“Pension risk includes lava,” said Keli’i Akina, president of the Grassroot Institute, a sister free-market think tank in Hawaii. Recently, the Grassroot Institute hosted an event titled “Navigating risk at Hawaii’s public pension system.” Thom Williams, executive director of the Hawaii Employees’ Retirement System (ERS), discussed how unpredictable events such as volcanic eruptions can exacerbate the state’s $12.9 billion unfunded public pension liabilities.
As Williams explained, “City and county emergency workers are spending an awful lot of time responding to this emergency. And because overtime is included in their compensation, it’s going to affect — potentially — the benefit they get from the ERS. So, I’m monitoring the level of overtime and the longevity of this eruption because it can show up in our liabilities in time.”
Hawaii pays benefits based on the highest years of earnings and it doesn’t matter when those years occur, said Williams. “So, for some of these people who are responding to the emergency, because of the inclusion of overtime to their base pay, it may very well mean that they will get an elevated benefit for the remainder of their retirement lifetimes.”
It’s a given that the overtime pay that these emergency workers are receiving is justly earned. The residents of Hawaii, and all Californians who have lived or vacationed in Hawaii, are thankful for their hard work, dedication, and the risks they are taking to ensure others’ safety. But Hawaii’s situation is yet another example of why pension systems, especially this form of pension spiking, is badly in need of reform. “If an event like the Kilauea eruption can create liabilities far into the future,” writes Akina, “the obvious question is whether the proper safeguards exist to guarantee the pension system will not collapse under its own obligations.”
California has had its share of natural disasters, including the floods and wildfires of 2017. And while public unions in California may have different policies for calculating pension benefits, it’s not a stretch to think that based on Hawaii’s experience, California’s own natural disasters over the years may have done their small share in contributing to the state’s unfunded pension liabilities.
It wasn’t too long ago that several California cities, facing a pension crisis, had to cut back on many social services, including police and fire departments. In future calamities, it would be tragic if California and Hawaii, because of their broken pension systems, are unable to have enough emergency workers to adequately protect its residents.
Rowena Itchon is Senior Vice President at the Pacific Research Institute.