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F I S C A L I M P A C T R E P O R T
SPONSOR Smith
DATE TYPED 02/04/05 HB
SHORT TITLE Increase Judicial Retirement Contributions
SB 246
ANALYST Geisler
APPROPRIATION
Appropriation Contained Estimated Additional Impact Recurring
or Non-Rec
Fund
Affected
FY05
FY06
FY05
FY06
$150.14 Recurring General Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
REVENUE
Estimated Revenue
Subsequent
Years Impact
Recurring
or Non-Rec
Fund
Affected
FY05
FY06
$150.1
$150.1 Recurring Judicial Retirement
Fund
$100.1
$100.1 Recurring Judicial Retirement
Fund
(Parenthesis ( ) Indicate Revenue Decreases)
Duplicates: House Bill 205
SOURCES OF INFORMATION
LFC Files
Administrative Office of Courts (AOC)
Public Employees Retirement Association (PERA)
FOR THE LEGISLATIVE FINANCE COMMITTEE
SUMMARY
Synopsis of Bill
Senate Bill 246 is Legislative Finance Committee sponsored legislation that addresses actuarial
problems of the judicial retirement fund by providing for graduated increases in employer and
pg_0002
Senate Bill 246 -- Page 2
judge contribution levels. The bill will increase the judges contribution by 1% in both FY 06 and
FY 07 and the employer contribution by 1.5% in both FY 06 and FY 07.
Senate Bill 246 amends the PERA Act to create a new retirement benefit structure for judges
(district court, metropolitan court or court of appeals) and justices (supreme court) who first be-
come members on or after July 1, 2005. The new plan provides for a moderate decrease in nor-
mal retirement eligibility by providing a minimum age (55) and years of service (16), and pro-
vides a straight 3.75% pension factor for all years of service.
Significant Issues
PERA’s actuarial study of June 30, 2004 illustrated a continued contribution under-funding of
employer/employee contributions to the judicial retirement fund. A contribution level equivalent
to 47% of payroll would be required to cover the normal costs of the program as well as amortize
the unfunded actuarial liability within the 30 year period established by the Governmental Ac-
counting Standards Board (GASB). However, total statutory contributions are only 33% of pay-
roll, a shortage of 14% in the contribution level. Senate Bill 246 begins to address this shortfall
by providing a 5% increase in judge/employer contributions and by developing a new retirement
plan for future judges which will be less expensive. PERA estimates the changes proposed by
SB 246 will reduce the shortfall from 14% to 4.92%.
FISCAL IMPLICATIONS
The cost of the increased employer contributions is $150.1 thousand in FY 06 and will increase
in future years based on salary increase. Neither the LFC or executive recommendation included
funding for increased employer contribution in their respective FY06 recommendations, but it
will be included in the FY 07 budget request if the bill passes. The increased employee contribu-
tions will provide an additional $100 thousand during both FY 06 and FY 07 to the fund.
ADMINISTRATIVE IMPLICATIONS
Moderate administrative implications for PERA and AOC, particularly in keeping track of jus-
tices/judges elected pre 7/1/05 and post 7/1/05 for payroll contribution purposes.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
House Bill 205, also sponsored on behalf of the Legislative Finance Committee, is identical to
Senate Bill 246.
OTHER SUBSTANTIVE ISSUES
Recent History of Contribution Levels
Legislation passed in 2003/2004-plan year that increased judge contributions from 5.0% to 5.5%
of salary. Pensions are directly related to judicial payroll. The source of contribution revenues
to the Judicial Fund are 5.5% of salary by judges, 9.0% of salary by employers and a portion of
docket and jury fee revenue. Historically, there is a poor correlation between docket fee revenue
and judicial payroll. PERA’s actuaries recommend that all employer contributions be related to
payroll. The disconnect between contribution revenues and benefits needs to be addressed to
pg_0003
Senate Bill 246 -- Page 3
preserve the long-term health of the Fund. Senate Bill 246 proposes graduated increases in con-
tribution revenue of 1% of salary by judges and their employers for each of the next 2 fiscal
years is a step in the right direction. For FY06, judges will pay 6.5% of their salary in contribu-
tions and their employer will pay 10.0% of salary in contributions. For FY07, judges will pay
7.5% of their salary in contributions and their employer will pay 11.0% of salary in contribu-
tions. These are positive steps toward stabilizing the relationship between contribution revenues
and benefits.
Comparing Current Judicial Retirement Benefits vs SB 246 proposed Benefits
CONTRIBUTIONS:
CURRENT: 5.5% of salary by judge
9% of salary paid by employer
$38 from Civil Docket Fees
PROPOSED:
FY06 6.5% of salary by judge
FY06 10.5% of salary paid by employer
FY07 7.5% of salary by judge
FY07 12% of salary paid by employer
$38 from Civil Docket Fees
ELIGIBLITY FOR RETIREMENT:
CURRENT: Age 64 with 5 or more years of judicial service
Age 60 or older with 15 or more years of judicial service
Early Retirement: Between the ages of 50 – 60 with 18 years of
service credit
PROPOSED: Age 64 with 5 or more years of judicial service
Age 55 or older with 16 or more years of judicial service
No Early Retirement
CALCULATION FOR ANNUAL PENSION:
CURRENT:
37.5% of FAS plus 3.75% of FAS for each year of service in
excess of 5 years
Maximum is 75% of FAS (salary received during the last year in
office)
Early Retirement: Applicable between ages 50-60
Pension equal to 70% of FAS plus reduction factor for each year
between age 50-60
PROPOSED:
3.75% of FAS for each year of service; maximum is 75% of FAS
(salary received during the last year in office)
pg_0004
Senate Bill 246 -- Page 4
WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.
The continued under-funding of the JRA plan may place the plan in a critical actuarial unfunded
status requiring substantial funding to make solvent.
AMENDMENTS
PERA suggests the following technical correction:
Page 3, line 2, after “July 1, 2005,” delete the remainder of the paragraph and replace with “the
amount of pension is equal to three and seventy-five one hundredths of one-twelfth of the salary
received during the last year in office multiplied by credited service. The amount of pension
shall not exceed seventy-five percent of the salary received during the last year in office.”
GG/lg