same manner and under the same conditions as anyone first entering service, except that the member shall be credited with service credit for the service the member had when the member terminated employment:

(A) If the member returns to service as a class A or class B member, the memberꞌs new and previous accumulated contributions shall be combined; or

(B) If the member returns to service as a class H member, section 88-321(b) shall apply."

SECTION 3. Section 88-73, Hawaii Revised Statutes, is amended as follows:

1. By amending subsections (a) and (b) to read:

"(a) [~~Any~~] Notwithstanding section 88-99, any member who:

(1) Became a member before July 1, 2012, and has at least five years of credited service and has attained age fifty-five;

(2) Became a member before July 1, 2012, and has at least twenty-five years of credited service;

(3) Has at least ten years of credited service, which includes service as a judge before July 1, 1999, an elective officer, or a legislative officer;

(4) Becomes a member after June 30, 2012, and has at least ten years of credited service and has attained age sixty; [or]

(5) Becomes a member after June 30, 2012, and has at least twenty-five years of credited service and has attained age fifty-five[,]; or

(6) Becomes a member after June 30, 2012, and who is in service as of July 1, 2025, or who returns to service or becomes a member after June 30, 2025, and has at least five years of credited service and has attained the age of sixty,

shall become eligible to receive a retirement allowance after the member has terminated service.

(b) Any member who first earned credited service as a judge after June 30, 1999, but before July 1, 2012, and who has at least five years of credited service and has attained age fifty-five or has at least twenty-five years of credited service shall become eligible to receive a retirement allowance after the member has terminated service. Any member who first earned credited service as a judge after June 30, 2012, and has at least ten years of credited service and has attained age sixty, or has at least twenty-five years of credited service and has attained age fifty-five, shall be eligible to receive a retirement allowance after the member has terminated service. Any member who first earned credited service as a judge after June 30, 2012, and who is in service as of July 1, 2025, or thereafter, and has at least five years of credited service and has attained age sixty, shall be eligible to receive a retirement allowance after the member has terminated service."

2. By amending subsection (f) to read:

"(f) A memberꞌs right to the memberꞌs accrued retirement benefit is nonforfeitable upon the attainment of normal retirement age and the completion of the requisite years of credited service.

For the purpose of this subsection:

"Normal retirement age" means age sixty-five.

"Requisite years of credited service" means five years for class A and B members who became members before July 1, 2012[,]; [~~and~~] ten years for class A and B members who became members after June 30, 2012[.]; and five years for class A and B members who became members after June 30, 2012 and who are in service as of July 1, 2025 or who returned to service or became a member after June 30, 2025."

SECTION 4. Section 88-96, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

"(a) Any member who ceases to be an employee and who became a member before July 1, 2012, and has fewer than five years of credited service, excluding unused sick leave[,]; or who becomes a member after June 30, 2012, and has fewer than ten years of credited service, excluding unused sick leave[,]; or who becomes a member after June 30, 2012, and who is in service as of July 1, 2025 or who returns to service after June 30, 2025, and has fewer than five years of credited service, excluding unused sick leave; or who becomes a member after June 30, 2025 and has fewer than five years of credited service, excluding unused sick leave, shall, upon application to the board, be paid all of the memberꞌs accumulated contributions and the memberꞌs membership shall thereupon terminate and all credited service shall be forfeited; provided that a member shall not be paid the memberꞌs accumulated contributions:

(1) If the member becomes an employee again within fifteen calendar days from the date the member ceased to be an employee; or

(2) If, at the time the application for return of accumulated contributions is received by the board, the member has become an employee again.

Regular interest shall be credited to the former employeeꞌs account until the former employeeꞌs accumulated contributions are returned to the former employee; provided that the former employeeꞌs membership shall not continue after the fourth full year following the calendar year in which the individualꞌs employment terminates. Upon termination of the former employeeꞌs membership, the former employeeꞌs credited service shall be forfeited and, if the former employeeꞌs accumulated contributions are $1,000 or less at the time of distribution, the system shall return the former employeeꞌs contributions to the former employee. If the former employee does not become an employee again and if the former employeeꞌs accumulated contributions have not been withdrawn by the former employee or previously returned by the system to the former employee, the system shall return the former employeeꞌs accumulated contributions to the former employee as soon as possible after the later of: (A) the former employee attaining age sixty-two; or (B) the termination of the former employeeꞌs membership.

(b) Any member who ceases to be an employee and who became a member before July 1, 2012, and has more than five years of credited service, excluding unused sick leave[,]; or who becomes a member after June 30, 2012, and has more than ten years of credited service, excluding unused sick leave[,]; or who becomes a member after June 30, 2012, and who is in service as of July 1, 2025 or who returns to service after June 30, 2025, and has more than five years of credited service, excluding unused sick leave; or who becomes a member after June 30, 2025 and has more than five years of credited service, excluding unused sick leave, shall, upon application to the board, be paid all of the memberꞌs accumulated contributions and thereupon the former employeeꞌs membership shall terminate and all credited service shall be forfeited; provided that a member shall not be paid the memberꞌs accumulated contributions:

(1) If the member becomes an employee again within fifteen calendar days from the date the member ceased to be an employee; or

(2) If, at the time the application for return of accumulated contributions is received by the board, the member has become an employee again.

If the contributions are not withdrawn by the former employee within four calendar years following the calendar year in which the former employeeꞌs employment terminates, the former employee shall have established vested benefit status and shall be eligible for the service retirement benefit in effect at the time of the former employeeꞌs retirement, payable in accordance with this chapter; provided that if the former employee withdraws the former employeeꞌs accumulated contributions, the former employeeꞌs vested benefit status shall terminate and all credited service shall be forfeited."

SECTION 5. Section 88-331, Hawaii Revised Statutes, is amended as follows:

1. By amending subsection (a) to read:

"(a) [A] Notwithstanding section 88-99, a class H member who:

(1) Became a member before July 1, 2012, has at least five years of credited service, and has attained age sixty-two;

(2) Became a member before July 1, 2012, has at least thirty years of credited service, and has attained the age of fifty-five; [or]

(3) Becomes a member after June 30, 2012, has at least ten years of credited service, and has attained age sixty-five; [or]

(4) Becomes a member after June 30, 2012, has at least thirty years of credited service, and has attained age sixty[,]; or

(5) Becomes a member after June 30, 2012, and who is in service as of July 1, 2025, or who returns to service or becomes a member after June 30, 2025, and has at least five years of credited service and has attained the age of sixty-five,

shall become eligible to receive a retirement allowance after the member has terminated service."

2. By amending subsection (f) to read:

"(f) A member's right to the member's accrued retirement benefit is nonforfeitable upon the attainment of normal retirement age and the completion of the requisite years of credited service.

For the purpose of this subsection:

"Normal retirement age" means age sixty-five.

"Requisite years of credited service" means five years for class H members who became members before July 1, 2012[~~, and~~]; ten years for class H members who became members after June 30, 2012[.]; and five years for class H members who became members after June 30, 2012, and who are in service as of July 1, 2025, or who returned to service or became a member after June 30, 2025."

SECTION 6. Section 88-338, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Upon receipt by the system of proper proof of a class H memberꞌs death occurring in service or while on authorized leave without pay and if no pension is payable under section 88-339, there shall be paid to the memberꞌs designated beneficiary an ordinary death benefit as follows:

(1) The memberꞌs accumulated contributions shall be paid to the memberꞌs designated beneficiary if:

(A) The member became a member before July 1, 2012, and had less than five years of credited service at the time of death; [or]

(B) The member became a member after June 30, 2012, and had less than ten years of credited service at the time of death; or

(C) The member became a member after June 30, 2012, and was in service as of July 1, 2025, or who returned to service or became a member after June 30, 2025, and had less than five years of credited service at the time of death;

(2) An amount equal to the memberꞌs hypothetical account balance shall be paid to the memberꞌs designated beneficiary if:

(A) The member became a member before July 1, 2012, and had five or more years of credited service at the time of death; [or]

(B) The member became a member after June 30, 2012, and had ten or more years of credited service at the time of death; or

(C) The member became a member after June 30, 2012, and was in service as of July 1, 2025, or who returned to service or became a member after June 30, 2025, and had five or more years of credited service at the time of death;

(3) If the member had ten or more years of credited service at the time of death, the memberꞌs designated beneficiary may elect to receive in lieu of any other payment provided in this section, the allowance that would have been payable as if the member had retired on the first day of a month following the memberꞌs death, except for the month of December when retirement on the first or last day of the month shall be allowed. Benefits payable under this paragraph shall be calculated under option 3 of section 88-83 and computed on the basis of section 88-332, unreduced for age; or

(4) If the member was eligible for service retirement at the time of death, the memberꞌs designated beneficiary may elect to receive in lieu of any other payment provided in this section, the allowance that would have been payable as if the member had retired on the first day of a month following the memberꞌs death, except for the month of December when retirement on the first or last day of the month shall be allowed. Benefits payable under this paragraph shall be calculated under option 2 of section 88-83 and computed on the basis of section 88-332."

SECTION 7. Section 88-341, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

"(a) Any class H member who ceases to be an employee and who became a member before July 1, 2012, and has fewer than five years of credited service, excluding unused sick leave[,]; or who becomes a member after June 30, 2012, and has fewer than ten years of credited service, excluding unused sick leave[,]; or who becomes a member after June 30, 2012, and who is in service as of July 1, 2025, or who returns to service or becomes a member after June 30, 2025, and has fewer than five years of credited service, excluding unused sick leave, shall, upon application to the board, be paid all of the former employeeꞌs accumulated contributions, and the former employeeꞌs membership shall thereupon terminate and all credited service shall be forfeited; provided that an individual shall not be paid the individualꞌs accumulated contributions if either:

(1) The individual becomes an employee again within fifteen calendar days from the date the individual ceased to be an employee; or

(2) At the time the application for return of accumulated contributions is received by the board, the individual has become an employee again.

Regular interest shall be credited to the former employeeꞌs account until the former employeeꞌs accumulated contributions are withdrawn; provided that the former employeeꞌs membership shall not continue after the fourth full year following the calendar year in which the individualꞌs employment terminates. If the former employee does not become an employee again and has not withdrawn the former employeeꞌs accumulated contributions, the system shall return the former employeeꞌs accumulated contributions to the former employee as soon as possible after the later of: (A) the former employee attaining age sixty-two; or (B) the termination of the former employeeꞌs membership.

(b) Any class H member who ceases to be an employee and who became a member before July 1, 2012, and has more than five years of credited service, excluding unused sick leave[,]; or who becomes a member after June 30, 2012, and has more than ten years of credited service, excluding unused sick leave[,]; or who becomes a member after June 30, 2012, and who is in service as of July 1, 2025 or who returns to service or becomes a member after June 30, 2025, and has more than five years of credited service, excluding unused sick leave, shall, upon application to the board, be paid an amount equal to the former employeeꞌs hypothetical account balance and the former employeeꞌs membership shall thereupon terminate and all credited service shall be forfeited; provided that the individual shall not be paid the individual's hypothetical account balance if either:

(1) The individual becomes an employee again within fifteen calendar days from the date the individual ceased to be an employee; or

(2) At the time the application for payment of the individualꞌs hypothetical account balance is received by the board, the individual has become an employee again.

If the contributions are not withdrawn by the former employee after the individualꞌs employment terminates, the former employee shall have vested benefit status and shall be eligible for the service retirement benefit in effect at the time of the former employeeꞌs retirement, payable in accordance with this chapter."

SECTION 8. In accordance with section 9 of article VII of the Hawaii State Constitution and sections 37-91 and 37-93, Hawaii Revised Statutes, the legislature has determined that the appropriations contained in Act 164, Regular Session of 2023, and this Act will cause the state general fund expenditure ceiling for fiscal year 2024-2025 to be exceeded by $ or per cent. This current declaration takes into account general fund appropriations authorized for fiscal year 2024-2025 in Act 164, Regular Session of 2023, and this Act only. The reasons for exceeding the general fund expenditure ceiling are that:

(1) The appropriation made in this Act is necessary to serve the public interest; and

(2) The appropriation made in this Act meets the needs addressed by this Act.

SECTION 9. There is appropriated out of the general revenues of the State of Hawaii the sum of $9,800,000 or so much thereof as may be necessary for fiscal year 2024-2025 for investments of the employees' retirement system.

The sum appropriated shall be expended by the employeesꞌ retirement system for the purposes of this Act.

SECTION 10. This Act does not affect the rights, duties, and obligations that matured or were vested, or proceedings that were begun, before its effective date, including but not limited to, any membership that was terminated, credited service that was forfeited, retirement that was finalized, or benefits which were paid.

SECTION 11. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 12. This Act shall take effect on July 1, 2050; provided that section 8 shall take effect on July 1, 2024.

THE SENATE	S.B. NO.	3099
THIRTY-SECOND LEGISLATURE, 2024		S.D. 1
STATE OF HAWAII