The Hawaii Employees' Retirement System has filed a lawsuit against the state and Hawaii Health Systems Corp., a state-funded hospital network based in Honolulu, asking a state court to temporarily suspend a bill that aims to financially assist state employees at three hospitals Kaiser Permanente is privatizing, reports Honolulu Civil Beat.
The ERS wants the court to temporarily stop the implementation of Act 1, a law that provides severance payments or pension benefits to unionized public workers at Maui Memorial in Wailuku, Kula (Hawaii) Hospital and Clinic and Lanai Community Hospital in Lanai City while it consults with the Internal Revenue Service.
Hawaii Gov. David Ige (D) initially vetoed the bill last month over concerns it jeopardizes the ERS' tax-exempt status and that it fails to say where it will appropriate funding. But the Hawaii legislature voted later last month to override the veto.
The law intends to help hospital employees who may lose their jobs due to the pending Kaiser transfer by allowing them to choose between a one-time severance cash payment or a special early-retirement package, according to The Maui News.
However, according to the publication, the ERS said it is not allowed to offer employees these choices under the U.S. Internal Revenue Code, and claims it could lose its tax-qualified status if the law takes effect.
If the ERS lost this status, the group said employees would no longer be able to defer the payment of taxes on employee retirement contributions, reports Honolulu Civil Beat. The contributions would be taxed as income now instead of when they receive the benefits.
"As the steward of all the state and county employees' retirement, the ERS must do everything it can to protect its beneficiaries and the fund," ERS Executive Director Thomas Williams said in a statement, according to Honolulu Civil Beat. "All we want is to make sure this statute does not have the unintended consequence of jeopardizing the ERS plan."
Hawaii lawmakers, however, said the ERS had plenty of chances to work out its issues with the bill, The Maui News reports.
"The language that they're complaining about was in the bill when it was introduced back in January," State Sen. Gil Keith-Agaran said, according to The Maui News. "They only brought it up after the session in May. Since May they could've sought guidance from the IRS . . . but they didn't do that. Instead they pursued a veto."
State Sen. Roz Baker told the publication it would have been more appropriate for the ERS to ask for a tax ruling from the IRS, not file a lawsuit.