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

ACTUARIAL EFFECTS:

Judicial Retirement System Plan Two (JRS II ): SB 1298 would increase, by 0.43% of payroll, the normal cost of JRS II, from 20.59% of payroll to 21.02% of payroll. The fiscal year 2008 estimated JRS II unfunded actuarial accrued liability (UAAL) would increase approximately $5.1 million, from $9.4 million to $14.5 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 the JRS II UAAL does not exceed 31 years. The proposed changes 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.

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 would increase by amounts ranging from $0.6 million to $0.7 million for fiscal years 2008 through 2012.  Information is not provided for fiscal years beyond 2012.

SYNOPSIS OF PROVISIONS

SB 1298, 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, or 20 years on any court, from 2% to 3%, with the maximum benefit increasing from 80% to 90% of state salary. Applies only to JRS I or JRS II members who retire on or after September 1, 2007. Annuities that first became payable prior to September 1, 2007 will be recomputed as if this law were already in place.  

FINDINGS AND CONCLUSIONS

The bill 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, or 20 years on any court, from 2% to 3%, with the maximum benefit increasing from 80% to 90% of state salary. The provisions apply only to JRS I or JRS II members who retire on or after September 1, 2007. Annuities that first became payable prior to September 1, 2007 would be recomputed.  Currently, the service retirement annuity of a member who elects to make contributions after reaching the rule of 70 with 12 years on the appellate court, or after 20 years of service in any court, is based on 60% of state salary plus 2% for each subsequent year not to exceed 80% of state salary.

The bill would increase, by 0.43% of payroll, the normal cost of JRS II, from 20.59% of payroll to 21.02% of payroll. The fiscal year 2008 estimated JRS II unfunded actuarial accrued liability (UAAL) will increase approximately $5.1 million, from $9.4 million to $14.5 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 the JRS II UAAL does not exceed 31 years. The proposed changes 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. Under the proposal, the annual state contributions would increase by $0.6 million to $0.7 million for fiscal years 2008 to 2012. Information is not provided for fiscal years beyond 2012.

METHODOLOGY AND STANDARDS

According to the JRS I and II actuary, as of August 31, 2006, there were 43 active and 486 retired judges for JRS I. The August 31, 2006 JRS II actuarial valuation included 498 active judges. 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.

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the February 28, 2007 update of the August 31, 2006 valuation of JRS I and 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 29, 2007, with updates

Actuarial Review by Mr. Richard E. White, Actuary, Milliman, April 1, 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.