The Hawaii Employees’ Retirement System says it will be proposing benefit cuts that could prompt a wave of early retirements. The agency’s legislative proposals could come as early as the 2011 legislative session.

Hints of the cuts are contained in a memo from ERS Administrator Wesley Machida that accompanied a request to exempt a pending contract from competitive procurement.

Specific cuts or changes are not detailed, but the memo predicts they will have “a dramatic impact” as employees eligible for retirement rush for the exits in order to lock-in benefits at current levels.

Machida sought approval for a $140,000 non-bid, single-source contract to analyze and streamline the procedures used to “finalize” retirement payments. Machida said it is necessary to deal with the backlog of retirement applications. There were 3,000 new retirement applications to process as of mid-September, according to the memo.

The pace of retirements has been increasing dramatically, according to Machida’s memo, which cited 317 retirements on June 1, 2009, up from an expected 60.

“Time is of the essence in this matter so that any recommended statutory changes can be proposed in the 2011 legislative session,” the memo argues.

When a public employee retires, they initially receive an estimated benefit while their actual benefit is calculated. This is generally conservative, resulting in reduced benefits until the final calculations are completed, a process that generally takes more than six months and can take up to two years under current conditions.

Finalization (i.e., calculation) of a retirant’s benefits is presently a complicated and time consuming process to perform accurately. There are more than 100 different personnel actions that occur throughout a member’s employment history including salary increase, leaves of absences, promotions, retirement plan changes, transfers, change in full-time equivalency status, return to work after a previous separation from service and others. In order to determine final pension benefits, the ERS may have to obtain correction or clarification of inaccurate information that is provided to the ERS. The ERS may also have to wait for information from the employers or a decision on an issue requiring interpretation of the law, rules, policies, or procedures before final pension benefit payment can be determined. Continuing implementation surrounding ERS’ new information technology systems has also caused various undocumented changes to existing procedures.

The delays “create an economic hardship for those who are depending only on this retirement income to live on.”

The ERS request to exempt this contract from competitive procurement was rejected by the State Procurement Office, which said other potential vendors should be provided the opportunity to compete.

In addition, SPO noted that the ERS staff responsible for the procurement request, Machida and Gerri Konishi, “do not have written delegated procurement authority” and have not had the mandatory training. Both were barred from further participation in the procurement process until these requirements have been met.

Meanwhile, the ERS office shuts down on furlough Fridays.