February 17, 2016

Bills to Divest State Pension Spark Fierce Opposition from Hawaii’s Retirees

Two bills currently pending in the Hawaii State Legislature, Senate Bill 2155 and House Bill 1511, would, if passed, force the state’s Employees’ Retirement System (ERS) to divest all of its fossil fuel holdings over the next five years. Divestment, especially at this pace, is sure to negatively impact the system’s investment portfolio and the vulnerable retirees who depend on it – all for merely symbolic reasons.

These two facts have sparked adamant opposition to these bills in the state. The Government Employees’ Association, University of Hawaii Professional Assembly, State of Hawaii Organization of Police Officers, and the Employee’s Retirement System itself have all submitted testimony asking legislators to oppose these bills on the basis of both their ineffectiveness and their hefty price tags.  In fact, the Executive Director of Hawaii’s ERS, Thomas Williams, submitted testimony to the Hawaii State Senate that emphasized the true cost of divestment to the system:

“The costs to be incurred for compliance with the bill’s mandate are not insubstantial.  A one-time comprehensive study is estimated to cost a minimum of $150,000 and perhaps more.  Transaction costs associated with divestment and reinvestment in alternative securities is estimated at $1.4 million dollars annually.  Annual and quarterly reporting along with administrative costs is estimated between $80,000 and $200,000 annually.  Opportunity costs are incalculable.” (emphasis added)

The Hawaii Government Employees Association echoed the concerns of ERS to the State Senate, noting that the ERS simply cannot afford restricted investment policies, particularly since its current unfunded liability is $8.8 billion dollars.  According to the Association:

“…We respectfully argue that the Board of Trustee’s fiduciary duty, in concert with the System’s investment strategy, should focus on maximizing investment returns and reducing the fund’s $8 billion unfunded liability.”

Opposition to the House bill has been just as strong, especially since the ERS already has policies in place to incorporate socially-responsible investing. This fact did not escape the University of Hawaii Professional Assembly or the State of Hawaii Organization of Police Officers which both submitted testimony emphasizing the steps that ERS already takes (found here and here).  Divesting would only add additional costs for the system, putting the 115,000 beneficiaries who rely on the ERS for their retirement, disability, and survivor benefits, at risk.

SB2155 has so far passed the State Senate’s Judiciary and Labor Committee and is pending a hearing before the Senate’s Ways and Means Committee. Meanwhile, HB1511 has passed the Energy and Environmental Protection Committee, the Committee on Labor and Public Employment, and has been referred to the House Committee on Finance.  Hopefully the leaders of Hawaii will listen to its employees and retirees and say no to costly divestment.