Hawai'i Employee Retirement System (ERS) Up $3B

Nov 13, 2017

ERS Board of Directors review reports
Credit Wayne Yoshioka

Hawai’i’s public employee retirement fund started off this year deep in the red with a substantial funding deficit.  HPR’s Wayne Yoshioka has an update. 

Neal Rue, managing director, PCA
Credit Wayne Yoshioka

The Hawai’i Employee Retirement System – ERS -- started 2017 with a total pension liability of 27.4 billion dollars, more than 13 billion dollars short.  The ERS Board of Directors also lowered its assumed investment return rate and compensated for increased life expectancy, which added nearly 4 billion dollars in unfunded liabilities, the amount required to pay for projected retirements.   But, the Board restructured its investment portfolio and ERS investment consultant, Neal Rue, says that strategy paid off.

“You were at 16.3 billion as of the end of the 3rd quarter.  As of the end of October you were at 16.6 billion, so you added another 350 to 400 million in one month and the latest report is 17.1 billion.  Just an amazing amount of capital appreciation in a very recent period.  So, you’re a17 billion dollar fund.”

That’s a 3 billion dollar plus-up for the ERS account since of last year.  Chief Investment Officer, Vijoy Chattergy, says the Board also shifted 10 percent of the investment portfolio to a Crisis Risk Offset class assets that don’t fall as fast and enable investors to manage losses long-term.

State Budget & Finance director, Wes Machida
Credit Wayne Yoshioka

“If you find yourself in a major crisis that’s 10 percent, 20 percent, even 30 percent drawdown.  Once that initial impact is felt in the U.S. Treasury market, then these trend followers adjust their models and then take advantage of the trending asset and are able to make money even in a downward moving market.”

The ERS has policies in place to implement crisis risk offset.  The state legislature also implemented a graduated increase for employer contributions to the ERS over the next 4 years.  State Director of Budget and Finance, Wes Machida, says that will lower the unfunded liabilities by billions of dollars in the future, with member longevity being the key.

“People are living longer in the membership.  In fact, there’s a number of groups that have been living longer than others.  To be specific, teachers and professors in particular have been shown to live the longest of any employee group.  In fact, at last check,  it was a median age of 91 for the female teachers and professors.”

Machida says the administration is committed to funding ERS up front to lower costs in the long term.  ERS Executive Director, Thomas Williams, meanwhile, would like to hire more professional investment officers to increase returns.

ERS executive director, Thomas Williams and chief investment officer, Vijoy Chattergy.
Credit Wayne Yoshioka

“We’ve got 6 professionals and one support staff on our investment team.  We’ve done some studies that will suggest we should add 3, even 4 more investment professionals.  And this compares with our staff to that of peer organizations, public pension funds with asset sizes comparable to ours in the 15 to 16 billion dollar range.

The ERS serves 135-thousand members in the state and county, which represents nearly 10 percent of the population.  Wayne Yoshioka, HPR News