Funding of state and county employees' retirement benefits could be boosted to $500 million annually by 2009 under legislation aimed at shoring up the pension plan.

Lawmakers want to increase the government's contribution to the fund to make sure it will be able to pay future retiree benefits. In December, an actuary told the state Employees' Retirement System that this so-called unfunded liability had grown by $1 billion in the past year and that the state's funding of its public employee pension plan was among the lowest in the country.

While the ERS has more than $10.7 billion in assets and has no problem paying retirement benefits to former public workers, the state and counties haven't funded $5.3 billion for future benefits. The funding shortfall developed over a 35-year period when the state and counties diverted more than $1.69 billion owed the ERS to other programs during tight budgetary times.

The state and county diversions ended several years ago, but the state is still dealing with the aftermath. The report said Hawai'i has only 65 percent of its future liability funded, one of the lowest percentages among state pension funds.

Moreover, the increase in unfunded liability discovered last year means it will take longer for the state and counties to pay down this unfunded liability. The ERS actuary calculated the liability grew because of increasing payrolls and some retirees living longer, among other factors.

The "2006 actuarial analysis indicated that the current employer contribution rates are not sufficient to amortize the ERS' unfunded accrued liability within the 30-year period established by the Government Accounting Standards Board," ERS Administrator David Shimabukuro told a House committee earlier this month.

The bill pending before the Legislature calls for increasing contributions starting in the 2009 fiscal year and for banning any retiree benefit enhancements until the ERS becomes fully funded.

Under it, employer contributions for police, firefighters and some corrections officers would be increased to 19.7 percent of compensation from the current 15.75 percent.

For all other workers, the contribution rate would be raised to 15 percent from 13.75 percent.

The state and counties will pay in $451.6 million this fiscal year, the ERS actuary estimates. In fiscal year 2008, it's projected the governments' contributions will rise to $467.5 million.

The ERS is working with the actuary to determine what the estimated payment would be in fiscal year 2009 if the new contribution rates go into effect, Shimabukuro said.

The amount could top $500 million if the proposed contribution rates go into effect.

Reach Greg Wiles at gwiles@honoluluadvertiser.com.