Kaimuki resident Ward Fukunaga can only wish he had the pension benefits that state and county workers receive. As a self-employed businessman, he hasn't been able to save anything for his retirement.

"When you're in the private sector, you take that risk," said the 34-year-old Fukunaga.

Hawai'i's more than 63,000 state and county workers are enrolled in a traditional pension plan that guarantees payments for life, a benefit that is becoming more rare among private employers.

Only four in 10 Hawai'i companies offer traditional pensions, according to one survey. The move away from traditional plans is prompted by the high cost. This year taxpayers will contribute $400 million, or about $300 per person, to the pensions of state and county workers.

Is it time to consider a less expensive pension system for government workers?

"It's something that people should talk about," said state Rep. Kirk Caldwell D-24th (Manoa, Manoa Valley, University). "They're going to have to be looking at some of the things the private sector is doing."

Corporations such as IBM, Hewlett-Packard and General Motors are moving away from traditional pensions to less expensive 401(k)s or similar plans. Locally, Aloha Airlines plans to shed much of its pension obligation as part of its recent bankruptcy. First Hawaiian Bank and Bank of Hawaii froze their pension plans more than a decade ago.

The effect is to shift much of the responsibility and risk of investing for retirement onto the employee.

In Hawai'i, the state and counties are taking on the bulk of that risk for their workers and the cost is significant. Even though the state and counties paid about $329 million into the pension fund last fiscal year, the unfunded liability, or the amount of future payments it has yet to fund, grew by $596 million, to a record $4.07 billion.

To put that in perspective, $4 billion is about equal to the total tax revenue the state collected last year.

"How can you not be concerned about $4 billion when you are only taking in $4 billion a year," said Kailua resident Dudley Foster, 78, who worries about the tax burden the pension may place on younger generations.

The alternative to traditional pensions is a defined-contribution plan, where the employer promises to contribute a certain amount toward the employee's retirement fund. It is then up to the employee to invest that money wisely to make sure it lasts as long as the employee lives.

While corporations are gravitating toward the defined-contribution plans, only two state governments, Michigan and Alaska, are making the switch. California Gov. Arnold Schwarzenegger faced a torrent of criticism from public worker unions when he proposed such a move last year for the Golden State.

Proponents of traditional pensions say switching won't produce cost savings automatically or make the unfunded liability go away in the short term. They also contend the change could pose a problem for government managers trying to attract and retain workers, while possibly resulting in more people seeking public assistance in their retirement years.

"We would oppose that," said Randy Perreira, deputy executive director of the Hawaii Government Employees Association, which has 27,000 active employees and 9,000 retirees among its membership.

"The retirement system has plans to address these long-term liabilities and we shouldn't overreact at this point."

Hawai'i's government pension fund, operated by the Employees' Retirement System, has more than $9.2 billion in assets and is in no danger of failing. It receives funding from the state and counties, as well as returns on its investments and to a smaller extent, employee contributions. Up until recently the governments could hold off paying their full contribution into the fund, using excess returns from the investments to offset their own payments.

That, coupled with three sub-par investment years this decade, combined to give the ERS its large unfunded liability. The Lingle administration and the state Legislature have committed to paying down the liability with a 25-year plan.

Defined-contribution advocates say there's always a risk that legislators could go back on their vow to make the fund whole, either by skimming excess investment return in tough times, or by raising benefits for retirees.

They say by converting to a 401(k), or some other defined-contribution plan, the state would only contribute a set amount each year and wouldn't have to worry about a plan's unfunded liability, or shortfalls in investment returns.

Still, switching to a defined-contribution plan might not result in cost savings to the state and counties for years to come.

When governments change to defined-contribution plans, it doesn't necessarily produce the same cost reductions as with corporations because the private sector faces more stringent administrative burdens and costs for their pension plans, the National Association of State Retirement Administrators said last year.

Moreover, the state still would have to deal with the unfunded liability issue and probably administer the pension plan for the next century until the last retiree or designated beneficiary passes away.

The California Legislative Analyst's Office noted a switch to a defined-contribution program in that state would take several decades to phase in and produce savings.

There's also the issue of retirees having guaranteed monthly pension payments versus having to watch over their own investments and save enough to see them through their twilight years.

"Unfortunately, most employees are at best mediocre investors, unlikely to generate an investment return that will ensure an adequate level of retirement income," according to the retirement administrator association, which also cites research showing most people don't save adequately for their retirement.

Caldwell, the state representative, favors paying down the ERS liability and overfunding it so it becomes self-sustaining. He also believes a discussion of defined-contribution plans needs to take place.

"These are extremely difficult decisions that have to be made, yet they have to be made whether you're in the public or private sector."

Reach Greg Wiles at gwiles@honoluluadvertiser.com.