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

If enacted, CSHB820 will decrease the Judicial Retirement System Plan Two (JRS II) normal cost 0.10% of payroll, from 22.88% of payroll to 22.78% of payroll. The JRS II actuarial accrued liability will decrease approximately $0.5 million. Under current law, the net asset balance is expected to drop from $4.8 million on September 1, 2002 to a net liability balance of $1.7 million on September 1, 2005. Under the proposal the net liability balance is projected to be $1.1 million on September 1, 2005.

CSHB820 would change JRS II eligibility requirements for service retirement, effective September 1, 2003, to the earliest of:

(1) at least age 65 with at least 10 years of service (YCS) if currently holding judicial office, or

(2) at least age 65 with at least 12 YCS, regardless of currently holding judicial office, or

(3) at least age 55 with at least 20 YCS, regardless of currently holding judicial office.

CSHB820 revises the requirements for eligibility for a service retirement annuity. The bill provides later retirement eligibility for members who would have 20 years of service before age 55. Currently, no JRS II member has 20 or more years of service credit. CSHB820 does not change the retirement benefit formula.

The JRS II actuary certifies that the changes proposed by CSHB820 would allow JRS II to remain actuarially sound, as required by Section 840.106 of the Government Code. The State contribution rate necessary to fund the normal cost and amortize the unfunded liabilities over a 31-year period increases to 16.88% of payroll for fiscal year 2005; without the changes the actuarially determined contribution rate in 2005 would be 17.03%.

Finally, this 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.

The rates of retirement assumptions were revised from the August 31, 2002 actuarial valuation. The revised rates assume no retirements before age 55, 20% assumed to retire at each age from 55 through 69 (but only if they meet the eligibility requirements), 25% assumed to retire at each age from 70 through 74, and 100% assumed to retire at age 75 or higher. The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the August 31, 2002 actuarial valuation of JRS II, updated as of February 28, 2003. 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.

Actuarial Analyses by Steven R. Rusher, Actuary, Towers Perrin, March 4, 2003 and April 24, 2003

Actuarial Review by Mr. Richard E. White, Actuary, Milliman USA, Inc., March 12, 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-2 benefits or state contribution rates if the result is an amortization period exceeding 30.9 years.