Hawaii State Pension Unfunded Liability Rises to Record $13.4 Billion

The unfunded liability of the Hawaii Employees’ Retirement System rose to a record high of $13.4 billion in 2018, and is expected to continue to increase over the next four years before it starts to improve, according to the system’s most recent actuarial valuation.

This is despite the fact that for the fiscal year ended June 30, 2018, the retirement system reported a 7.9% return, raising its market value to just under $16.6 billion from $15.7 billion at the same period last year, while its funded level edged higher to 55.2% from 54.9%.

The most recent actuarial report for the system forecasts that the unfunded liability will continue to rise until 2023 and peak at just under $14.2 billion before slowly improving to a surplus of $281 million and a market value of $60.6 billion by 2043.

“We have determined that the funding period for paying off the UAAL of the System (in aggregate) is 25 years,” GRS Retirement Consulting, the system’s actuary, wrote in its report to the system’s board of trustees. “Because this period is less than 30 years, the objectives set in state statute are currently being realized.”

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According to Hawaii state law, the employer contribution rates are subject to adjustment when the funding period is greater than 30 years. The employer contribution rate for Police and Fire employees is scheduled to increase to 31% in FY2019, 36% in FY2020, and 41% in FY2021. Meanwhile, the employer contribution rate for all other employees is set to increase to 19% in FY2019, 22% in FY2020, and 24% in FY2021.

However, the actuary said that its forecasts are contingent on returns meeting the current assumptions, and employers meeting the contribution requirements established by the 2017 Legislature.

“The 25-year funding period assumes all of the currently scheduled contribution increases occur and remain in effect throughout the period,” said GRS. “It is imperative that the increases occur as scheduled to meet the current projected obligations of the system.”

GRS also warned that “future changes to the actuarial assumptions or future changes to reduce the contribution requirements could significantly change the outlook of the system, and the expectation on when the system will reach a 100% funded level.”

The system has a new CIO, Elizabeth Burton, who joined in October from the Maryland State Retirement and Pension System, where she had been managing director of the quantitative strategies group. She replaced Vijoy Chattergy, who resigned as CIO in February.

Tags: Hawaii Employees' Retirement System, Pension, Unfunded Liability

Norges Bank, Norway’s central bank, which manages the country’s $1 trillion Government Pension Fund Global (GPFG), has added three companies to its exclusion list over alleged human rights violations and coal-related activities.

The bank said it decided to exclude Hong Kong-based Texwinca, an investment holding company engaged in knitted fabric and apparel businesses, “due to unacceptable risk that the company is responsible for serious or systematic human rights violations.”

It also decided to exclude Kansas City-based electric services company Evergy, and Australian investment firm Washington H. Soul Pattinson & Co Ltd. on an assessment of the fund’s product-based coal criterion.

Texwinca is the largest shareholder of Megawell Industrial Ltd., and has owned 50% of its shares for the past 20 years. According to GPFG’s Council on Ethics, investigations into working conditions at Megawell’s factories in Vietnam have uncovered systematic norm violations, including discrimination against women, numerous occupational health and safety hazards, and restrictions on freedom of association.

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Although Texwinca claims that it doesn’t have a controlling influence over Megawell, and has no responsibility for the working conditions at the factories in Vietnam, the Council has judged otherwise. It said that because of the company’s dominant shareholding, and the fact that several individuals have been members of the boards and managements of both companies for many years, it presumes that Texwinca does indeed have a significant influence over Megawell.

“The Council attaches importance to the fact that Texwinca has not helped to clarify this case and concludes that neither Texwinca nor Megawell are taking any responsibility for the prevention of human rights violations at the factories in Vietnam,” said the Council. “When a company in this way disclaims responsibility for preventing norm violation and fails to provide information about conditions or its own initiatives in its operations, the risk of systematic labor rights violations becomes unacceptably high.”

As for Evergy and Washington H. Soul Pattinson, Norges Bank said it decided to exclude the companies based on the fund’s coal criterion, which states that companies with 30% or more of their activities in coal, and/or that derive 30% of their revenues from coal either directly or through other operations they control, may be excluded from the GPFG. Coal in this case refers to thermal coal.

“Before deciding to exclude a company, Norges Bank shall consider whether the use of other measures, including the exercise of ownership rights, may be better suited,” said the bank in a statement. “The Executive Board concludes that it is not appropriate to use other measures in these cases.”

Tags: Divestment, Evergy, Exclusion List, Megawell Industrial, Norges Bank, Texwinca