Hawaii ERS Retirement Options: Payment Options, Refund, Buyback

Updated October 2, 2026. Quick answer: Hawaii Employees’ Retirement System Hybrid plan members choose one option on the retirement application: the Maximum Allowance, Option One, Option Two with a 100% survivor, Option Three with a 50% survivor, or a refund option (Four or Five). The ERS says options can be changed only before the retirement date. The refund options require 10 years of credited service, and the more a member withdraws, the smaller the monthly pension. Post-retirement increases are 1.5% of the original pension each July 1 for members who joined after June 30, 2012, and 2.5% for earlier members, not compounded.

What this page covers and what it does not

This page works from two documents published by the Employees’ Retirement System of the State of Hawaii (ERS): the Hybrid Retirement Information summary (June 2022) and the 2026 retirement application packet. The packet bundles the service retirement application, a features-of-options sheet, a direct rollover election form, and the federal withholding notes the ERS sends with a retirement. The summary describes itself as only a summary that is subject to change, and says nothing in it overrides a state statute or rule.

The ERS also runs a Contributory and a Noncontributory plan, and the packet’s application lists options for all three. This page follows the Hybrid plan. For the state tax side, see Hawaii retirement taxes and does Hawaii tax pensions.

The election at retirement: what each option pays

The application instructions put the choice in one line: “Select your retirement plan and only one retirement option.” The Hybrid options are the Maximum Allowance, Options One, Two and Three, and Options Four and Five, which involve a refund. The last column of the table is the monthly pension from the ERS’s own worked example: a member retiring at age 60 with 30 years of service and a monthly average final compensation, or AFC, of $4,000, with a beneficiary aged 57.

Option Four also comes in versions that pair a refund with the Option One, Two or Three features, labeled (5 & 1), (5 & 2) and (5 & 3). Because the last column is one ERS example, not a rate, a different age, beneficiary age or service record produces different amounts, so a member should request the ERS estimate for the real dates. For the general trade between a larger check and a survivor benefit, see single-life versus joint-and-survivor pension.

Maximum Allowance versus the other options

The Maximum Allowance is the baseline the others are measured against. The summary describes it as “Highest lifetime monthly pension with no refund”, and lists the survivor side as “No lifetime survivor benefit”.

The formula is stated as “Years of Credited Service x AFC x Benefit Percentage = Maximum Allowance”. For a member whose membership date is after June 30, 2012, the summary applies a benefit percentage of 1.75%. A computed example from assumed inputs, not an ERS figure: 1.75% times 25 years of credited service, applied to an assumed monthly AFC of $3,200 (1.75 times 25 divided by 100, times 3,200), is a computed $1,400 a month as the Maximum Allowance.

Every other option trades some of that amount away. In the ERS worked example the Maximum Allowance is $2,340, Option Two pays $2,023, Option Three pays $2,176 and Option One pays $2,276. A computed example from those ERS figures: (2,340 minus 2,023) divided by 2,340, times 100, is a computed 13.5% lower for Option Two; the same formula gives a computed 7.0% lower for Option Three and a computed 2.7% lower for Option One. These percentages belong to that one example. The summary says only that “For survivor options, the younger the beneficiary the lower the monthly pension.” The pages read do not give the reduction factors.

Option One, the short-term insurance option

Option One is described as “Reduced lifetime monthly pension with no refund (short-term insurance)”. The summary explains the limit of that cover: “coverage depletes after approximately ten years”. For a younger member in good health it says “Option 1 may not be appropriate because of the likelihood that you will outlive the insurance reserve”. The insurance reserve figure in the ERS example ($314,126) belongs to that example, and the pages read do not explain how it is set.

Options Two and Three: paying a survivor for life

Option Two is the 100% survivor choice: “Reduced lifetime monthly pension for retiree with no refund and 100% continuing pension for beneficiary in the event of retiree’s death”. Option Three is the 50% choice: “Reduced lifetime monthly pension for retiree with no refund and 50% continuing pension for beneficiary in the event of retiree’s death”. On the packet’s features sheet the survivor payment also carries any cumulative post retirement increases for life.

Two limits matter. First, “Beneficiary cannot be changed after retirement”. The packet repeats it: “Another beneficiary cannot be named and all payments will terminate upon the death of the retiree.” Second, the retiree is protected if the beneficiary dies first: “Should the designated beneficiary predecease the retiree, the retiree’s reduced pension converts to the Maximum Allowance”.

A computed example from an ERS figure: the Option Three pension in the ERS example is $2,176, and the beneficiary’s continuing pension is 2,176 times 50 divided by 100, a computed $1,088, which matches the example. For the broader trade-offs see survivor benefit with a government pension.

A beneficiary who is not the spouse: the age-gap rule

A federal rule limits the 100% options for a beneficiary who is not the member’s spouse. The ERS rule reads: “If the age difference between the member and the non-spouse beneficiary exceeds the federal limit for 100% joint and survivor annuities, the member may not select Option 2 or Option 4 (5&2) under the Contributory and Hybrid plans”. The gap is the member’s age in the calendar year of retirement minus the beneficiary’s age in that year. If the member is younger than 70, the gap is reduced by the years below 70. The ERS then states: “If the adjusted age difference is more than ten years, the member may not select a retirement allowance option that provides a non-spouse beneficiary with lifetime benefits upon the member’s death at 100% of the amount that the member was receiving.”

Two computed examples from assumed ages, not ERS cases. With a member aged 60 and a beneficiary aged 40 in the year of retirement, the gap is 60 minus 40, which is 20, less the 10 years the member is below age 70, a computed 10 years, so the adjusted gap is not more than ten. With a member aged 62 and a beneficiary aged 40, the gap is 22, less 8 years below age 70, a computed 14 years, which is more than ten. A footnote in the summary says that for a non-spouse beneficiary who is over the limit, “Option Three will be available for the non-spouse”, and that the ERS determines eligibility, so confirm the result with the ERS before filing.

What cannot be changed, and the deadlines

The central rule is about timing. “Please be advised that retirement option changes are only allowed prior to your retirement date.” The application instructions say the same: “You may change your option at any time prior to your retirement date.” “Option changes are not allowed once your retirement is effective.” The option is therefore open until the retirement date and final after it. The pages read give no exception.

Several process rules shape how final that feels. On filing: “you may file your application no earlier than 150 days and not less than 30 days before your retirement date.” On repeats: “The first two service retirement applications may be cancelled prior to their effective date; however, retirement is mandatory on the third application.” On the spouse: “ERS must provide written notification of a member’s retirement date, option selection, and beneficiary designation to the member’s spouse/reciprocal beneficiary.” That sentence describes a notice. The pages read do not describe a requirement that the spouse consent in writing to a non-survivor option.

On the beneficiary, the packet says “A beneficiary must be designated for all options”. Two events the summary lists could leave a designation stale: “the beneficiary predeceases the member or former employee” or “the member or former employee is divorced from the beneficiary”. A related protection is on the features sheet: “Should death occur after filing an application or within the first year of retirement, the designated beneficiary may elect to receive the survivor benefit for the option selected by the member or the ordinary death benefit.”

Refund options: Options Four and Five

The refund options are tied to service. The summary says “Members with at least 10 years of credited service qualify for any one of the following refunds”. For Hybrid members the Option Four refund is described this way: “Withdrawal of the nontaxable pre-1987 contributions or 50% of the accumulated contributions, and a reduced lifetime monthly pension.” Option Five is the far end of the scale: “Lowest lifetime monthly pension for retiree with maximum refund of contributions”. It carries “100% refund of contributions (and interest) with possible tax consequences”.

The tradeoff the summary puts first: “The more you withdraw, the less your monthly pension will be.” Both documents tie the refund to the retirement application, so it is chosen with the option.

Taking a refund or leaving contributions in

The summary frames the decision as one about risk. It asks whether a member can manage investments or would rather “leave your contributions in for a higher monthly pension and leave the investment risks to the ERS”. It also asks the member to weigh taxes: “Are you willing to pay the additional federal taxes if you withdraw more than your nontaxable portion?” “If not, consider a rollover of your refund into an IRA account or qualified employer plan.” For the general version of this question see pension refund versus leaving it.

A taxable refund at retirement is paid in stages. The summary says “the estimated initial taxable refund payment or rollover amount is the balance in your account at the time the payment is made”. After that, “The final balance of the taxable refund will be made or rolled over to your IRA account or qualified employer plan when your pension is finalized.”

A separate warning concerns refunds taken earlier in a career. The service credit section says “Previously refunded Hybrid plan service cannot be acquired for retirement credit.” The pages read do not describe how a member who leaves ERS service before retirement applies for a refund, or what interest the account earns.

Rollover, withholding and a refund worked through

The direct rollover form in the packet is for Contributory and Hybrid members. It offers no direct rollover, a full direct rollover or a partial direct rollover. On withholding, the form states: “By federal law, at least 20% of the taxable portion that is not directly rolled over must be withheld for federal income taxes.”

A computed example from an assumed $80,000 of accumulated contributions, not an ERS figure: a 50% Option Four refund is 80,000 times 50 divided by 100, a computed $40,000. If that $40,000 were fully taxable and paid to the member instead of rolled over, the 20% withholding would be 40,000 times 20 divided by 100, a computed $8,000, leaving a computed $32,000 in cash. A direct rollover of the same amount avoids the withholding. In a real case part of a refund can be nontaxable, so the ERS notes and a tax preparer decide the split.

Buying and crediting service

Additional service credit is a pre-retirement action. The summary says “You must file a claim with the ERS before you retire.” and “All purchases must be completed prior to your retirement date.” For the cost question, the pension buyback calculator helps once the ERS gives a figure.

Some service comes back at no cost: “Previously refunded State or County service earned while in the Contributory plan, which was forfeited after termination, will be acquired on a monthly basis at no cost.” The pages read do not state how this interacts with a Hybrid refund.

Unused sick leave also adds service credit. “Sixty days of unused sick leave would increase the employee’s years of service by 3 months; each additional 20 days would provide 1 more month of service credit as would any balance of 10 or more days.” A computed example from an assumed 100 days of unused sick leave, not an ERS figure: the first 60 days give 3 months, and the other 40 days at 1 month per 20 days add 2, so 3 plus (100 minus 60) divided by 20 is a computed 5 months.

Post-retirement increases and vesting

Increases are stated as a flat rule: “All pensions are subjected to a 2.5% (for membership dates prior to July 1, 2012) or 1.5% (for membership dates after June 30, 2012) on the original pension amount each year on July 1, following the calendar year of retirement.”

A computed example from an assumed $2,000 original monthly pension and the 1.5% rate, not an ERS figure: each July 1 increase is 2,000 times 1.5 divided by 100, a computed $30, and after three increases the pension would be 2,000 plus 3 times that, a computed $2,090 a month, because the increase is not compounded.

On vesting, the summary’s death benefit text uses these thresholds: “For membership dates before July 1, 2012, and vested with 5 or more years of service credit”, and “For membership dates after June 30, 2012, and vested with 10 or more years of service credit”. The summary’s eligibility chart pairs these with a normal retirement age of 62 with 5 years of service or 55 with 30 years for the earlier group, and 65 with 10 years or 60 with 30 years for members after June 30, 2012.

Figures in the sources

What the IRS adds on tax

A refund or lump sum from a public pension is a distribution, so the IRS rules apply on top of the ERS’s own. On withholding, the IRS says that a taxable eligible rollover distribution paid to you “is subject to mandatory income tax withholding (generally at a rate of 20%), even if you intend to roll it over later”, and that if you roll it over yourself “you’ll have to add funds from other sources equal to the amount withheld”. The packet’s rollover form states the same 20% federal withholding on a taxable portion not directly rolled over, and a direct rollover is the route the form gives for avoiding it. The rollover clock, if the money is paid to you: “you have 60 days from the date you receive it to roll it over to another eligible retirement plan”.

On early distributions the IRS says “the law imposes a 10% additional tax on certain early distributions from certain retirement plans”. Its list of exceptions includes “Distributions made to you after you separated from service with your employer after attainment of age 55” and “Distributions made to a qualified public safety employee from a governmental plan”. Whether an exception fits a particular refund depends on your own plan and facts, so confirm it with a tax preparer before you take one.

What this page could not settle

• The pages read do not state the reduction factors for Options One, Two, Three or Four; the only amounts are those in the ERS’s single worked example.
• The pages read do not describe a lump sum other than the refund of contributions under Options Four and Five, and do not describe a DROP or a partial lump sum option.
• The pages read do not state how a Hybrid member who leaves service before retirement applies for a refund, what interest the account earns, or any forfeiture.
• The pages read do not state whether a spouse must consent in writing to an option that pays no survivor benefit.
• The pages read do not state the price of buying service other than that the military service amount is set actuarially.
• The pages read do not describe the Contributory or Noncontributory plan terms beyond the option names on the application, or the pre-1987 nontaxable amount for a particular member.

Common mistakes

• Treating the option as changeable after the retirement date; the ERS says changes are not allowed once retirement is effective.
• Assuming the Maximum Allowance leaves a survivor a lifetime pension; the summary lists no lifetime survivor benefit under it.
• Taking a larger refund without weighing that the more a member withdraws, the lower the monthly pension.
• Naming a non-spouse beneficiary much younger than the member and expecting a 100% survivor option; the federal age-gap rule can block it.
• Expecting a refunded Hybrid plan period to be bought back later; the summary says previously refunded Hybrid plan service cannot be acquired.

Related on this site: Hawaii retirement taxes, does Hawaii tax pensions, single-life versus joint-and-survivor pension, survivor benefit with a government pension, pension refund versus leaving it, pension buyback calculator and public pension retirement decisions by system.

Sources

• Hawaii Employees’ Retirement System, source 1: https://ers.ehawaii.gov/wp-content/uploads/2022/06/Retirement-Information-Hybrid-eff.-6.2022.pdf
• Hawaii Employees’ Retirement System, source 2: https://ers.ehawaii.gov/wp-content/uploads/2026/01/2026-Retirement-Application-Packet.pdf
• IRS, Topic no. 413, Rollovers from retirement plans (irs.gov): https://www.irs.gov/taxtopics/tc413
• IRS, Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs (irs.gov): https://www.irs.gov/taxtopics/tc558

Sources: the primary documents linked above, read on October 2, 2026. General information from each system’s own published materials, not legal, tax or financial advice. Your own member statement and the system’s current rules decide your benefit, and a pension counsellor at the system or a fee-only adviser is the right place to confirm anything consequential.