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

HB820 would change JRS II eligibility requirements for service retirement 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, or

(4) at least age 57 with at least 18 YCS and served at least three full terms on an appellate court, regardless of currently holding judicial office, or

(5) at least age 57 with at least 16 YCS and served at least two full terms on an the supreme court or the court of criminal appeals, regardless of currently holding judicial office.

Currently, members with 20 years of service are able to retire, even if under age 55. Under the bill, they would have to wait until age 55 before they retired. Currently no member of JRS II has 20 years of service.

The bill revises and generally expands the requirements for eligibility for a service retirement annuity. Under current law eligibility is established upon the attainment of age 65 and the completion of 10 years of service in the case of a member who currently holds a judicial office, or 12 years of service in the case of a member who does not currently hold a judicial office.

The current State contribution rate is 16.83% of payroll, and is less than the normal cost of the system. Using an actuarially smoothed value of assets, the system currently has no unfunded liabilities. But in order to amortize any unfuded liabliities over a period of 31 years, the State contribution rate of 16.83% of payroll is expected to increase starting in fiscal year 2008. The increase reflects the recognition of previously unrecognized asset losses and depletion of the net asset balance which exists on August 31, 2002. If adopted, the proposal will slightly accelerate the timing of the increase to the state contribution rate, and also result in a slightly higher state contribution rate.

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 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. According to the PRB actuary, the actuarial assumptions, assumption changes 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.

Actuarial Analysis by Steven R. Rusher, Actuary, Towers Perrin, March 4, 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.