Projected as of August 31, 2019

Judicial Retirement System of Texas Plan II (JRS II)	Current	Proposed	Difference
Employee Contribution (effective)*	7.48%	9.47%	1.99%
Employer Contribution	15.66%	15.66%	0.00%
Total Contribution	23.14%	25.13%	1.99%
31-Year Contribution Rate (as a % of pensionable pay)	23.55%	28.67%	5.12%
Unfunded Actuarial Accrued Liability (millions)	$39.70	$77.70	$38.00
Funded Ratio	92.20%	85.70%	-6.50%
Amortization Period (years)	38	Infinite	N/A
Actuarial Soundness	Unsound	Unsound	N/A

* Statutory member contribution rate is 7.50%. Rate of 7.48% reflects the fact that some eligible members have elected to cease contributions. Similarly, the proposed change of the statutory rate to 9.50% would yield an effective rate of approximately 9.47%.

Projected as of August 31, 2019

Judicial Retirement System of Texas Plan I (JRS I)	Current	Proposed	Difference
Actuarial Accrued Liability (millions)	$242.80	$294.40	$51.60
Amortization Period (years)	N/A	N/A	N/A
Actuarial Soundness	Unsound*	Unsound*	N/A

* JRS I is not a pre-funded retirement system and is therefore actuarially unsound.

ACTUARIAL EFFECTS
This bill would redefine and restructure judicial salaries, link the salaries of district attorneys to the salaries of district court judges, and adjust the salary used to calculate annuities for JRS I and II and elected class members of ERS. The bill would also increase member contributions to JRS II and allow for additional service credit in JRS II upon reemployment in certain circumstances.

JRS II - According to the actuarial analysis (AA), the amortization period of JRS II would increase from 38 years to infinite. The bill would also increase the unfunded actuarial accrued liability (UAAL) by $38 million.

Under the current PRB Pension Funding Guidelines, funding should be sufficient to cover the normal cost and to amortize the UAAL over as brief a period as possible, but not to exceed 30 years, with 10 - 25 years being the preferable target range. JRS II statute defines actuarial soundness, for purposes of making modifications to benefit and contribution levels, as no more than 31 years. According to both statutory and PRB criteria, JRS II is currently actuarially unsound. Under the bill, JRS II would become more actuarially unsound, with an infinite amortization period. The AA notes that if the bill is enacted, total contributions for FY 2020 would have to be increased from 23.14% to 28.67% of payroll in order to comply with the statutory actuarial soundness requirement for JRS II. 

JRS I - According to the AA, the actuarial accrued liability for JRS I would increase by $51.6 million and the expected benefit payments over the next 5 years would increase by approximately $23.8 million. JRS I is not a pre-funded retirement system and is therefore actuarially unsound.

Texas County and District Retirement System (TCDRS) - According to TCDRS, the bill would increase the salary of 34 county judges. Since the bill would only impact 34 of the system's 230,000 total active members, it would not have much, if any, actuarial impact on the system.

SYNOPSIS OF PROVISIONS
This bill would redefine and restructure judicial salaries with the establishment of a "State base salary" for the various judicial positions and also establishes service-based salary tiers. Furthermore, the bill would amend Texas Government Code Sections 834.102 and 839.102 to base the calculation of retirement benefits for JRS I and JRS II members on 130% of the State base salary, consistent with a judge of a court of the same classification as the court on which the retiree last served before retirement. Section 834.102 amendments would affect JRS I retirees who may have retired under a different salary schedule and would include future adjustments upon changes in the proposed salary schedule. The changes to Section 839.102 would only affect JRS II retirees who retire on or after the effective date of the bill and would not include adjustments made once the judge retires.

In addition, this bill would increase JRS II active member contributions from 7.5% to 9.5% of pay beginning September 1, 2019. The bill would also allow a retired judge to rejoin and receive service credit in JRS II if the retiree has been separated from judicial service for at least 12 consecutive months when resuming service as a judicial officer. When the retired judge resumes payment of the monthly annuity, the retirement system shall compute the retiree's annuity to include the additional service credit. On retirement from subsequent service, the retiree may elect a service retirement annuity as if the retiree were retiring for the first time.

The bill would amend Government Code Section 814.103 such that service retirement benefits in ERS make conforming changes so that the elected class annuities would be based on the State base salary of a district court judge. Additionally, the bill would amend Government Code Section 41.013 to link salaries of district attorneys to the State base salary of a district court judge as amended in Section 659.012.

This bill would take effect September 1, 2019.

FINDINGS AND CONCLUSIONS
The bill would impact current and future JRS I retirees, future JRS II retirees, the current and future retirees in the elected class of ERS and district attorneys in ERS.

For JRS II, the AA indicates that the provisions in this bill would increase the normal cost rate by 2.80%, from 20.83% to 23.63%. Also, the amortization of the UAAL over 31 years as a percent of payroll will increase by 2.32%, from 2.72% to 5.04%. This adds up to an increase in the contribution rate needed to fund the normal cost and amortize the UAAL over 31 years of 5.12%, from 23.55% to 28.67%. The increase in employee contribution of 1.99% is not large enough to offset this increase, so the amortization period of the UAAL for JRS II will increase from 38 years to infinite. In addition, the UAAL would increase from $35 million to $73 million and the funded ratio of JRS II would decrease from 93.1% to 86.6%. Also, the AA assumes that the retired judges that have returned to judicial service would be eligible to rejoin and receive service credit in JRS II.   

METHODOLOGY AND STANDARDS
The AR states that the systems' August 31, 2018 actuarial valuations assume judicial salaries will increase by 3.0% per year and certain cost-of-living adjustments (COLAs) in ERS and JRS I tied to judicial salaries will be 2.75% per year, beginning September 1, 2019. The AA notes that there may be some expectation that the implementation of the tiered judicial pay structure would eliminate or significantly delay the need for future increases to the State base salary and the resulting judicial pay schedule; therefore, the AA assumes the State base salary will increase by 2.50% per year beginning in the 2022-2023 biennium. All other actuarial assumptions and methods are the same as used in the JRS II, ERS, and JRS I actuarial valuations for August 31, 2018.

According to the PRB actuary, the actuarial assumptions, methods and procedures are reasonable for the purpose of this analysis. 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, ERS, or 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.

SOURCES
Actuarial Analysis by R. Ryan Falls, FSA, EA, MAAA, Gabriel, Roeder, Smith & Company, February 19, 2019.
Actuarial Review by Kenneth J. Herbold, ASA, EA, MAAA, Staff Actuary, Pension Review Board, March 14, 2019.
Email Correspondence from TCDRS General Counsel, March 14, 2019.

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 sufficient to cover the normal cost and to amortize the UAAL over as brief a period as possible, but not to exceed 30 years, with 10-25 years being the preferable target range.
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).