LAO 2003-04 Budget Analysis: General Government

Legislative Analyst's Office

Analysis of the 2003-04 Budget Bill

Contributions to the Judges' Retirement System (0390)

The state provides retirement benefits for superior, appellate, and Supreme Court judges, and their survivors, through either the Judges' Retirement System I (JRS I) or the Judges' Retirement System II (JRS II). Membership in the JRS II is mandatory for all judges taking office on or after November 9, 1994. These systems are administered by the Public Employees' Retirement System (PERS).

Judges' Retirement System I. Most revenue deposited in the JRS I fund comes from the following sources: 

Members of JRS I earn retirement benefits equal to a percentage (up to 75 percent) of the current salary of the judicial office they last held (as opposed to a percentage of their own salary upon retirement, as with all the state's other retirement systems). The JRS I will pay a projected $121 million in benefits to 1,546 annuitants in 2003-04.

Judges' Retirement System II. Chapter 879, Statutes of 1994 (SB 65, McCorquodale), created JRS II. Unlike JRS I, which is funded on a pay-as-you-go basis, JRS II is on a prefunded basis. In this respect, JRS II is like all of the other retirement systems funded by the state. The state and member judges contribute to the JRS II fund each month—8 percent of salary from the judges and approximately 19.2 percent from the General Fund—to provide funds that should be adequate to cover future benefit payments.

Budget-Year Opportunity for General Fund Savings

We recommend that the Legislature reduce the appropriation for the Judges' Retirement System I by $10 million to help address the General Fund shortfall but still leave an adequate reserve. (Reduce Item 0390-101-0001 by $10 million.)

As noted above, the budget includes $98 million General Fund to cover JRS I benefit payments in 2003-04. This amount allows for a reserve of $20 million, or approximately two months' worth of pension payments. While PERS aims for this fund balance level, the reserve was just $5.0 million for 2001-02 and an estimated $8.9 million in the current year. Given the state's fiscal condition, we recommend that the Legislature reduce the appropriation for JRS I by $10 million to help address the General Fund shortfall. This would leave a reserve equal to one month of expenditures.

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