WHAT IS THE HAWAII ISLAND $AVINGS PLAN?

For public employees in the State of Hawaii, building a secure financial future is a top priority, especially when crafting a Hawaii island savings plan. While the Employees' Retirement System (ERS) and Social Security provide a strong foundation, a truly comfortable retirement often requires an additional layer of personal savings. This is precisely where the Hawaii Island $avings Plan comes in—a powerful tool designed to help you bridge the gap between your foundational benefits and your long-term retirement goals.

The Hawaii Island $avings Plan, a 457(b) deferred compensation plan, is one of the most valuable retirement benefits offered to state and county employees. It provides a voluntary, tax-advantaged way to save and invest for the future, allowing you to take greater control of your financial future.

Navigating the rules, contribution limits, and investment options for your Island $avings Plan can seem complex at first. This comprehensive guide serves as an authoritative resource, demystifying the plan and empowering you to make informed decisions. We cover everything from the plan's core definition and eligibility requirements to detailed strategies for enrollment, contribution management, and accessing your funds. By the end, you will have a clear understanding of how this essential benefit can enhance your overall financial planning and help you build a more secure and prosperous retirement.

At its core, the Island $avings Plan is a voluntary retirement savings program that allows eligible public employees to set aside a portion of their salary for retirement. The term "deferred compensation" simply means you are deferring, or postponing, the receipt of a part of your income until a later date, typically after you retire.

The key feature of a traditional 457(b) plan is its tax advantage. Contributions are made on a pre-tax basis, which means the amount you contribute is deducted from your paycheck before federal and state income taxes are calculated. This has two immediate benefits: it lowers your current taxable income, potentially reducing the amount of tax you pay each year, and it allows your investments to grow tax-deferred. You won't pay taxes on your contributions or any investment earnings until you withdraw the money in retirement. The plan is specifically designed to supplement your primary retirement benefits from the State of Hawaii ERS and the Social Security Administration, providing an additional source of income in retirement.

The Island $avings Plan is a state-sponsored benefit, established by the Hawaii State Legislature and overseen by the State of Hawaii through its Department of Budget and Finance. The State acts as the plan sponsor, ensuring the program complies with all federal and state regulations and serves the best interests of its employees.

However, the day-to-day administration and recordkeeping are handled by a third-party administrator. Empower Retirement is the current administrator for the Island $avings Plan, providing the technology platform, investment options, and customer service for participants through the Island$avings Plan website.

Participating in the Island $avings Plan is a strategic financial decision that offers significant long-term advantages. While the ERS pension provides a defined benefit, this plan gives you direct control over a portion of your retirement savings, allowing you to tailor your investment strategy to your personal goals and risk tolerance.

Key benefits include:

• Immediate Tax Savings: Pre-tax contributions lower your current taxable income, meaning you pay less in taxes today.
• Tax-Deferred Growth: Your investments grow without being taxed annually on dividends, interest, or capital gains, allowing for more powerful compounding over time.
• Supplemental Retirement Income: The plan provides a crucial third pillar of retirement income, alongside your ERS pension and Social Security, helping to ensure you can maintain your desired lifestyle.
• Flexibility and Control: You decide how much to contribute (within plan limits) and how to invest your money from a diversified menu of options.
• Portability: If you leave public employment, you have several options for your account, including rolling it over into another eligible retirement plan.

The standard contribution limit for 457(b) plans is set by the IRS each year. For 2025, the maximum annual contribution limit for 457(b) plans is $23,500, or 100% of your includible compensation, whichever is less. This contribution cap concerns only your personal contributions to the plan. Unlike some other retirement plans, the deferral limits for a 457(b) account are independent. This means that if you're eligible for multiple retirement plans, like a 403(b), your contributions to one do not impact the maximum limits of the other.

The Island $avings Plan offers two valuable "catch-up" provisions designed to help long-term employees accelerate their savings as they approach retirement. These provisions allow eligible participants to contribute amounts above the standard annual limit.

• Age 50+ Catch-Up: This is the most common catch-up provision. If you are age 50 or older during the calendar year, you are eligible to contribute an additional amount. For 2025, employees aged 50 or older can contribute an extra $7,500 as a catch-up contribution. This raises the total potential contribution to $31,000 for the year.
• Special 3-Year Catch-Up: This is a unique feature of governmental 457(b) plans. If you are within the three years prior to your designated "normal retirement age" (as defined by the plan), you may be eligible to contribute up to double the standard annual limit. For 2025, this could be as much as $47,000 ($23,500 x 2). To qualify, you must have not contributed the maximum amount in previous years of eligibility. The total special catch-up amount is limited to the sum of the underutilized contributions from prior years.
  

You cannot use both the Age 50+ Catch-Up and the Special 3-Year Catch-Up in the same year; you can use whichever allows for a greater contribution.

The Island $avings Plan is an exclusive benefit for employees of the State of Hawaii and participating county governments. Understanding the specific eligibility criteria is the first step to determining if you can take advantage of this valuable retirement savings tool. The rules are generally inclusive, but they depend on your employer and employment status.

Participation in the Island $avings Plan is open to a broad range of public employees across the Hawaiian Islands. If you are an employee of one of the following government entities, you are generally eligible to sign up and start contributing:

• State of Hawaii: This includes employees of all executive, legislative, and judicial branch departments.
• City and County of Honolulu
• County of Hawaii
• County of Kauai
• County of Maui
  

This wide-ranging eligibility ensures that a majority of public servants in Hawaii have access to this supplemental retirement benefits program. The plan is voluntary, so eligible employees must proactively enroll to begin participating.

Both full-time and part-time permanent employees are typically eligible to enroll from their date of hire. Independent contractors are not eligible to participate.

Life and careers are dynamic, and your employment status may change over time. Here’s how common changes can affect your Island $avings Plan account:

• Promotion or Transfer: If you are promoted or transfer to another position within a participating employer (e.g., moving from one State department to another, or from the State to a participating County), your plan participation continues seamlessly. Your contributions will continue to be deducted from your paycheck.
• Separation from Service: If you leave your job with the State or a participating county (due to retirement, resignation, or termination), your contributions will stop. However, the money in your account remains yours. You will have several options:
• Leave the money in the plan: You can keep your account with the Island $avings Plan, where it can continue to grow tax-deferred.
• Rollover & Transfers: You can roll over your balance to another eligible retirement plan, such as a 401(k), 403(b), or an Individual Retirement Account (IRA).
• Take a distribution: You can withdraw your funds, which will be subject to ordinary income taxes.
• Moving to a Non-Participating Employer: If you move to a public agency in Hawaii that does not participate in the Island $avings Plan, your situation would be the same as a separation from service. You would no longer be able to make new contributions.
  

Your vested balance is always 100% yours, regardless of your length of service. This means all your contributions and any earnings they have generated belong to you.

Enrolling in the Island $avings Plan is a straightforward process designed to be user-friendly. Taking this proactive step is one of the most significant actions you can take to secure your financial future. The entire process is managed through the plan’s dedicated online portal, making it accessible and convenient to get started on your retirement savings journey.

The central hub for all plan-related activities is the official Island$avings Plan website, which is powered by Empower Retirement. This portal is your gateway to enrollment, account management, and educational resources. To begin, you will need to access the website and follow the clear prompts for new users to begin the registration process. Key steps include the following:

• Access the Enrollment Portal: From the Island$avings Plan website, look for a "Register" or "Enroll Now" button.
• Provide Personal Information: You will be prompted to enter personal identification details, such as your Social Security number, date of birth, and home address. This is necessary to verify your eligibility as a public employee.
• Create Your Online Account: Choose a unique username and a secure password. You will also set up security questions to protect your account.
• Set Your Contribution Amount: Decide how much you want to contribute per pay period. You can choose a flat dollar amount or a percentage of your pay.
• Designate Your Beneficiaries: You will be asked to name primary and contingent beneficiaries—the individuals who would inherit your account in the event of your death.
• Select Your Investments: Choose how your contributions will be invested from the plan's menu of available funds. If you're unsure, many plans offer target-date funds that automatically adjust their asset allocation based on your expected retirement date.
  

Once these steps are complete, your enrollment is submitted. The necessary information will be forwarded to your employer's payroll department to begin your pre-tax deductions.

While saving is the primary focus during your career, understanding how and when you can access your money is a crucial part of long-term financial planning. Generally, you can access funds from your Island $avings Plan account without a 10% early withdrawal penalty, upon experiencing a "triggering event." For the Island $avings Plan, these events include:

• Separation from Service: This is the most common trigger. It includes retirement, resignation, or termination from your employment with the State or a participating county. You can begin withdrawals immediately upon separation, regardless of your age.
• Death: If you pass away while you have a balance in the plan, your designated beneficiaries will be entitled to receive the funds.
• Disability: In the case of a qualifying total and permanent disability, you may be eligible to access your funds.
• Unforeseeable Emergency: In rare cases of severe financial hardship, you may apply for what is known as a Hardship Withdrawal Request. This is subject to strict IRS criteria.
  

The plan is designed for long-term savings, so in-service withdrawals while you are still employed are highly restricted.

Hardship Withdrawal Requests: The "unforeseeable emergency" or hardship withdrawal allows employees to access their funds under strict conditions while still employed, and is not for routine expenses. Defined by the IRS, qualifying reasons include severe financial hardship due to illness or accident, property loss from a casualty, imminent foreclosure or eviction, and burial or funeral expenses for close family members. The withdrawal is limited to the necessary amount to alleviate the hardship and is subject to ordinary income tax.

Understanding the nuances of retirement plans is important for making informed decisions. Here, we address some common questions about deferred compensation plans and the Island $avings Plan:

Q: What are the disadvantages of a deferred compensation plan?
A: A primary concern is the lack of liquidity; funds are usually not accessible until you leave the employer. Additionally, potential changes in tax rates could impact the value of your withdrawals.

Q: Is a deferred compensation plan the same as a 401(k)?
A: No, a deferred compensation plan, like the 457(b) Island $avings Plan, is not the same as a 401(k). Both are tax-advantaged retirement savings plans, but there are key differences. A 457(b) plan, often offered to state and local government employees, allows penalty-free withdrawals after separation from service, regardless of age. A 401(k), on the other hand, imposes a 10% early withdrawal penalty if funds are accessed before age 59½, unless specific exceptions apply.

Q: What happens to deferred compensation if I quit?
A: If you quit your job, you can typically leave your funds in the deferred compensation plan or roll them over to another eligible retirement account, such as an IRA or another employer-sponsored plan. Each choice has different implications for access, fees, and investment options, so it's important to carefully consider your options.

Q: Is a deferred compensation plan better than a Roth IRA?
A: Whether a deferred compensation plan is better than a Roth IRA depends on your individual financial situation and retirement goals. A deferred compensation plan offers the benefit of pre-tax contributions, potentially reducing your taxable income now, while a Roth IRA involves after-tax contributions with tax-free withdrawals in retirement. Consider factors such as your current tax rate, expected tax rate in retirement, income needs, and investment preferences when choosing between the two.

Q: What should I know about Island $avings Plan fees?
A: When participating in the Island $avings Plan, it's crucial to be aware of any associated fees as they can impact your overall investment returns. These fees may include administrative fees, investment management fees, and specific fees related to individual investment options. Be sure to review the plan's fee disclosure statements and consult with a financial advisor if needed for a thorough understanding.

The Island $avings Plan stands as a strategic tool for Hawaii's state and county employees in planning for retirement. As a robust 457(b) deferred compensation plan, it offers significant benefits such as tax advantages, tax-deferred growth, and flexible investment strategies. It complements your ERS pension and Social Security benefits.

• Understand the Plan: Familiarize yourself with the plan’s eligibility requirements, contribution limits, and withdrawal rules. Knowing these aspects can help you maximize your savings potential.
• Utilize Tax Benefits: The plan offers immediate tax advantages and the opportunity for tax-deferred growth—key features that can compound to significantly increase your savings over time.
• Take Action: The online tools provided by Empower Retirement simplify account management. Begin your journey now by visiting the Island $avings Plan website, reviewing resources, and exploring investment options.
• Enroll and Contribute: If you're not yet participating, take the simple step of enrolling. Consistent contributions, no matter how small, can accumulate to impressive amounts over the years.
• Regularly Review: If you are currently enrolled, examine your account regularly. Adjust your contributions and investment allocations as necessary, especially during financial milestones such as pay raises.
• Seek Guidance: Leverage educational resources and webinars offered by Empower and Hawaii State Investment Services to enhance your understanding and confidence in managing your plan effectively.