The shortfall in Hawaii’s largest public pension fund climbed to an all-time high of $13.41 billion last year and is expected to keep rising until 2024.

It will take 25 years, until June 30, 2043, before the pension is 100 percent funded, according to an actuary report from Gabriel Roeder Smith that was adopted last week by trustees of the Employees’ Retirement System. The ERS provides retirement, disability and survivor benefits to 124,089 active, retired and vested former state, city and county employees.

Although the report might seem alarming at first glance, ERS Executive Director Thom Williams said beneficiaries should not worry about receiving their benefits.

“If there were no pension reforms in place or contribution increases scheduled then worry might be appropriate,” he said. “But the opposite is true. In fact, members should be encouraged. It’s just going to take some time. We’re managing the plan with conservative assumptions and contribution increases legislated that will not only lower the unfunded liability over time but eliminate it entirely.”

The ERS shortfall — the difference between ERS funds and the money needed to pay beneficiaries — was $12.93 billion at the end of fiscal year 2017 and is projected to reach $14.19 billion by 2023 before reversing direction.

“An increase in the plan’s unfunded liability was fully expected,” Williams said. “Liabilities will continue to grow over the next several years while contribution increases are phased in and the new tier of employee benefits gradually covers a larger segment of our membership.”

The funded ratio — what is needed to meet future pension obligations — improved slightly in the fiscal year that ended June 30, to 55.2 percent from 54.9 percent a year earlier.

“The plan’s funded ratio improved because the assets available to pay benefits increased at a slightly higher rate than our liabilities,” Williams said. “We anticipate a similar result over the next few years. Thereafter, our funded ratio will begin to increase and our unfunded liability decrease at a more rapid pace.”

The pension fund had a market value of $16.6 billion in assets as of June 30. It has a 7 percent annual investment target and achieved a 7.9 percent return in fiscal 2018..

Lawmakers passed legislation in 2017 to close funding shortfalls that were created partly due to existing unfunded liabilities, retirees living longer and lower projected investment returns.

Public employee pensions are supported by government contributions, namely tax dollars, that are based on a percentage of an employee’s pay. For the ERS pension fund to become whole, state and county employers began increasing the contribution percentage starting July 1, 2017, with the increases being phased in over four years for general workers and police and fire employees.

Those higher payments into the fund will help cut into the shortfall in future years. The added money from taxpayers was reported at the time to raise an additional $34.6 million in fiscal 2018 and is expected to bring in an additional $70.7 million in fiscal 2019, $176 million in 2020 and $252 million in 2021.

The employer contribution rate for police and fire employees increased from 28 percent of an employee’s pay in fiscal 2018 to 31 percent in fiscal year 2019 and is scheduled to go to 36 percent in fiscal year 2020 and 41 percent in fiscal year 2021. The employer contribution rate for all other employees increased from 18 percent in fiscal 2018 to 19 percent this year and is set to rise to 22 percent in fiscal year 2020 and 24 percent in fiscal year 2021. The contribution rates are expected to stay at these levels until the system is fully funded.

Williams said it is imperative the increases remain in place.

“This outcome (of being fully funded by 2043) relies principally on our receipt of the legislated increases,” he said. “Any failure to implement the increases as planned will result in higher overall costs and the period to full funding being pushed further out. I can’t emphasize enough how important it is that we receive the promised increases. Increased contribution rates will result in approximately $15 billion of expected savings over the 25-year funding period.”

Williams said the pension plan’s investments also need to achieve their targeted returns.

“Our long-term forecast assumes that all ‘plan assumptions,’ including an assumed investment return of 7 percent annually, will be met,” Williams said. “Near universal consensus is that global investment returns are likely to be somewhat muted over the next several years. Longer-term forecasts are more positive.”