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 $390,000, $400,000, $410,000, $420,000, and $420,000 for fiscal years 2006, 2007, 2008, 2009 and 2010 respectively. 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): CS SB 179 will have no effect on the projected normal cost of JRS II for fiscal year 2006 and 2007. The proposal will decrease the projected fiscal year 2006 net asset balance by $200,000. 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

CS SB 179 would, effective September 1, 2005, provide the following changes:

·         Provides that the annuity increase of 10% of applicable state salary that applies to members who served as a visiting judge within one year before benefits commencement will also apply to those JRS II and JRS I annuitants who commenced benefits before that provision was added by Chapter 1240, Acts of the 77th Legislature, 2001 Regular Session.

FINDINGS AND CONCLUSIONS

CS SB 179 would provide that the annuities for certain JRS II and JRS I annuitants who commenced benefits before January 1, 2002 would be recalculated.  This bill provides that the annuity increase of 10% of applicable salary that applies to members who served as a visiting judge within one year before benefit commencement will also apply to those JRS II and JRS I annuitants who commenced benefits before that provision was added by the 2001 Legislature.  The increased annuity would begin with the first payment due on or after September 1, 2005.

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 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. 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.  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 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.

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.