Focusing on mushrooming retirement costs for the state, legislators Friday advanced a measure that would eliminate overtime in calculating pensions for new state and county employees starting July 1.

Senate and House negotiators embraced that approach rather than a higher-profile one that would have placed a cap on the amount of overtime used in pension calculations for new and current workers.

The latter approach was designed to address a practice called pension spiking and would have excluded from calculations any increase in nonbase pay exceeding roughly 20 percent over a worker’s final 10 years of employment.

Taking overtime out of the calculation for new employees could have a dramatic long-term effect on the state Employees’ Retirement System, which is facing an unfunded liability of more than $8 billion.

Such a step potentially could reduce pension liabilities by hundreds of millions, if not billions, of dollars over the next several decades, according to ERS Administrator Wes Machida.

To help curtail excessive overtime, lawmakers Friday also advanced a measure that requires state and county employers to cover costs to the pension system for current workers who exceed the 20 percent spiking threshold upon retirement.

The extra costs will serve as an incentive to employers to better manage overtime for their workers, said Sen. Clayton Hee, a lead Senate negotiator on the two pension bills that advanced.

House and Senate negotiators passed Senate Bill 1269 and House Bill 2487 with no objections. Both measures still must be adopted by the full House and Senate next week and get the approval of Gov. Neil Abercrombie before becoming law.

If the Legislature passes SB 1269, which eliminates overtime in pension calculations, this will be the second consecutive year in which lawmakers took steps to rein in soaring pension costs by cutting benefits for future workers.

That trend concerns Randy Perreira, head of the Hawaii Government Employees Association, the state’s largest public-sector union.

Government pay historically has lagged private-sector salaries, but the appeal of a good pension has helped attract and retain good state and county employees, Perreira said.

While he acknowledged that the state needs to address the problem of soaring pension costs, Perreira questioned whether the Legislature’s focus on future hires will hamper the government’s ability to attract qualified candidates down the road, hurting government operations in the long run.

“They’re making government employment less attractive,” Perreira added.

But Hee said the state no longer can afford to put off addressing soaring retirement costs.

He said legislative conferees opted for the future-employee approach over the current-worker one because of concerns that the latter would not survive a constitutional challenge.

There’s a strong belief that overtime is considered compensation under state law, and the state Constitution protects against the diminishment of compensation already earned, Hee said.

SB 1269 was introduced last year by the Abercrombie administration, but it stalled last session, largely because of union opposition. In its original form the bill applied to existing and future workers.

But as the measure went through the legislative process, it was amended to apply only to workers hired starting July 1.

The ERS’ anti-spiking bill, SB 2750, received more public attention during the session, but it took a narrower approach and would have had much less of an effect on the unfunded liability problem.

“This whole battle (over spiking) has been more symbolic than dollar-significant, frankly,” Perreira said.