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

ACTUARIAL EFFECTS:

The proposal will increase normal cost .07% of payroll, from 19.58% to 19.65%, increase the actuarial accrued liability $0.7 million, and reduce the net asset balance $0.7 million. The current State contribution rate is 16.83% of payroll under the current structure. Since JRS II has a net asset balance, even when unrecognized asset losses are considered, the amortization period is 0 years and the state contribution rate is expected to be adequate through the next biennium under the proposal.

SYNOPSIS OF PROVISIONS

Under current law, members are eligible for an unreduced standard service retirement benefit provided the member satisfies one of four eligibility rules. One of the existing rules provides unreduced standard service retirement benefits in the case of members who are at least 55 years old and have at least 20 years of service credit, regardless of whether the member currently holds a judicial office. The proposal adds a fifth eligibility rule which removes the “at least 55 years old” provision in the foregoing rule in the case of members who have at least 20 years of service credit and held a judicial office before January 1, 2000. The proposal is effective September 1, 2005. The proposal will accelerate the timing of the availability of unreduced benefits for certain members.

FINDINGS AND CONCLUSIONS

This bill would change the service retirement eligibility requirements for certain JRS II members to allow retirement before age 55 with at least 20 years of service if the member held a judicial office before January 1, 2000. This would increase the actuarial accrued liability and normal cost of JRS II. 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 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 August 31, 2004 valuation of JRS II. All actuarial projections have a degree of uncertainty because they are based on the probability of occurrence of future contingent events.  According to the PRB actuary, the actuarial assumptions, methods and procedures appear to be reasonable.  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, March 16, 2005

Actuarial Review by Mr. Richard E. White, Actuary, Milliman USA, Inc., April 11, 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.

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.