STAND. COM. REP. NO. 1013

 

Honolulu, Hawaii

                  

 

RE:    H.B. No. 805

       H.D. 1

       S.D. 1

 

 

 

Honorable Donna Mercado Kim

President of the Senate

Twenty-Seventh State Legislature

Regular Session of 2013

State of Hawaii

 

Madam:

 

     Your Committee on Judiciary and Labor, to which was referred H.B. No. 805, H.D. 1, entitled:

 

"A BILL FOR AN ACT RELATING TO FEDERAL TAX QUALIFICATION OF THE EMPLOYEES' RETIREMENT SYSTEM,"

 

begs leave to report as follows:

 

     The purpose and intent of this measure is to amend the Employees' Retirement System laws to comply with Internal Revenue Code requirements and vesting rules in order to maintain the system's status as a tax-qualified retirement plan.

 

     Your Committee received testimony in support of this measure from the Department of Budget and Finance and Board of Trustees of the Employees' Retirement System.

 

     Your Committee finds that the Employees' Retirement System (ERS) is a tax-exempt, qualified retirement plan under section 401(a) of the Internal Revenue Code.  If the ERS should lose its tax-exempt status, the federal tax consequences would be extremely harmful to its members as contributions received from employee members would no longer have favorable pre-tax treatment and instead would be entirely subject to federal income tax at the time of contribution.  In addition, all members would be taxed on the value of their total accrued retirement benefits at the time they vest rather than when they receive their retirement benefits.

 

     In 2009, the ERS submitted a request to the Internal Revenue Service to review and determine whether the language of the plan, comprising the statutes and administrative rules governing the ERS, meets the federal tax qualification requirements applicable to governmental pension plans.  On March 21, 2012, the Internal Revenue Service issued a favorable determination letter approving the language of the plan, but the letter was specifically conditioned on the State's adoption of proposed amendments that the Internal Revenue Service reviewed and approved as part of the determination letter process.  This measure adopts these proposed statutory amendments to complete the determination letter process and enable the ERS to maintain its tax-exempt status.

 

     Your Committee has amended this measure by making technical, nonsubstantive amendments for the purposes of clarity and consistency.

 

     As affirmed by the record of votes of the members of your Committee on Judiciary and Labor that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 805, H.D. 1, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 805, H.D. 1, S.D. 1, and be referred to the Committee on Ways and Means.

 

Respectfully submitted on behalf of the members of the Committee on Judiciary and Labor,

 

 

 

____________________________

CLAYTON HEE, Chair