LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session Revision 1 April 8, 2001 TO: Honorable Dale B. Tillery, Chair, House Committee on Pensions & Investments FROM: John Keel, Director, Legislative Budget Board IN RE: HB2464 by Tillery (Relating to the Judicial Retirement System of Texas Plan One and the Judicial Retirement System of Texas Plan Two.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB2464, As Introduced: negative impact of $(13,965,000) through * * the biennium ending August 31, 2003. * * * * The bill would make no appropriation but could provide the legal * * basis for an appropriation of funds to implement the provisions of * * the bill. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2002 $(6,783,000) * * 2003 (7,182,000) * * 2004 (7,368,000) * * 2005 (8,056,000) * * 2006 (8,237,000) * **************************************************** All Funds, Five-Year Impact: ************************************************************************** *Fiscal Probable Probable Revenue Probable * * Year Savings/(Cost) from Gain/(Loss) from Savings/(Cost) from * * General Revenue Fund General Revenue Fund Judicial Fund * * 0001 0001 0573 * * 2002 $(6,553,000) $(230,000) $(949,000) * * 2003 (6,974,000) (208,000) (982,000) * * 2004 (7,105,000) (263,000) (1,002,000) * * 2005 (7,808,000) (248,000) (1,092,000) * * 2006 (7,955,000) (282,000) (1,114,000) * ************************************************************************** Fiscal Analysis The bill, to be effective September 1, 2001, makes several changes to the Judicial Retirement System Plan 1 (JRS-1), which covers judges who joined the bench before September 1, 1985, and the Judicial Retirement System Plan Two (JRS-2), which covers judges who joined the bench after that date. Both programs are administered by the Employees Retirement System (ERS). JRS I and JRS II members would be able to purchase service credit for the remaining months in any calendar year in which the member held office for part of that calendar year. The 6% member contribution for JRS I members would cease when the member has at least 20 years of service credit. The 10% increase in the benefit factor that currently applies to JRS II members who have not been out of judicial office for more than one year would be extended to visiting judges if the first anniversary of their last day of that service has not occurred. Retirement annuities for JRS II members would be based on the state salary, as adjusted from time to time, of a judge of the court which the retiring member last served. Currently, retirement annuities for JRS II members are based on the state salary being paid at the time of retirement without any later adjustments. Methodology The JRS-1 program is a pay-as-you-go program, with the state depositing member contributions into the General Revenue Fund and paying benefits out of the General Revenue Fund each year. The provision to discontinue the required member contributions once the member has 20 years of service results in a revenue loss to the General Revenue Fund estimated at $230,000 in fiscal year 2002 and increasing to $282,000 in fiscal year 2006 as more members reach 20 years of service. The provision to allow JRS-1 members to purchase additional service credit will result in a net increase in the amount of benefits paid annually. ERS estimates the additional benefit payments will total $200,000 in fiscal year 2002, and increase to $500,000 by fiscal year 2006 as more JRS-1 judges retire. The JRS-2 program is pre-funded, with contributions being made today to pay for benefits that will be provided at a later date. The bill's provisions to increase retired judges' benefits whenever the salaries for serving judges are increased and to increase the benefit factor for certain visiting judges result in a higher normal cost for the plan. The normal cost would increase from the current 16.03% to 38.55%. The current actuarial surplus of $5.5 million would be depleted, and there would be an unfunded actuarial accrued liability of $61.6 million. As a result of these changes, the state would need to contribute 32.55%, instead of the current 16.83%, to fund the normal cost and amortize the liability. Based on the current payroll levels, and assuming increases based only an increasing number of JRS-2 judges, ERS estimates the increase in the state's contribution will be $7.3 million in fiscal year 2002, increasing to $8.6 million by fiscal year 2006. JRS-2 contributions are funded by a combination of General Revenue and the Judicial Fund No. 573. Local Government Impact No fiscal implication to units of local government is anticipated. Source Agencies: 327 Employees Retirement System LBB Staff: JK, RB, SC