| TO: | Honorable Robert Duncan, Chair, Senate Committee on State Affairs |
| FROM: | John S. O'Brien, Deputy Director, Legislative Budget Board |
| IN RE: | HB1079 by West, George "Buddy" (Relating to the eligibility of certain judges to retire with full benefits.), As Engrossed |
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JUDICIAL RETIREMENT SYSTEM - PLAN TWO |
Current |
Proposed |
Difference |
|
State Contribution Employee Contribution Total Contribution |
16.83 % 5.99 % 22.82 % |
16.83 % 5.99 % 22.82 % |
0 0.00 % 0.00 % |
|
Normal Cost (% of payroll) |
19.58 % |
19.58 % |
0.0% |
|
Net Asset Balance (millions) |
$21.6 |
$21.6 |
$0.0 |
|
Amortization Period (years), |
0.0 |
0.0 |
0.0 |
A Glossary of Actuarial Terms is provided at the end of this impact statement.
ACTUARIAL EFFECTS:
Based on the benefit provisions, data, actuarial assumptions, and actuarial funding methods included in the August 31, 2004 actuarial valuations (that are applicable for fiscal year 2005) completed by Towers Perrin, as updated through February 28, 2005, the changes in this bill would not have a material impact on the benefits payable to JRS I members and it would not have a material effect on the actuarial soundness of the JRS II.
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Under current law members are eligible for an unreduced standard service retirement benefit provided the member satisfies one of multiple eligibility rules. The proposal adds a new rule to JRS I, and revises an existing JRS II rule. JRS I: the new rule provides for a standard service retirement annuity in the case of members where the sum of the member's age plus service equals 70 or more, regardless of whether the member currently holds a judicial office, provided the member has served at least 2 full terms on an appellate court. The new provision could accelerate the timing of eligibility for a service retirement annuity. In an extreme example, the service retirement annuity will be available as early as age 51 under the proposal, whereas under current law, the standard retirement annuity would not be available prior to age 65. In this example, the proposal represents a potentially substantial benefit improvement in the case of any benefiting members. Membership in this system was closed approximately 20 years ago, so unless a member has left judicial service without retiring, they would already be eligible to retire and would not benefit under the proposal. JRS II: an existing rule provides a standard service retirement annuity in the case of members where the sum of age plus service equals 70 or more, regardless of whether the member currently holds a judicial office, provided the member served at least 2 full terms on an appellate court. Under the proposal, the requirement for serving at least 2 full terms on an appellate court, would be replaced by a requirement the member serve all or part of at least 3 terms on an appellate court. This revised provision will also accelerate the timing of eligibility for a service retirement annuity in the case of members who have fewer than 2 full terms, but part of at least 3 terms, on an appellate court. In an extreme example, the service retirement annuity for someone who has left judicial office will be available as early as age 51 under the proposal, whereas under current law, the standard retirement annuity would not be available prior to age 65. Eligibility would be delayed under the proposal in the case of members who serve full terms. |
FINDINGS AND CONCLUSIONS
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The ERS actuary certifies that this change would allow the JRS II to remain actuarially sound through the next biennium based on the current State contribution rate of 16.83% of payroll. The improvements in this bill are not expected to increase future JRS I benefit payments by a material amount. Because the JRS I is not advance funded, an actuarial opinion on the effect of this proposed legislation on the actuarial soundness of this Plan is not offered. However, the PRB actuary agrees the financial impact of the proposal will likely be minimal at the plan level but the acceleration of eligibility for the standard service retirement annuity could be significant from the perspective of benefiting members. |
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.
METHODOLOGY AND STANDARDS
The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the
SOURCES:
Actuarial Analyses by Steven R. Rusher, Actuary, Towers Perrin,
Actuarial Review by Mr. Richard E. White, Actuary, Milliman USA, Inc.,
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.
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.
| Source Agencies: | 338 Pension Review Board
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| LBB Staff: | JOB, WM
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