Hawaii Employer-Union Health Benefits Trust Fund Insolvent

Yahoo Finance has reported that the EUTF is losing more than $1 million a month and may not be able to afford to pay doctors for medical bills within a few months unless something is done within the three weeks left in this year’s legislative session, Lingle warned. The EUTF covers 161,000 employees, retirees and dependents.

Lingle made the request Tuesday in a letter to legislative leaders urging them to take action because the trustees of the Employer-Union Health Benefits Trust Fund haven’t voted to raise health insurance premiums by 26 percent after they levied a 24 percent increase last year. In her Weekly Radio Address she stated “The Trust fund is insolvent, its governance is unsustainable and necessary cost-cutting measures are either not being enacted or are in danger of being repealed by the Legislature.”

The employee trustees on the board would prefer the government pay to keep the EUTF afloat rather than raise premiums again, even though the state is facing a projected $1.3 billion deficit through June 2011.

The Hawaii Employees’ Retirement System pension fund is also in trouble. Hawaii was listed recently in “15 Public Pension Chiefs Whose Funds Are Zooming Towards Collapse.” Keep in mind, the private sector deems defined-benefit pension plans to be “critical” if the funded portion of the plan is less than 65 percent. In 2006, Hawaii was rated at 65% funded.

2008 Actuarial Funding Ratio: 67.5%

2008 Actuarial Value of Liabilities: $15.7 Billion

2008 Actuarial Value of Assets: $10.6 Billion

2008 Unfunded Actuarial Accrued Liabilities: $5.1 Billion

Head of Fund: Chair of the Board of Trustees Jackie Ferguson – Miyamoto

If state lawmakers fail to enact fundamental reforms in the area of public employee pensions, the long-term financial health of the states could be compromised – and taxpayers will certainly be left on the hook.

Much of the current data regarding liabilities in public employee pensions was taken before the recent economic downturn, and the study’s authors warn the problem is much worse today since stock market losses have not been fully realized in many official government pension statistics. Other estimates with recent data place the unfunded pension liabilities at $1 trillion nationally.

A recent study by the National Bureau of Economic Research (NBER) suggests that the funding status in public pension funds is worse than reported (Novy-Marx and Rauh, 2009). These pension systems are likely to experience signifi cant funding shortfalls in future years, even if the economy recovers and financial markets stabilize. These funding shortfalls will impose a heavy burden on future generations.

The most important finding in the NBER study is the prospect of future underfunding in state pension plans based on more realistic discount rates. Using a 15-year amortization period, the NBER study estimates conservatively that there is a 50 percent chance of underfunding greater than $750 billion; a 25 percent chance of underfunding greater than $1.75 trillion; and a 10 percent chance that underfunding will exceed $2.48 trillion.