Under the current Pension Review Board (PRB) Pension Funding Guidelines, funding should be adequate to amortize the unfunded actuarial accrued liability (UAAL) over a period which should not exceed 30 years as of September 1, 2025, and not to exceed 15 years after September 1, 2040. ERS and JRS II statutes define actuarial soundness, for purposes of making modifications to benefit and contribution levels, as less than 31 years. Both ERS and JRS II are currently actuarially sound, with an amortization period of 29 and zero years respectively - as JRS II is fully funded. Under the bill, the projected funding period would remain the same for ERS and increase to 11 years for JRS II. Both ERS and JRS II would remain actuarially sound following the passage of the bill.
SYNOPSIS OF PROVISIONS
The bill would increase the annual base salary of a district court judge from $140,000 to $175,000 and adjust additional pay for a chief justice or presiding judge of an appellate court from $2,500 to 7 percent of the base salary. Also, the additional pay for a district judge who serves as a local administrator would be restructured from $5,000 to a percentage of the annual base salary of a district judge as follows: a) 3 percent for counties with three or four district courts; b) 5 percent for counties with more than four, but fewer than 10 district courts; and c) 7 percent for counties with 10 or more district courts. The bill would also temporarily suspend the increases to JRS I and ERS elected officials' annuity benefits until either the 90th legislative session or until the legislature enacts legislation that increases the base salary and removes the post-retirement benefit adjustment for all members of the elected class.
The bill would also increase member contributions from 6 percent to 9.5 percent for a small portion of judges who reach retirement eligibility and choose to optionally continue contributing into the plan for additional benefit accruals. It also uncouples the annuity benefits of legislators from the state base salary of a district judge and fixes the benefit amount to 2.3 percent of $140,000 per year of service.
FINDINGS AND CONCLUSIONS
The actuarial review notes that the bill could impact all current and future district judges. Retired judges and elected class ERS members would be impacted in that their annuity would not increase as a result of the salary increase. It also notes that the impact for ERS on funding period would be immaterial, while the JRS II funding period would be expected to increase by 11 years.
METHODOLOGY AND STANDARDS
The ERS, JRS I and JRS II analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the ERS, JRS I and JRS II actuarial valuations for August 31,2024, projected to August 31, 2025 with no gains or losses with the exception of reflecting asset performance through February 28, 2025. 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 ERS, JRS I and 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 Dana Woolfrey, FSA, EA, MAAA, Thomas Bevins, ASA, MAAA, and Joe Newton, FSA, EA, MAAA, Gabriel, Roeder, Smith & Company, May 28, 2025.
Actuarial Review by David Fee, ASA, EA, Staff Actuary, Pension Review Board, May 28, 2025.
GLOSSARY
Actuarial Accrued Liability (AAL) - The current value of benefits attributed to past years.
Actuarial Value of Assets (AVA) - The value of assets used for the actuarial valuation. The AVA can be either the market value (MVA) or a smoothed value of assets.
Amortization Payments - The portion of the total contribution used to reduce the unfunded actuarial accrued liability (UAAL).
Amortization Period - The specified length of time used when calculating the amortization payment portion of an actuarially determined contribution, or as the time it would theoretically take to fully fund the UAAL or fully recognize a surplus. The State Pension Review Board recommends that funding should be sufficient to cover the normal cost and to amortize the UAAL over a period that should not exceed 30 years as of September 1, 2025, and not to exceed 15 years after September 1, 2040.
Actuarial Cost Method -An actuarial cost method is a way to allocate pieces of a participant's total expected benefit to each year of their working career. In other words, it is a technique to determine how much of the present value of future benefits (PVFB) to assign to past service (AAL) vs. future service (present value of future normal costs, or PVFNC).
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) - Computed differently under different actuarial cost methods, the normal cost generally represents the current value of benefits attributed to the present year. The employer normal cost equals the total normal cost of the plan reduced by employee contributions.
Present Value of Future Benefits (PVFB) - The current value of all benefits expected to be paid from the plan to current plan participants.
Present Value of Future Normal Costs (PVFNC) - The current value of benefits attributed to the present year and all future years (includes the normal cost as the first year).
Unfunded Actuarial Accrued Liability (UAAL) - The difference between the actuarial accrued liability and the actuarial value of assets; therefore, the UAAL is the amount that is still owed to the fund for past obligations.