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

ACTUARIAL EFFECTS:

JUDICIAL RETIREMENT SYSTEM I (JRS I)

SB 179 benefit improvements are expected to increase future JRS 1 benefit payments, which are paid directly by the State, so the annual state appropriations to JRS I will increase if the proposal is adopted.  For fiscal years 2006 through 2010, the appropriation is estimated to increase by $300,000, $400,000, $300,000, $400,000 and $400,000 per year respectively under the proposal.  Information is not provided for fiscal years beyond 2008.  The impact the proposal may be expected to have on the JRS I normal cost and accrued liability is not contained in the analysis. Because the JRS I is not advance funded, no actuarial opinion is offered on the effect of the proposed legislation on the actuarial soundness of the plan.

JUDICIAL RETIREMENT SYSTEM II (JRS II)

In the case of JRS II, the proposal will increase normal cost .11% of payroll, from 19.58% to 19.69%, increase the actuarial accrued liability $2.0 million, and reduce the net asset balance $2.0 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 remains at 0 if the proposal is adopted.

SYNOPSIS OF PROVISIONS

JRS I, JRS II:

·         Increases the standard service retirement by 10% of the amount of the applicable state salary for members who, on the date of retirement, have served as visiting judges.

·         Extends the 10% increase to members who have served as visiting judges in the case of members whose benefits commenced before January 1, 2002.

FINDINGS AND CONCLUSIONS

The bill extends the 10% benefit factor increase to former visiting judges for whom the first anniversary of their last day of that service has occurred. Currently, the 50% benefit is increased by 10% of the applicable salary for JRS I and JRS II members who have not been out of judicial office for more than one year or who were visiting judges whose first anniversary of the last day of that service has occurred. It does not provide the increase to members who are out of judicial office for more than one year at the time of their benefit commencement if they were never a visiting judge.

The understanding is that this change applies only to members whose benefits commence on or after September 1, 2005 or whose benefits commence before January 1, 2002. It does not appear to authorize any adjustments to those whose benefits commenced between January 1, 2002 and September 1, 2005.

For the analysis of this proposal, the actuarial assumptions have been changed to assume that all members who are out of judicial office for more than one year will serve as a visiting judge at some point in order to qualify for the 10% benefit factor increase.  Therefore, all current contributing members and vested terminated members whose benefits have not yet commenced are assumed to be eligible for the 10% benefit increase when their annuity benefit commences. Non-vested terminated members are assumed to be eligible only for a refund of their member contribution accounts.

The JRS II actuary certifies that the changes proposed by HB 617 would allow JRS II to remain actuarially sound, as required by Section 840.106 of the Government Code.  The State contribution rate necessary to fund the normal cost and amortize the unfunded liabilities over a 31-year period would remain 16.83% of payroll for the next biennium.

Finally, this analysis assumes no further changes are made to JRS II and JRS I and cautions that the combined effect of several changes can exceed the effect of each change considered individually.

METHODOLOGY AND STANDARDS

Except as otherwise noted, the analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the August 31, 2004 valuations 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 PRB Actuary reviewed the actuarial assumptions and methods and indicated they appear to be reasonable.  The conclusions contained in the analysis seem reasonable, except as otherwise noted.