A Glossary of Actuarial Terms is provided at the end of this impact statement.

JRS I is financed by a combination of Member contributions (currently 6% of a judicial officer’s state compensation ceasing in general after 20 years of service), plus state contributions. The annual state contribution is the amount necessary to pay benefits when due. JRS II is financed by a combination of Member contributions (currently 6% of a judicial officer's state compensation ceasing after 20 years), plus state contributions. State contributions are set each biennium using advanced funding actuarial projections. The current state contribution rate is 16.83% of payroll.

In the case of JRS I, the annual state appropriations to JRS I will increase if HB94 is adopted. For fiscal years prior to 2007, the proposal is not expected to increase the State appropriation. For fiscal years 2007 and 2008, the appropriation is estimated to increase by $100,000 per year under the proposal. Information is not provided for fiscal years beyond 2008. The impact the proposal may be expected to have on the JRS I normal cost and accrued liability is not contained in the analysis.

HB94 will increase JRS II normal cost by 0.12% of payroll, from 22.88% to 23.00%, increase the actuarial accrued liability $.9 million, and reduce the net asset balance $.9 million. Separately from the proposal, due to unrealized asset losses the net asset balance is expected to decrease by $1 million in 2004 from $8.3 million to $7.3 million, and decrease $1.1 million in 2005 from $5.6 million to $4.5 million. Similarly, the funded ratio is expected to decrease by 0.9% in 2004, from 106.9% to 106.0%, and decrease 0.8% in 2005 from 104.0% to 103.2%.

HB94 would provide the following changes for JRS I and JRS II:

• Increase the standard service retirement benefit by 10% for members who were visiting judges at any time in the past for any period of time. The increase would not be extended to members who have been out of judicial office for more than one year who were not visiting judges at any time.

The standard service retirement annuity provided by the Judicial Retirement System Plan One (JRS I) ranges, depending on age and service, from 40% to 50% of the state salary, as adjusted from time to time, being paid a judge of a court of the same classification on which the retiree last served before retirement. The standard service retirement annuity provided by Judicial Retirement System Plan Two (JRS II) ranges, depending on age and service, from 40% to 50% of the state salary being paid at the time the member retires to a judge of a court of the same classification as the last court to which the retiring member was elected or appointed.

If enacted, HB94 will see the JRS I and JRS II standard service retirement increased by 10% of the amount of the applicable state salary in the case of certain members. Members who on the effective date of retirement have not been out of judicial office for more than one year receive the 10% increase. Also, members who have served as a visiting judge within the year prior to retirement receive the 10% increase. The proposal extends the 10% increase to members who have served as a visiting judge more than 1 year prior to retirement.

The PRB actuary remarked that a slightly higher state contribution rate was expected under the proposal, yet the current State contribution rate, composed of the net of the normal cost, member contributions, and 31 year amortization of the net asset balance, was 16.83 % of payroll under both the current and proposed structures.

The PRB actuary and JRS actuary agree that this change would allow the JRS II to remain actuarially sound for the next biennium based on the current State contribution rate of 16.83% of payroll. The PRB actuary notes that in the case of JRS II, State contributions should be expected to increase starting in 2008 under the current structure, and starting in 2007 under the proposed structure, in the absence of gains from investments or other sources. Otherwise, the amortization period will exceed 31 years.

The improvements in this bill are expected to increase future JRS I benefit payments, which are paid directly by the State. Because the JRS I is not advance funded, this analysis does not offer an actuarial opinion on the effect of this proposed legislation.

In consideration of HB94, the JRS I/II actuary changed their actuarial assumptions to assume that all members who are out of judicial office for more than one year will serve as a visiting judge at some point in order to qualify for the 10% benefit factor increase. Therefore, all current and former members whose benefits have not yet commenced are assumed to be eligible for the 10% benefit factor increase when their annuity benefit commences.

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the August 31, 2002 actuarial valuations of JRS I and JRS II. According to the PRB actuary, the actuarial assumptions and methods appear to be reasonable. All actuarial projections have a degree of uncertainty because they are based on the probability of occurrence of future contingent events. Accordingly, actual results will be different from the results contained in the analysis to the extent actual future experience varies from the experience implied by the assumptions. Finally, the analysis assumes no further changes are made to JRS II and cautions that the combined effect of several changes can exceed the effect of each change considered individually.

Actuarial Analysis by Steven R. Rusher, Actuary, Towers Perrin, February 18, 2003

Actuarial Review by Mr. Richard E. White, Actuary, Milliman USA, Inc., February 26, 2003

Normal Cost-- the current cost as a percentage of payroll that is necessary to pre-fund pension benefits adequately during the course of an employee's career.

Unfunded Liability-- the amount of total liabilities that are not covered by the total assets of a retirement system. Both liabilities and assets are measured on an actuarial basis using certain assumptions including average annual salary increases, the investment return of the retirement fund, and the demographics of retirement system members.

Amortization Period-- the number of years required to pay-off the unfunded liability. Public retirement systems have found that amortization periods ranging from 20 to 40 years are acceptable. State law prohibits changes in TRS, ERS, or JRS II benefits or state contribution rates if the result is an amortization period exceeding 30.9 years.