Brace for Impact of Employee Retirement System Shortfall

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Photo: Emily Metcalf

By Leighton Loo – The $8.4 billion shortfall in the Hawaii state Employees Retirement System has more dire implications than most realize. This ERS failure affects everyone in the state and counties – not only retirees.  The almost inevitable consequences of the killer shortfall will include a continued raising of the minimum retirement age, more decreased pensions (especially for younger workers), more increases in employee contributions and more taxpayer money (employer share) needed to support the ERS.  Ultimately there may even have be an ERS “bail out” funded by Hawaii taxpayers.  What all this translates to is a billions of dollars crippling of the Hawaii economy.

The worst case scenario is the ERS depleting principal to pay pensions (and having less and less to invest) and ultimately not being able to pay retirees their pensions. The mindboggling fact is that all the state and county retirees – for the next 30 years – will be depending on a pension system that is not fully funded – even under favorable conditions!


Basically, one of the stated conditions needed to fix the ERS is to average a 7.75% rate of return for the next 30 years which is unlikely considering that the average ERS return for the past 10 years has only been 2.8%.  If they really think that they can – all of sudden – much more than double their average rate of return, then why didn’t they, years ago?

Additionally, the future investment environment as a whole is not very good because the U.S. economy is handicapped and will be crippled by the massive federal debt problem that continues to grow.

The $8.4 billion shortfall is a whopping 70% of total assets and the ERS is ranked near the bottom of all 50 states.  Our elected officials made the problem worse by raiding the fund in the past. There were years of early warning that the ERS was in trouble.  Ultimately, it comes down to that nobody was minding the store.  If you listen carefully, the captain of the U.S.S. Titanic Hawaii is saying, “Brace for impact.”

Leighton Loo is a resident of Honolulu.






  1. We can thank the legislators for using the money when times were good. Now look, you are exactly correct, we will pay. And they spent the hurricane fund too.

  2. The legislative silence on this subject is deafening! Without question, a special task force or committee should be in place, reporting on the options the state has, and proposing solutions.

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