Projected for Fiscal Year 2006

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

ACTUARIAL EFFECTS: HB 617 as engrossed would increase the projected normal cost percentage for the Judicial Retirement System plan Two (JRS II) by 0.28%, from 19.58% to 19.86% of pay. The bill would reduce the projected fiscal year 2006 net asset balance by $1.8 million, from $25.7 million to $23.9 million. 

SYNOPSIS OF PROVISIONS:

HB 617 as engrossed, to be effective September 1, 2005, would provide the following changes:

·         JRS II members who have served 12 years on an appellate court and whose age plus service credit equals at least 70 (Rule of 70) could cease making member contributions.

·         Appellate court members who elect to continue making contributions after serving 12 years on an appellate court and reaching the Rule of 70 could do so for up to an additional 10 years of service. For each such year, the member contribution rate would be 6% of salary, and the service retirement benefit would be increased by 2% of the applicable State salary, up to a maximum of 80% of the applicable salary.

FINDINGS AND CONCLUSIONS:

Currently, JRS II members contribute 6% of salary. These member contributions cease when the member accrues 20 years of service credit. Under this bill, JRS II members who have served 12 years on an appellate court and whose age plus service credit equals at least 70 (Rule of 70) would also cease making member contributions. This bill would also allow appellate court members to elect to continue to make contributions after serving 12 years on an appellate court and reaching the Rule of 70, up to an additional 10 years of service. The member contribution rate for these contributions is 6% of salary. The standard service retirement benefit is currently 50% to 60% of the applicable state salary for members who have accrued two full terms on an appellate court and reached the Rule of 70. Under this bill the service retirement benefit will be increased by 2% of the applicable State salary for each year that the member makes contributions after serving 12 years on an appellate court and reaching the Rule of 70, up to a maximum of 80% of the applicable state salary.

The bill would increase, by 0.28%, the projected normal cost for the Judicial Retirement System plan Two (JRS II) from 19.58% to 19.86%. The bill would reduce the projected fiscal year 2006 net asset balance by $1.8 million, from $25.7 million to $23.9 million. The State contribution rate is 16.83% of payroll under the current structure. JRS II has a net asset balance as of September 1, 2004, and the balance is projected to increase under the current structure, even when unrecognized asset losses are considered. JRS II is adequately financed for the next several years under the current structure, according to the analysis. If the proposal is adopted the net asset balance is projected to drop for fiscal years 2006 and 2007. The current State contribution rate will adequately finance JRS II through the next biennium.

METHODOLOGY AND STANDARDS:

The analysis assumes no further changes are made to JRS II and cautions that the combined economic impact of several proposals can exceed the effect of each proposal considered individually. The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the February 28, 2005 update of the August 31, 2004 actuarial valuation of JRS II. According to the PRB actuary, the actuarial assumptions, methods and procedures 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.

SOURCES:

Actuarial Analyses by Steven R. Rusher, Actuary, Towers Perrin, April 25, 2005

Actuarial Review by Mr. Richard E. White, Actuary, Milliman USA, Inc., April 26, 2005

GLOSSARY OF ACTUARIAL TERMS:

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

Net Asset / Net Liability--This is the difference between the Actuarial Value of Assets and the Actuarial Accrued Liability. A Net Asset (also called the "Overfunded Actuarial Liability) exists only when the Actuarial Value of Assets exceeds the Actuarial Accrued Liability, and is the amount of this excess. This only occurs when a plan is overfunded. A Net Liability (also called the Unfunded Actuarial Liability) exists only when the Actuarial Accrued Liability exceeds the Actuarial Value of Assets. This only occurs when a plan is underfunded.

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.