STAND. COM. REP. NO. 2319

Honolulu, Hawaii

RE: S.B. No. 3096

S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

Your Committee on Labor and Technology, to which was referred S.B. No. 3096 entitled:

"A BILL FOR AN ACT RELATING TO THE EMPLOYEES' RETIREMENT SYSTEM'S EMPLOYER CONTRIBUTIONS FOR NORMAL COST AND ACCRUED LIABILITY,"

begs leave to report as follows:

The purpose and intent of this measure is to increase the employer contribution rate for normal cost and accrued liability for police officers, firefighters, and corrections officers to ensure that the amortization period for the unfunded accrued liability of the State's Employees' Retirement System does not exceed the maximum funding period.

Your Committee received testimony in support of this measure from the Employees' Retirement System and City and County of Honolulu Office of the Mayor.

Your Committee received comments on this measure from the County of Maui Office of the Mayor.

Your Committee finds that employer contributions to the Employees' Retirement System consist of payments for normal cost, which fund benefits earned in the current year, and payments toward the unfunded accrued liability, which amortize benefits from past service that are not yet fully funded. Your Committee further finds that, to ensure an appropriate and prudent response to increasing unfunded liabilities in the System, the State established a maximum funding period over which the unfunded accrued liability may be paid off. If the amortization period for the unfunded liability exceeds that maximum, it indicates that employer contributions for that particular group of employees are insufficient, thereby increasing long-term costs and financial risk, and potentially shifting liability to other employers in the System. Your Committee finds that a recent annual review of the System's pension liability showed that the liability for police officers, firefighters, and corrections officers increased due to higher-than-projected salary growth, extending the expected amortization period for the group to 2049, three years longer than that for other members of the System. By addressing this funding gap early, this measure prevents increases for all employers who share liability across the System, prevents far more difficult and costly decisions the future, and protects both employees and taxpayers from greater financial risk.

Your Committee acknowledges the concern raised in testimony that requiring the increase in employer contribution rates to begin in fiscal year 2026-2027 would not provide sufficient time for public employers to plan, budget for, and responsibly absorb the higher contribution rates. Therefore, amendments to this measure are necessary to address this concern.

Your Committee has amended this measure by:

(1) Extending the implementation date for the increase in employer contribution rates from fiscal year 2026-2027 to fiscal year 2027-2028;

(2) Inserting an effective date of January 1, 2077, to encourage further discussion; and

(3) Making technical, nonsubstantive amendment for the purposes of clarity and consistency.

As affirmed by the record of votes of the members of your Committee on Labor and Technology that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 3096, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 3096, S.D. 1, and be referred to your Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committee on Labor and Technology,

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BRANDON J.C. ELEFANTE, Chair