ACTUARIAL EFFECTS:

Judicial Retirement System Plan One (JRS I): According to the actuarial analysis, the bill would increase the unfunded accrued liability (UAL) by approximately $5,000. There would be no change to the normal cost rate rounded to the nearest basis point. For the JRS-I plan, since the plan is not prefunded, there is no increase in the actuarially sound contribution rate.

SYNOPSIS OF PROVISIONS

CSSB 1436 would amend Section 834.102(c) of the Texas Government Code to increase the limit of service retirement annuities from 90% to 100% of the applicable state salary for participants in the Judicial Retirement System of Texas Plan One (JRS-I). This bill would apply only to JRS-I members retiring on or after September 1, 2013.

The bill would be effective September 1, 2013.

FINDINGS AND CONCLUSIONS

The actuarial review states that the bill would impact active members of JRS-I as of September 1, 2013 and future active members.  As of August 31, 2012, there were 17 active JRS-I members. Based on the service retirement annuity formula common to JRS-I, active members who will retire after September 1, 2013 with more than 33 years of service could benefit from the bill.

METHODOLOGY AND STANDARDS

According to the JRS-I actuary, the analysis is based on the assumption that no other legislative changes affecting the funding of JRS-I will be adopted. It should be noted that when several proposals are adopted, the effect of each may be compounded, resulting in a cost that is greater (or less) than the sum of each proposal considered independently. This certification complies with the Rules adopted by the State Legislature

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the February 28, 2013 update of the August 31, 2012 valuation of JRS I. 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 David L. Driscoll, Actuary, Buck Consultants, April 4, 2013.

Actuarial Review by Mr. Daniel P. Moore, Staff Actuary, Pension Review Board, April 4, 2013.

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.