Economy HawaiiWritten by Dennis Hollier On 31 January 2012
The Census and the Hawaii Employee Retirement System

The Census Bureau released its annual report this morning on the health of state pension funds across the country (2010 Annual Survey of Public-Employee Retirement Systems). It’s the first good news in a long time in an otherwise endless saga of unfunded liabilities and seemingly insurmountable demographic hurdles that threaten to bankrupt dozens of states. According to the report, for the first time in nearly five years, the combined assets of the states’ retirement systems actually increased – in this case, a whopping $214 billion. OK, OK, that’s only a 2 percent increase in assets; it’s also less than 2 percent of a total unfunded liability approaching $3 trillion, by some estimates. But at least it’s a positive number. In 2009, the states lost $611 billion.

Hawaii is part of the good (but not great) news. In 2010, the state’s Employee Retirement System earned $1.5 billion on it’s investments – at least according to the Census report. Taken at face value, that represented an 11.5 percent return on the market value of ERS assets (compared to an 18 percent loss in 2009.) Unfortunately, actuaries don’t rely on the bald statistic of market return. They prefer to spread big losses or profits from any particular year over several years, using a figure called “return on actuarial actuarial value.” By that calculation, ERS still saw a slight loss in 2010. In fact, there’s still $1.5 billion in accumulated losses still waiting to be applied to future valuations of the pension fund.

That’s not the worst of it. The best measure of the health of a pension fund is its unfunded actuary accrued liability or UAAL. That’s the difference between the actual value of the fund’s assets and what the fund should have if it was fully funded. By that statistic, the ERS is only getting sicker. In its own 2010 actuary report, the state’s pension fund now has UAAL of more than $7 billion, and that’s probably a conservative estimate. So, even though the state of pension funds across the country may have improved slightly (and there’s no reason to think other states are any better off than Hawaii), our UAAL actually increased by nearly $1 billion this year. That debt is now a staggering $7.1 billion and growing.

Put another way, even if the ERS’s rosiest assumptions on investment earnings and employer and employee contributions hold, it will take more than 40 years for us to pay our pension bill. Assuming we ever do.

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