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

ACTUARIAL EFFECTS:

HB 2882 would increase, by 0.26% of payroll, the normal cost of JRS II from 20.59% of payroll to 20.85% of payroll. The fiscal year 2008 estimated JRS II unfunded actuarial accrued liability (UAAL) would increase approximately $3.2 million, from $12.4 million to $15.6 million. Based on the current plan provisions for JRS II and the fiscal year 2007 total contribution rate of 22.78% of payroll, the amortization period for JRS II UAAL does not exceed 31 years. The proposed changes in HB 2882 would result in an increase to the actuarial cost of JRS II, but the increase would not cause the amortization period to exceed 31 years.

SYNOPSIS OF PROVISIONS

HB 2882, to be effective September 1, 2007, would provide the following:

·         Change the accrual rate for extra years of contributing service for members who elect to make contributions after reaching the rule of 70 with 12 years on the appellate court from 2% to 3%, with the maximum benefit remaining at 80% of state salary.

FINDINGS AND CONCLUSIONS

HB 2882 proposes to change the accrual rate for extra years of contributing service for members who elect to make contributions after reaching the rule of 70 with 12 years on the appellate court from 2% to 3%, with the maximum benefit remaining at 80% of state salary. Currently, the service retirement annuity for a JRS II member who elects to make contributions after reaching the rule of 70 with 12 years on the appellate court is based on 60% of state salary plus 2% for each subsequent year not to exceed 80% of state salary. The maximum benefit of 80% of state salary would be reached after an additional six and two-thirds years versus ten years under current law.

HB 2882 would increase, by 0.26% of payroll, the normal cost of JRS II from 20.59% of payroll to 20.85% of payroll. The fiscal year 2008 estimated JRS II unfunded actuarial accrued liability (UAAL) would increase approximately $3.2 million, from $12.4 million to $15.6 million. Based on the current plan provisions for JRS II and the fiscal year 2007 total contribution rate of 22.78% of payroll, the amortization period for JRS II UAAL does not exceed 31 years. The proposed changes in HB 2882 would result in an increase to the actuarial cost of JRS II, but the increase would not cause the amortization period to exceed 31 years.

METHODOLOGY AND STANDARDS

The August 31, 2006 actuarial valuation included 498 active judges, 89 of whom were serving on an appellate court. For the purposes of determining the impact of the proposed change, the JRS II actuary assumed that each year in the future members who leave the active work force for retirement or other reasons will be replaced by an equivalent number of new hired employees. Additionally, since appellate judges that continue to make contributions after attaining the rule of 70 with 12 years of service reach the 80% maximum benefit approximately three years sooner than under the current plan, the retirement rates applicable to appellate judges have been adjusted to reflect the accelerated retirement pattern for those members reaching the maximum.

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the August 31, 2006 valuation of JRS II. The PRB actuary reviewed the actuarial assumptions and methods and indicated they appear to be reasonable. The conclusions contained in the analysis seem 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 Kim M. Nichol, Actuary, Buck Consultants, March 15, 2007

Actuarial Review by Mr. Richard E. White, Actuary, Milliman, March 21, 2007

GLOSSARY OF ACTUARIAL TERMS:

Normal Cost-- the current 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.