Hawaii-2024-HB1850-Introduced

SECTION 1. The legislature finds that the changes it made to the employees' retirement system benefits and contributions in 2011 and 2012, which affected employees who became members of the employees' retirement system after June 30, 2012 (tier 2 employees), have positively affected the employees' retirement system's funding period. These changes included:

(1) Increasing the employee contribution rate;

(2) Increasing the age at which an employee may retire;

(3) Increasing the number of years over which the average final compensation is calculated;

(4) Decreasing the multiplier;

(5) Decreasing the post-retirement increase; and

(6) Decreasing the interest rate on contributions.

In addition, some non-base pay items, including overtime, are excluded from the pension benefit calculation for tier 2 employees.

While the forgoing changes were impactful, the legislature also finds that the change to increase the vesting period from five years to ten years for tier 2 employees has had less of an impact. The employees' retirement system actuaries have determined that returning to a five-year vesting period is expected to increase the funding period by only four months and would not result in an increase in the contribution rates.

The legislature also finds that Hawaii's state and county governments are experiencing serious difficulties in recruiting employees. The legislature finds that restoring the vesting period to five years would have a widespread effect in attracting new employees without adversely affecting the employees' retirement system's funding status or increasing the employer contribution rate.

Accordingly, the purpose of this Act is to amend the vesting period to five years for tier 2 employees who are in service on the effective date of the Act or return to service after the effective date of the Act, and for employees who become a member on or after the effective date of the Act. Only the vesting period will change. All other requirements and benefits for tier 2 employees will remain the same.

SECTION 2. Section 88-62, Hawaii Revised Statutes, is amended to read as follows:

"§88-62 Return to service of a former member. (a) For members who became members before July 1, 2012:

(1) 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 who withdrew the former member's 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 member's accumulated contributions prior to the former member's 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 member's 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 member's return to service, for return of the accumulated contributions, the member may not withdraw the member's 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 system's retention of the member's 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 five years of credited service and who did not withdraw the former member's 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 and:

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

(B) If the member returns to service after June 30, 2006, as a class H member, section 88-321(b) shall apply; and

(3) If a former member with five or more years of credited service who did not withdraw the former member's contributions returns to service, the former member's status shall be in accordance with the provisions described in section 88-97.

(b) For members who become members after June 30, 2012[:], return to service before July 1, 2025, and are not in service on or after July 1, 2025:

(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 member's 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 member's accumulated contributions prior to the former member's 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 member's 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 member's return to service, for return of the accumulated contributions, the member may not withdraw the member's 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 system's retention of the member's 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 member's 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 member's 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 returns to service, the former member's status shall be in accordance with the provisions described in section 88-97.

(1) If a former member 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 who withdrew the former member's 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; provided that the former member may obtain membership service credit in the manner provided by 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 member's accumulated contributions before the former member's 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 member's 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 a written application before or contemporaneously with the member's return to service for return of the accumulated contributions, the member shall not withdraw the member's 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 system's retention of the member's 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 under section 88-59 or any other section in part II, VII, or VIII;

(2) If a former member with fewer than five years of credited service and who did not withdraw the former member's 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; provided that the member shall be credited with service credit for the service the member had when the member terminated employment; provided further that:

(A) If the member returns to service as a class A or class B member, the member's 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 five or more years of credited service who did not withdraw the former member's contributions returns to service, the former member's status shall be under section 88-97."

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

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

"(a) 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~~] has attained age sixty, and has at least:

(A) Ten years of credited service [~~and has attained age sixty~~]; or

(B) Five years of credited service and:

(i) Is in service on July 1, 2025;

(ii) Returns to service on or after July 1, 2025; or

(iii) Becomes a member after July 1, 2025; 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,

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~~]:

(1) Ten years of credited service and has attained age sixty [~~or has at least twenty-five~~];

(2) Five years of credited service, attained age sixty, and:

(A) Is in service on July 1, 2025;

(B) Returns to service on or after July 1, 2025; or

(3) 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."

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~~]:

(1) Five years for class A and B members who became members before July 1, 2012[~~, and ten~~];

(2) Ten years for class A and B members who became members after June 30, 2012[.]; and

(3) Five years for members who became members after June 30, 2012, and:

(A) Are in service on July 1, 2025;

(B) Return to service on or after July 1, 2025; or

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, who is in service on 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, or who becomes a member after June 30, 2012, and before July 1, 2025, and has fewer than ten years of credited service, excluding sick leave, shall, upon application to the board, be paid all of the member's accumulated contributions and the member's membership shall thereupon terminate and all credited service shall be forfeited; provided that a member shall not be paid the member's 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 employee's account until the former employee's accumulated contributions are returned to the former employee; provided that the former employee's membership shall not continue after the fourth full year following the calendar year in which the individual's employment terminates. Upon termination of the former employee's membership, the former employee's credited service shall be forfeited and, if the former employee's accumulated contributions are $1,000 or less at the time of distribution, the system shall return the former employee's contributions to the former employee. If the former employee does not become an employee again and if the former employee's 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 employee's 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 employee's membership.

(b) Any member who ceases to be an employee and who became a member before July 1, 2012, who is in service on 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, or who becomes a member after June 30, 2012, and before July 1, 2025, and who is not in service on July 1, 2025, and who does not return to service after June 30, 2025, and has more than ten years of credited service, excluding sick leave, shall, upon application to the board, be paid all of the member's accumulated contributions and thereupon the former employee's membership shall terminate and all credited service shall be forfeited; provided that a member shall not be paid the member's 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 employee's 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 employee's retirement, payable in accordance with this chapter; provided that if the former employee withdraws the former employee's accumulated contributions, the former employee's 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 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~~]:

(A) Ten years of credited service, and has attained age sixty-five; or

(B) Five years of credited service, attained age sixty, and:

(i) Is in service on July 1, 2025;

(ii) Returns to service on or after July 1, 2025; or

(iii) Becomes a member after July 1, 2025; or

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

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~~]:

(1) Five years for class H members who became members before July 1, 2012[~~, and ten~~];

(2) Ten years for class H members who became members after June 30, 2012[.]; and

(3) Five years, for members who became members after June 30, 2012, and

(A) Are in service on July 1, 2025;

(B) Return to service on or after July 1, 2025; or

SECTION 6. Section 88-341, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Any class H member who ceases to be an employee and who became a member before July 1, 2012, who is in service on 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, or who becomes a member after June 30, 2012, and before July 1, 2025, and who is not in service on July 1, 2025, and who does not return to service after June 30, 2025, and has fewer than ten years of credited service, excluding unused sick leave, shall, upon application to the board, be paid all of the former employee's accumulated contributions, and the former employee's membership shall thereupon terminate and all credited service shall be forfeited; provided that an individual shall not be paid the individual's 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 employee's account until the former employee's accumulated contributions are withdrawn; provided that the former employee's membership shall not continue after the fourth full year following the calendar year in which the individual's employment terminates. If the former employee does not become an employee again and has not withdrawn the former employee's accumulated contributions, the system shall return the former employee's 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 employee's membership."

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect on July 1, 2025.

INTRODUCED BY:	_____________________________
	By Request

HOUSE OF REPRESENTATIVES	H.B. NO.	1850
THIRTY-SECOND LEGISLATURE, 2024
STATE OF HAWAII