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

ACTUARIAL EFFECTS:

 Judicial Retirement System Plan One (JRS I): JRS I is financed by a combination of member contributions (currently 6% of a judicial officer’s state compensation ceasing in general after 20 years of service), plus state contributions. The annual state contribution is the amount necessary to pay benefits when due. Under the proposal, the annual state contributions will increase by $.03 million, $.07 million, $.10 million, $.14 million, and $.18 million for fiscal years 2006, 2007, 2008, 2009 and 2010 respectively. The proposal will also increase member contributions by $536,000 in fiscal year 2006, $142,000 in fiscal year 2007, $119,000 in fiscal year 2008, $98,000 in fiscal year 2009, and $80,000 in fiscal year 2010. Information is not provided for fiscal years beyond 2010. The impact the proposal may be expected to have on the JRS I normal cost and accrued liability is not contained in the analysis.

Judicial Retirement System Plan Two (JRS II): SCSHB 1114 will increase, by 0.60% of payroll, the normal cost of JRS II, from 19.58% to 20.18%. The proposal will decrease the net asset balance by $4.9 million in fiscal year 2006, from $25.7 million to $20.8 million. The decrease in net asset balance would be $5.6 million in fiscal year 2007. Under the proposal, the current contribution rate is sufficient to fund the normal cost and amortize the unfunded actuarial accrued liability over 31 years through the next biennium.

SYNOPSIS OF PROVISIONS

SCSHB 1114 would, effective September 1, 2005, provide the following changes:

·         Allow JRS I and JRS II members to elect to continue contributions to the system after 20 years of service credit, up to an additional 10 years of service at a rate of 6% of the applicable state salary. The retirement annuity will be increased by 2% of the state salary for each additional year that a member makes the additional contribution after 20 years of creditable service, up to a maximum of 80% of the applicable state salary.

FINDINGS AND CONCLUSIONS

SCSHB 1114 allows JRS I and JRS II members to continue making contributions after 20 years of service credit in return for an increase in the service retirement annuity. Currently, JRS II members contribute 6% of salary and the member contributions cease when the member attains 20 years of service credit. The service retirement is 50-60% of the applicable salary for members who have accrued 20 years of service credit. The proposal will allow members to continue to contribute to the system after 20 years of service credit at a rate of 6% of salary for an additional 10 years of service. The retirement benefit will be increased by 2% of the applicable state salary for each year that a member makes the additional contribution after 20 years or service, up to a maximum of 80% of the applicable state salary.

Under the proposal, the current contribution rate for JRS II is sufficient to fund the normal cost and amortize the unfunded actuarial accrued liability over 31 years through the next biennium. The improvements in this bill are expected to increase future JRS I benefit payments, which are paid directly by the State.  Because the JRS I is not advance funded, the analysis does not offer an actuarial opinion on the effect of this proposed legislation.

METHODOLOGY AND STANDARDS

The analysis has been updated for the February 28, 2005 actuarial valuation updates for JRS I and JRS II. In consideration of SCSHB 1114, the JRS I/JRS II actuary assumed that all members will elect to continue to contribute after 20 years of service to receive the benefit increase because the benefit increase is significantly greater in value that the additional member contributions. The actuary changed the assumed retirement rate for the analysis: members who accrue the maximum benefit of 80% of pay will retire at that point.

The analysis assumes no further changes are made to JRS I and 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 August 31, 2004 actuarial valuations of ERS, JRS I, and 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 Analysis by Steven R. Rusher, Actuary, Towers Perrin, May 18, 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 II benefits or state contribution rates if the result is an amortization period exceeding 30.9 years.