ACTUARIAL EFFECTS
The bill would allow retired members to have their benefit recalculated based on the state salary, as of January 1, 2017, of a judge of a court of the same classification as the last court to which the retiring member was elected or appointed.

The actuarial analysis states that if the bill is enacted, the unfunded actuarial accrued liability (UAAL) for JRS II would increase by $15.7 million and the amortization period would increase from 68 years to infinite.

The PRB actuarial review states that JRS II is currently actuarially unsound. The bill, if enacted, would make JRS II more unsound by changing the amortization period from 68 years to infinite. Under the current PRB Guidelines for Actuarial Soundness, funding should be adequate to amortize the unfunded actuarial accrued liability over a period which should not exceed 40 years, with 15-25 years being a more preferable target. Additionally, under Texas Government Code 840.106, the bill may not currently be enacted because JRS II would have an amortization period over the 31-year amortization limit set in its statute before and after bill enactment. The total contribution rate would need to increase from 23.113% to 24.81% in order for the bill to pass.  

Based on the February 28, 2017, projected to August 31, 2017 actuarial valuations of JRS II

JRS II	Current	Proposed	Difference
(Dollar Amounts in Millions)
Employer Contribution	15.66%	15.66%	0.00%
Employee Contribution	7.45%	7.45%	0.00%
Total Contribution	23.11%	23.11%	0.00%
Normal Cost (% of payroll)	21.18%	21.18%	0.00%
Unfunded Actuarial Accrued Liability (millions)	$34.40	$50.10	$15.70
Amortization Period (years)	68	Infinite	N/A

SYNOPSIS OF PROVISIONS
Under the bill, a member would be entitled to recalculate their annuity based on the state salary being paid to a judge of the same classification as the last court to which the retiring member was elected or appointed, as it existed on January 1, 2017.

The bill would limit the annuity to 90% of the salary being paid on January 1, 2017 including any increase. An annuitant would only be entitled to an adjustment if it is determined that the amortization period for the retirement system is not greater than 31 years or, as a result of the adjustment, would not increase the amortization period beyond 31 years.

The actuarial analysis notes that increasing all of the current retirees to the current judicial salary schedule would result in approximately a 12% increase in their annuity. This increase would apply only to JRS II annuitants who retired prior to September 1, 2013.

METHODOLOGY AND STANDARDS
The JRS II analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the JRS II actuarial valuations for February 28, 2017.

According to the PRB actuaries, the actuarial assumptions, methods and procedures used in the analysis 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. This analysis is based on the assumption that no other legislative changes affecting the funding or benefits of JRS II 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.

SOURCES
Actuarial Analysis by R. Ryan Falls, Senior Consultant, FSA, EA, MAAA, Gabriel Roeder Smith & Company, April 13, 2017.
Actuarial Review by Kenneth J. Herbold, ASA, EA, MAAA, Staff Actuary, Pension Review Board, 4/13/2017.

GLOSSARY
Actuarial Accrued Liability (AAL) -The portion of the PVFB that is attributed to past service.
Actuarial Value of Assets (AVA)- The smoothed value of system's assets.
Amortization Payments - The yearly payments made to reduce the Unfunded Actuarial Accrued Liability (UAAL).
Amortization Period - The number of years required to pay off the unfunded actuarial accrued liability. The State Pension Review Board recommends that funding should be adequate to amortize the UAAL over a period which should not exceed 40 years, with 15-25 years being a more preferable target. An amortization period of 0-15 years is also a more preferable target.  
Actuarial Cost Method - A method used by actuaries to divide the Present Value of Future Benefits (PVFB) into the Actuarial Accrued Liability (AAL), the Present Value of Future Normal Costs (PVFNC), and the Normal Cost (NC).
Funded Ratio (FR) - The ratio of actuarial assets to the actuarial accrued liabilities.
Market Value of Assets (MVA) -The fair market value of the system's assets.
Normal Cost (NC) - The portion of the PVFB that is attributed to the current year of service.
Present Value of Future Benefits (PVFB) - The present value of all benefits expected to be paid from the plan to current plan participants.
Present Value of Future Normal Costs (PVFNC) - The portion of the PVFB that will be attributed to future years of service.
Unfunded Actuarial Accrued Liability (UAAL) - The Actuarial Accrued Liability (AAL) less the Actuarial Value of Assets (AVA).