The board that oversees Hawaii’s retirement system for state and county workers is unanimously backing a proposal to limit the amount of overtime and other nonbase pay used to calculate pensions for all employees, not just future hires.

The measure, which was announced Tuesday and is designed to address a problem known as pension spiking, is a significant change from what state lawmakers had been discussing to help rein in soaring costs for retiree benefits.

A bill that was carried over from last year’s legislative session would remove overtime pay from pension calculations for future hires — not existing workers. The latter group was removed from the bill largely because of opposition from public-sector unions.

But the eight-member Employees’ Retirement System board of trustees, which includes a firefighter, teacher and president of the state’s the largest public workers union, last week unanimously endorsed an anti-spiking measure that basically would exclude from the calculation increases in nonbase pay topping 20 percent over the final 10 years of employment.

Spiking refers to the practice of public employees increasing their overall compensation by significant amounts — often by working huge chunks of overtime — at the tail end of their careers, thereby substantially boosting their future pensions. Retirement payments are based partly on a worker’s three highest years of compensation.

The ERS bill is being introduced this week in the legislative session that begins today. The proposal offers lawmakers an alternative to the overtime measure that went through multiple versions last year, ultimately stalled and was carried over to this year.

State Sen. Clayton Hee, who heads the Senate’s Judiciary and Labor Committee, said the unanimous backing by the ERS board for the new proposal is significant and substantially increases the chances that an anti-spiking bill will pass this session.

"We can’t just keep kicking the can down the road," Hee said.

Based on the 20 percent threshold and other factors, ERS Administrator Wes Machida told legislators at a Tuesday briefing that roughly 675 of nearly 5,000 workers who retired from 2008 through 2010 fit the spiking criteria. Those cases, he said, added roughly $40 million to the retirement system’s unfunded liability and, projected over a 10-year period, could increase it by as much as $150 million.

As of June 30 the system’s overall unfunded liability totaled $8.2 billion, a 15 percent jump from a year earlier and an eightfold increase from a decade ago. The shortfall represents the cost of covering future retiree payments beyond what the system is projected to have on hand.

If the Legislature had adopted the original version of last year’s overtime bill, which removed such pay from pension calculations for all workers, the retirement system’s unfunded liability would have dropped by $500 million, according to testimony from state Budget Director Kalbert Young.

The anti-spiking bill being pushed now at the Legislature is just one way the state is attempting to address the fundamental problem of a retirement system that essentially is paying out more than it is taking in, a trend that eventually will lead to the fund drying up if unchecked. More than 112,000 members, including about 40,000 retirees and their beneficiaries, rely on the system.

To tackle some of the financial challenges facing the retirement system, the Legislature last year passed a reform bill that reduces benefits, raises the retirement age and increases employee contributions for new hires starting in July. It also increases employer contributions for all workers in July.

The new ERS proposal would apply to all new county and state hires starting July 1 and to existing employees after three years. During those initial three years, employers would have to pay to the ERS an amount that covers the increased unfunded liability of workers who fit the spiking criteria.

Machida told legislators that 15 states have anti-spiking provisions, and at least 10 public pension systems exclude or restrict overtime in calculating pensions. The 20 percent option, which was adopted by the ERS board last week, is about midrange among the states with thresholds, he added.

In addition to addressing the unfunded liability concerns, the bill would reduce inequities in the system, given that employers unaffected by spiking still must pay for a portion of the unfunded liabilities, Machida said.

Randy Perreira, executive director of the Hawaii Government Employees Association, the state’s largest, said his union does not oppose changes that will ensure the pension system remains financially viable over the long haul.

But he said his organization won’t take a position on the ERS proposal until more details are available so the union can better determine how its members would be affected. Most HGEA members do not work large amounts of overtime, according to Perreira.

Noting that employees are required to contribute to the retirement system based on their overall compensation, not just on base pay, Perreira said HGEA generally opposes outright exclusions of premium pay, such as overtime, from pension calculations.

The type of workers more likely to be affected by an anti-spiking measure would include paramedics, police officers, firefighters, prison guards and other personnel who work in critical around-the-clock operations and can earn substantially more than their base salaries through overtime approved by supervisors.

The highest-paid worker for the city’s ambulance operation, for instance, earned nearly $150,000 in nonholiday overtime in fiscal 2009, significantly boosting a base salary of $60,072, according to a city audit.

Unions representing those workers did not respond to Star-Advertiser requests for comment Tuesday.