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

Judicial Retirement System Plan One (JRS I): SB 889 will have no material impact on future JRS I benefit payments, which are paid directly by the state. The proposal will increase member contributions.

Judicial Retirement System Plan Two (JRS II): SB 889 will increase the normal cost of the JRS II by 0.01%, from 22.88% to 22.89%. The bill is expected to increase future member contributions, therefore, the proposal would increase future plan assets that will strengthen the funding position of the plan.

SB 889 would provide the following for JRS I and JRS II, effective September 1, 2003:

• Changes the amount a visiting or assigned state judge must contribute to be the same as a full-time presiding judge so as to receive service credit for the month of the contribution.

SB 889 would require that a visiting or assigned state judge must contribute the same amount as a full-time presiding judge to receive service credit for the month of contribution. The analysis assumes that all visiting or assigned judges will make the necessary contributions to receive the service credit for each month that they serve.

The February 28, 2003 update of the August 31, 2002 actuarial valuation showed the JRS II actuarial value of assets exceeded the actuarial accrued liability and the contribution rate was less than the normal cost. In addition, the actuarial value of asset method smoothes unexpected asset gains and losses at a rate of 20% per year. As a result, the asset losses that have not been recognized in the February 28, 2003 updated valuation will be smoothed in over the next five years. If there are no benefit changes and the investment return rate on the market value of assets is 8% per annum for fiscal years beginning with the last six months of 2003 and all other actuarial assumptions are met, the actuarial accrued liability will exceed the actuarial value of assets by fiscal year 2005, producing an infinite amortization period for the unfunded liability. At the current state contribution rate, passage of the bill will improve the fund balance in 2005 by $0.1 million, and overall the proposal does not increase the actuarial cost of the plan, so no increases in state contributions are required. 

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the February 28, 2003 update of the August 31, 2002 actuarial valuation of JRS I and JRS II. 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. The analysis considers only those changes contained in the proposal and cautions that the combined economic impact of several proposals currently under consideration could exceed the economic impact of each such proposal considered individually.

Actuarial Analysis by Steven R. Rusher, Actuary, Towers Perrin, April 15, 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.