Projected for Fiscal Year 2010

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

*According to the actuarial analysis, if the bill is enacted, the current contribution rate is not sufficient to allow JRS II to maintain an amortization period less than 31 years. In order for JRS II to remain actuarially sound in fiscal years 2010 and 2011, the actuarial analysis projects the contribution rate would need to increase by 1.58% of payroll, from 22.82% to 24.40% of payroll.

**The amortization period would rise to 17.4 years in 2010 if the contributions were increased to 24.4% If JRS II earned an 8% return after the valuation, the funding period would rise to 31 years in 2011 due to recognition of prior asset losses.

ACTUARIAL EFFECTS:

HB 1529 would increase the normal cost from 19.26% of payroll to 19.92% of payroll, an increase of 0.66%, for the Judicial Retirement System II (JRS II). Currently, the Unfunded Actuarial Accrued Liability (UAAL) is $24.6 million. HB 1529 would increase this amount by $12.9 million, to $37.5 million. According to the actuarial analysis, if the bill is enacted, the current contribution rate is not sufficient to allow JRS II to maintain an amortization period less than 31 years. In order for JRS II to remain actuarially sound in fiscal years 2010 and 2011, the actuarial analysis projects the contribution rate would need to increase by 1.58% of payroll, from 22.82% to 24.40% of payroll.

SYNOPSIS OF PROVISIONS:

This bill, to be effective immediately, would provide the following changes:

Section 839.102(b-1) would be added to the Texas Government Code that would provide an increase of 10% of the amount of the applicable state salary to the annuity of a member who has continuously made contributions to JRS II and has:

·         Acquired at least 22 years of service credit as a district judge; or

·         Acquired at least 20 years of service credit as an appellate judge.

FINDINGS AND CONCLUSIONS:

Currently, Government Code Section 839.102(b) states that members who retire and have not been out of office for more than one year or have served as a visiting judge in Texas and the first anniversary of the last day of that service has not occurred are eligible for an additional benefit of 10% of applicable state salary. HB 1529 adds Section 839.102(b-1) to provide an increase of 10% of the amount of the applicable state salary to the annuity of a member who has continuously made contributions to JRS II and has acquired at least 22 years of service credit as a district judge, or has acquired at least 20 years of service credit as an appellate judge. Members that elect to continue contributing to JRS II beyond 20 years of service or Rule of 70 and have served at least 12 years on an appellate court would still be limited to an ultimate benefit of 90% of the amount of the applicable state salary.

HB 1529 would increase the normal cost by 0.66%, from 19.26% of payroll to 19.92% of payroll, and increase the current UAAL by $12.9 million, from $24.6 million to $37.5 million. JRS II is currently actuarially sound. HB 1529, if enacted, would make the affected retirement system unsound. HB 1529, if enacted, would increase the amortization periods for JRS II from 13.3 years to 38.7 years at the current contribution rate. In order for JRS II to remain actuarially sound in fiscal years 2010 and 2011, the actuarial analysis projects the contribution rate would need to increase by 1.58% of payroll, from 22.82% to 24.40% of payroll.

METHODOLOGY AND STANDARDS:

Members who elect to continue contributions are currently assumed to retire when they have accrued the maximum benefit of 90% of applicable state salary. Under this proposal, members would accrue the maximum benefit of 90% at an earlier age. Also, the retirement assumptions were updated to assume that some members would delay retirement between first eligibility for retirement (20 years of service or Rule of 70) and eligibility for increased benefits under this proposal.

The analysis assumes no further changes are made to 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 February 28, 2009 update of the August 31, 2008 actuarial valuation of 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 Richard A. Mackesey & R. Ryan Falls, Actuaries, Buck Consultants, April 2, 2009

Actuarial Review by Mr. Martin McCaulay, Deputy Executive Director/Actuary, Pension Review Board, April 14, 2009

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 II benefits or state contribution rates if the result is an amortization period exceeding 30.9 years.