Actuarial Fiscal Note
Retirement Systems Impacted by Legislation:
Judges Retirement System
FUND(S):
JRS 2140
Sources of Revenue:
General Fund
Legislation creates:
Neither Program nor Fund
Actuarial Note Summary
Impact this measure will have on the liabilities and contributions associated with the retirement system(s).
The Judicial Committee Substitute for Senate Bill 486 eliminates the current benefit reductions for judges first appointed to their bench after July 1, 2005. Current post July 1, 2005 judges have their reduced benefits fully restored to the prior benefit level. In addition, the Member Contribution requirement for all judges is reduced to 7% effective July 1, 2012. Future years Member Contributions may be adjusted by the CPRB Board based on the Actuarial Valuation for JRS with the recommendation of the Actuary. The Member Contribution range shall not be less than 7% nor more than 10.5% for years starting July 1, 2013.
The JRS funded ratio is 130.3% as of the current July 1, 2011 Actuarial Valuation. The Bill increases the Actuarial Accrued Liabilities for JRS by $1,793,000. Current JRS assets are sufficient to fully fund the increase in the AAL. The funded ratio will be reduced to 127.9%. Although an incease in AAL results, the increase is fully funded and additional amortization funding of the AAL increase is not required.
The JRS employer Normal Cost is increased due to both the increased future benefits for post July 1, 2005 judges and from the reduction in the Member Contribution rate to 7%. The current employer NC rate is increased by 12.3% of payroll. The increase in the FY2013 contribution based on mid year funding is $1,178,000.
The reduced benefits for post July 1, 2005 judges resulted in a significant decrease in employer NC for such new judges. With original benefits being restored to all post July 1, 2005 judges, the resulting savings in NC is eliminated as new judges are appointed to the bench. The exact amount of the NC increase is dependent upon the ages of newly appointed judges. The NC increase is estimated at 15% of pay for the average newly appointed judge. Note that this does not include the impact of the reduction of the member contribution rate from 10.5% to 7.0% which could add another 3.5% of pay bringing the total employer NC increase to 18.5%. It is noted that the Member Contribution rate shall be actuarially adjusted, if necessary, after July 1, 2013 by the CPRB Board which could reduce or eliminate the additional 3.5% NC increase.
Fiscal Detail of Actuarial Impact
Impact on current benefit costs, prior service benefit costs and ongoing contribution requirements following full implementation.
Impact On |
Following Full Implementation |
Increase in Unfunded Actuarial Accrued Liability |
Initial Impact on Annual Contribution Requirement of System(s) |
Contribution Increase as a Percentage of Annual Payroll |
Total Annual Costs |
$0.00 |
$1,178,000.00 |
12.27 % |
Normal Cost of System |
N/A |
$1,178,000.00 |
12.27 % |
Past Service Liabilities |
$1,793,000.00 |
$0.00 |
0.00 % |
Fiscal Year Past Service Amortization Period Ends |
N/A |
Fully Funded |
N/A |
Explanation of above Actuarial estimates:
The impact of the Bill on the July 1, 2011 Actuarial Valuation AAL and NC was calculated by Buck Consultants. An analysis of the changes in AAL and NC was completed by the Board Actuary.
The change in AAL was fully funded by applying current excess assets in JRS. The funding percentage for JRS was reduced from 130.3% to 127.9%. Since JRS remained fully funded, no amortization payment is required.
The ARC for JRS is equal to a payment of the employer NC, without offset for the overfunding. The increase in NC was a result of both higher benefits for certain members and a reduction in the Member Contribution rate. This resulted in an increase in the ARC from $2,422,000 to $3,600,000.
Future judges appointed to the bench after July 1, 2011 are expected to have a higher NC rate due to the higher benefits to which they will become eligible. Based on expected hire age range, the employer NC is expected to increase between 15% to 18.5% of payroll. This is about $1.5 to $2.0 million increase in the resulting ARC when fully phased in calculated in FY2013 dollars.
Analysis of Impact on Public Pension Policy:
The Bill undoes the future member benefit reductions adopted for JRS as part of 2005 Pension Reform legislation.
The benefits under the bill allow post July 1, 2005 judges and all future judges to have the same benefit rights and existing judges on July 1, 2005. The reduction in the Member Contribution rate is also applied to all past and future judges.
The bill places all present and future judges on an equal footing for retirement benefits.
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The Judicial Committee Substitute for Senate Bill 486 eliminates the current benefit reductions for judges first appointed to their bench after July 1, 2005. Current post July 1, 2005 judges have their reduced benefits fully restored to the prior benefit level. In addition, the Member Contribution requirement for all judges is reduced to 7% effective July 1, 2012. Future years Member Contributions may be adjusted by the CPRB Board based on the Actuarial Valuation for JRS with the recommendation of the Actuary. The Member Contribution range shall not be less than 7% nor more than 10.5% for years starting July 1, 2013.
The JRS funded ratio is 130.3% as of the current July 1, 2011 Actuarial Valuation. The Bill increases the Actuarial Accrued Liabilities for JRS by $1,793,000. Current JRS assets are sufficient to fully fund the increase in the AAL. The funded ratio will be reduced to 127.9%. Although an incease in AAL results, the increase is fully funded and additional amortization funding of the AAL increase is not required.
The JRS employer Normal Cost is increased due to both the increased future benefits for post July 1, 2005 judges and from the reduction in the Member Contribution rate to 7%. The current employer NC rate is increased by 12.3% of payroll. The increase in the FY2013 contribution based on mid year funding is $1,178,000.
The reduced benefits for post July 1, 2005 judges resulted in a significant decrease in employer NC for such new judges. With original benefits being restored to all post July 1, 2005 judges, the resulting savings in NC is eliminated as new judges are appointed to the bench. The exact amount of the NC increase is dependent upon the ages of newly appointed judges. The NC increase is estimated at 15% of pay for the average newly appointed judge. Note that this does not include the impact of the reduction of the member contribution rate from 10.5% to 7.0% which could add another 3.5% of pay bringing the total employer NC increase to 18.5%. It is noted that the Member Contribution rate shall be actuarially adjusted, if necessary, after July 1, 2013 by the CPRB Board which could reduce or eliminate the additional 3.5% NC increase.
Fiscal Note Detail
Effect of Proposal |
Fiscal Year |
2012 Increase/Decrease (use"-") |
2013 Increase/Decrease (use"-") |
Fiscal Year (Upon Full Implementation) |
1. Estmated Total Cost |
0 |
1,178,000 |
2,000,000 |
Personal Services |
0 |
0 |
0 |
Current Expenses |
0 |
0 |
0 |
Repairs and Alterations |
0 |
0 |
0 |
Assets |
0 |
0 |
0 |
Other |
0 |
1,178,000 |
2,000,000 |
2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above Fiscal Note estimates (include possible long-range effect):
The impact of the Bill on the July 1, 2011 Actuarial Valuation AAL and NC was calculated by Buck Consultants. An analysis of the changes in AAL and NC was completed by the Board Actuary.
The change in AAL was fully funded by applying current excess assets in JRS. The funding percentage for JRS was reduced from 130.3% to 127.9%. Since JRS remained fully funded, no amortization payment is required.
The ARC for JRS is equal to a payment of the employer NC, without offset for the overfunding. The increase in NC was a result of both higher benefits for certain members and a reduction in the Member Contribution rate. This resulted in an increase in the ARC from $2,422,000 to $3,600,000.
Future judges appointed to the bench after July 1, 2011 are expected to have a higher NC rate due to the higher benefits to which they will become eligible. Based on expected hire age range, the employer NC is expected to increase between 15% to 18.5% of payroll. This is about $1.5 to $2.0 million increase in the resulting ARC when fully phased in calculated in FY2013 dollars.
Memorandum
The Bill undoes the future member benefit reductions adopted for JRS as part of 2005 Pension Reform legislation.
The benefits under the bill allow post July 1, 2005 judges and all future judges to have the same benefit rights and existing judges on July 1, 2005. The reduction in the Member Contribution rate is also applied to all past and future judges.
The bill places all present and future judges on an equal footing for retirement benefits.
Person submitting Fiscal Note: Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
Email Address: harry.w.mandel@wv.gov