Federal Pensions: Judicial Survivors' Annuities System Costs

Federal Pensions: Judicial Survivors' Annuities System Costs
(16-SEP-05, GAO-05-955).

The Judicial Survivors' Annuities System (JSAS) was created in
1956 to provide financial security for the families of deceased
federal judges. It provides benefits to eligible spouses and
dependent children of judges who elect coverage within 6 months
of taking office, 6 months after getting married, or 6 months
after being elevated to a higher court, or during an open season
authorized by statute. Active and senior judges currently
contribute 2.2 percent of their salaries to JSAS, and retired
judges contribute 3.5 percent of their retirement salaries to
JSAS. Pursuant to the Federal Courts Administration Act of 1992
(Pub. L. No. 102-572), GAO is required to review JSAS costs every
3 years and determine whether the judges' contributions fund 50
percent of the plan's costs. If the contributions fund less than
50 percent of these costs, GAO is to determine what adjustments
to the contribution rates would be needed to achieve the 50
percent ratio. GAO is not making any recommendations in this
report. The Administrative Office of the United States Courts
(AOUSC) believes that GAO should be recommending a reduction in
the judges' contribution rate. GAO disagrees with AOUSC's
interpretation of the act's requirements.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-955
ACCNO: A37044
TITLE: Federal Pensions: Judicial Survivors' Annuities System
Costs
DATE: 09/16/2005
SUBJECT: Dependents
Financial analysis
Fund audits
Judges
Judicial compensation
Pensions
Retirement
Judicial Survivors Annuities Fund

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GAO-05-955

United States Government Accountability Office

GAO Report to Congressional Committees

September 2005

FEDERAL PENSIONS

Judicial Survivors' Annuities System Costs

GAO-05-955

September 2005

FEDERAL PENSIONS

Judicial Survivors' Annuities System Costs

[IMG]

What GAO Found

During plan years 2002 through 2004, the participating judges'
contributions funded more than 50 percent of the JSAS normal costs, as
shown in the figure below. The participating judges funded approximately
75 percent of JSAS normal costs during plan year 2002, 64 percent during
plan year 2003, and 78 percent during plan year 2004. On average over the
3-year period, the participating judges funded approximately 72 percent of
JSAS normal costs, while the federal government funded approximately 28
percent. The variance in the government's contribution rates was a result
of the fluctuation in normal costs resulting from several combined
factors, such as changes in assumptions; lower-than-expected rates of
return on plan assets; demographic changes-retirement, death, disability,
new members, and pay increases; as well as an increase in plan benefit
obligations.

JSAS Normal Costs
Percentage
100

0 2002 2003 2004

Federal government's share Judges' share

Source: JSAS actuarial reports, 2002-2004.

For the 3 years covered by the review, GAO determined that an adjustment
to the judges' contribution rate was not needed because their average
contribution share for the review period was approximately 72 percent,
which exceeded the minimum 50 percent contribution goal specified by law.
In addition, GAO examined the annual share of normal costs covered by
judges' contributions over a 9-year period and found that on average the
participating judges funded approximately 55 percent of JSAS's normal
costs.

United States Government Accountability Office

Contents

Letter 1
Results in Brief 2
Background 3
Objectives, Scope, and Methodology 6
Judges Paid More Than Half of JSAS's Costs 7
Adjustment to Contribution Rates Not Needed 9
Agency Comments and Our Evaluation 11
Appendix I Retirement Plans Available to Federal Judges

Appendix II Formulas Used to Determine Judges' and the Federal
Government's Contributions and Lump Sum Payments

Appendix III Comments from the Administrative Office of the United States
Courts

Tables

Table 1: Percentage Share of JSAS Normal Costs Borne by

Participating Judges and the Federal Government, Plan

Years 2002-2004 8 Table 2: Average Percentage Share of Contribution for
Judges and the Federal Government 10

Abbreviations

AOUSC Administrative Office of the United States Courts
COLA cost-of-living adjustment
CSRS Civil Service Retirement System
FERS Federal Employees' Retirement System
JSAS Judicial Survivors' Annuities System
NC normal cost
PVFNC present value of future normal costs

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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copyright holder may be necessary if you wish to reproduce this material
separately.

United States Government Accountability Office Washington, DC 20548

September 16, 2005

The Honorable Arlen Specter
Chairman
The Honorable Patrick J. Leahy
Ranking Minority Member
Committee on the Judiciary
United States Senate

The Honorable F. James Sensenbrenner, Jr.
Chairman
The Honorable John Conyers, Jr.
Ranking Minority Member
Committee on the Judiciary
House of Representatives

This report was prepared in response to the requirements of the Federal
Courts Administration Act of 1992,1 which requires that we review certain
aspects of the Judicial Survivors' Annuities System (JSAS). JSAS is the
only survivor benefit plan available to Article III judges and certain
non-
Article III judges. JSAS provides annuities to surviving spouses and
dependent children of deceased Supreme Court justices, deceased judges
of the United States, and other deceased judicial officials2 who
participated in JSAS.

The 1992 act enhanced the benefits available from JSAS and reduced the
amounts that participating judges were required to contribute toward the
plan's costs. The act requires us to review JSAS costs every 3 years and
to
determine whether the judges' contributions fund at least 50 percent of
the
plan's costs. If the contributions fund less than 50 percent of these
costs,
we are to determine what adjustments to the contribution rates are needed
to achieve the 50 percent ratio.

The judicial system has determined that JSAS costs are the same as
normal costs; for this review, we have examined the normal cost of the

1Pub. L. No. 102-572, 106 Stat. 4506 (Oct. 29, 1992).

2For simplicity, we will refer to the collective group of judicial
participants as "judges" throughout this report.

Results in Brief

plan. The plan's actuary, using the plan's funding method-in this case,
the aggregate cost method3-determines the plan's normal cost. Under the
aggregate cost method, the normal cost is the level percentage of future
salaries that will be sufficient, along with investment earnings and the
plan's assets, to pay the plan's benefits. This is our fourth report since
the passage of the 1992 act.4

For each of the 3 years covered by our review, the judges' contributions
funded more than 50 percent of JSAS normal costs. The participating judges
funded approximately 75 percent of JSAS normal costs during plan year
2002, 64 percent of JSAS normal costs during plan year 2003, and 78
percent of JSAS normal costs during plan year 2004. On the basis of data
from plan years 2002, 2003, and 2004 actuarial reports, participating
judges funded, on average, approximately 72 percent of JSAS normal costs;
the federal government's contribution amounted to, on average,
approximately 28 percent. While the judges' contribution rate remained
fixed at 2.2 percent and 3.5 percent of salaries for active participants
and retired judges, respectively, the federal government contribution rate
fluctuated from 0.80 percent of salaries in plan year 2002, to 1.34
percent of salaries in plan year 2003, and to 0.65 percent of salaries in
plan year 2004.

The variance in the federal government's contribution rates was a result
of the fluctuation in normal costs resulting from several combined
factors, such as changes in assumptions; lower-than-expected return on
plan assets; demographic changes-retirement, death, disability, new
members, and pay increases; as well as an increase in plan benefit
obligations. Based on our work for the 3 years covered by our review, we
determined that an adjustment to the judges' contribution rate was not
needed because their average contribution share for the review period was
approximately 72 percent, which exceeded the 50 percent minimum
contribution goal specified by law.

3The aggregate cost method is essentially the spreading of any unfunded
present value of future benefits as a level percentage of the future
payroll.

4GAO, Federal Pensions: Judicial Survivors' Annuities System Costs,
GAO-02-763 (Washington, D.C.: June 26, 2002); Federal Pensions: Judicial
Survivors' Annuities System Costs, GAO/GGD-00-125 (Washington, D.C.: May
25, 2000); and Federal Pensions: Judicial Survivors' Annuities System
Costs and Benefit Levels, GAO/GGD-97-87 (Washington, D.C.: June 27, 1997).

One of the major reasons JSAS benefits were enhanced and judges'
contribution rates were reduced in 1992 was to increase participation in
JSAS. If judges continue to pay an increasing share of the normal cost of
the plan, however, their rate of participation might decline. In part
because of the comparatively small number of participants, short-term
variability can be expected in JSAS normal costs; therefore, a long-term
view is important when evaluating the portion of normal costs covered by
judges. From plan year 1996 to plan year 2004, the annual contribution of
normal costs funded by judges' contributions has averaged approximately 55
percent.

In commenting on a draft of this report, the Administrative Office of the
United States Courts (AOUSC) raised the issue of parity between the
participating judges and the federal government with respect to funding of
JSAS. It also noted that we did not propose a reduction in the
contribution rates of judges given that their share of JSAS costs for the
3-year period covered by this report exceeded 50 percent of the total
normal costs of the program. We disagree with AOUSC's view as to the
purpose of section 201(i) of the Federal Courts Administration Act of
1992.5 Since the enactment of the act, we have interpreted this section as
providing that a minimum percentage of the costs of the program be borne
by its participants. We have consistently applied this interpretation of
the act's requirement in all of our previous mandated reviews.

Background Most federal civilian employees are covered by the Civil
Service Retirement System (CSRS) or the Federal Employees' Retirement
System. Both of these retirement plans include survivor benefit
provisions. Three separate retirement plans apply to various groups of
judges in the federal judiciary, with JSAS being available to participants
in all three retirement plans to provide annuities to their surviving
spouses and children. Appendix I provides additional information regarding
retirement plans that are available to federal judges.

5Section 201(i) says "the Comptroller General of the United States shall,
at the end of each 3-fiscal year period, determine whether the
contributions by judicial officials ... during that 3-year period
accounted for 50 percent of the costs of the Judicial Survivors' Annuities
Fund and if not, then what adjustments in the contribution rates ...
should be made to achieve that 50 percent figure." See 28 U.S.C. S:376(w).

History of JSAS

JSAS was created in 1956 to help provide financial security for the
families of deceased federal judges. It provides benefits to surviving
eligible spouses and dependent children of judges who participate in the
plan. Judges may elect coverage within 6 months of taking office, 6 months
after getting married, or 6 months after being elevated to a higher court,
or during an open season authorized by statute. Active and senior judges
currently contribute 2.2 percent of their salaries to JSAS, and retired
judges contribute 3.5 percent of their retirement salaries to JSAS. Upon a
judge's death, the surviving spouse is to receive an annual annuity that
equals 1.5 percent of the judge's average annual salary during the 3
highest consecutive paid years (commonly known as the high-3) times the
judge's years of creditable service. The annuity may not exceed 50 percent
of the high-3 and is guaranteed to be no less than 25 percent. Separately,
an unmarried dependent child under age 18, or 22 if a full-time student,
receives a survivor annuity that is equal to 10 percent of the judge's
high-3 or 20 percent of the judges' high-3 divided by the number of
eligible children, whichever is smaller. JSAS annuitants receive an annual
adjustment in their annuities at the same time, and by the same
percentage, as any cost-of-living adjustment (COLA) received by CSRS
annuitants. Spouses and children are also eligible for Social Security
survivor benefits.

Since its inception in 1956, JSAS has changed several times. Because of
concern that too few judges were participating in the plan (74 percent of
federal judges participated in 1985, which was down from 90 percent in
1976), Congress made broad reforms effective in 1986 with the Judicial
Improvements Act of 1985.6 The 1985 act (1) increased the annuity formula
for surviving spouses from 1.25 percent to the current 1.5 percent of the
high-3 for each year of creditable service and (2) changed the provisions
for surviving children's benefits to relate benefit amounts to judges'
high-3 rather than the specific dollar amounts provided in 1976 by the
Judicial Survivors' Annuities Reform Act.7 In recognition of the
significant benefit improvements that were made, the 1985 act increased
the amounts that judges were required to contribute from 4.5 percent to 5
percent of their salaries, including retirement salaries.

The 1985 act also changed the requirements for government contributions to
the plan. Under the 1976 Judicial Survivors' Annuities Reform Act, the

6Pub. L. No. 99-336, 100 Stat. 633 (June 19, 1986). 7Pub. L. No. 94-554,
90 Stat. 2603 (Oct. 19, 1976).

government matched the judges' contributions of 4.5 percent of salaries
and retirement salaries. The 1985 act modified this by specifying that the
government would contribute the amounts necessary to fund any remaining
cost over the future lifetime of current participants. That amount is
limited to 9 percent of total covered salary each year. Despite the
benefit improvements in the 1985 act, the rate of participation in JSAS
continued to decline. In 1991, the rate of participation was about 40
percent overall and 25 percent for newly appointed judges.

In response to concerns that required contributions of 5 percent may have
created a disincentive to participate, Congress enacted the Federal Courts
Administration Act of 1992. Under this act, participants' contribution
requirements were reduced to 2.2 percent of salaries for active and senior
judges and 3.5 percent of retirement salaries for retired judges. The 1992
act also significantly increased benefits for survivors of retired judges.
This increase was accomplished by including years spent in retirement in
the calculation of creditable service and the high-3 salary averages.8
Additionally, the 1992 act allowed judges to stop contributing to the plan
if they ceased to be married and granted benefits to survivors of any
judge who died in the interim between leaving office and the commencement
of a deferred annuity.9

As of September 30, 2004, there were 1,329 active and senior judges, 207
retired judges, and 304 survivor annuitants covered under JSAS, compared
with 1,265 active and senior judges, 193 retired judges, and 283 survivor
annuitants as of September 30, 2002.

Defining Cost for JSAS AOUSC is responsible for administering and
maintaining reliable information on JSAS. JSAS is financed by judges'
contributions and direct appropriations in an amount estimated to be
sufficient to fund future benefits paid to survivors of current and
deceased participants.10 The federal government's contribution is approved
through an annual appropriation and is not based on a rate or percentage
of the judges' salaries.

8The 1992 act changes include senior judges and judges who resign from
their offices.

9A judge who is not entitled to receive an immediate annuity upon leaving
office, but who is eligible to receive a deferred annuity at a later date,
may-upon written notification- remain in JSAS by contributing a sum equal
to 3.5 percent of the deferred annuity.

10JSAS investments are made only in U.S. Treasury securities.

To determine the annual contribution of the federal government, AOUSC
engages an enrolled actuary11 to perform the calculation of funding needed
based on the difference between the present value of the expected future
benefit payments to participants and the value of net assets in the plan.
Appendix II provides more details on the formulas used to determine
participants' and the federal government's contributions and lump sum
payments.

The cost of a retirement or survivor benefit plan is typically not
measured by annual expenditures for benefits. Such expenditures are not an
indicator of the overall long-term cost of a plan. The more complete
calculation of a plan's cost is the present value of projected future
outlays to retirees or survivors, based on the current pool of
participants, with such costs allocated annually. This annual cost
allocation is referred to as the normal cost. Normal cost calculations,
prepared by an actuary, are estimates and require that many actuarial
assumptions be made about the future, including mortality rates, turnover
rates, returns on investment, salary increases, and COLA increases over
the life spans of current participants and beneficiaries. The plan's
actuary, using the plan's funding method-in this case, the aggregate cost
method-determines the plan's normal cost. Under the aggregate cost method,
the normal cost is the level percentage of future salaries that will be
sufficient, along with investment earnings and the plan's assets, to pay
the plan's benefits for current participants and beneficiaries. There are
many acceptable actuarial methods for calculating normal cost. Regardless
of which cost method is chosen, the expected total long-term cost of the
plan should be the same; however, year-to-year costs may differ, depending
on the cost method used.

Our objectives were to determine whether participating judges'
contributions for the 3 plan years ending on September 30, 2004, funded at
least 50 percent of the JSAS costs and, if not, what adjustments in the
contribution rates would be needed to achieve the 50 percent ratio. To
satisfy our objectives, we examined the normal costs reported in the JSAS
annual report submitted by AOUSC to the Comptroller General for plan

Objectives, Scope,
and Methodology

11An enrolled actuary is an individual who has been licensed by the Joint
Board for the Enrollment of Actuaries to perform a variety of actuarial
tasks that the Employee Retirement Income Security Act of 1974 mandates
for private sector defined benefit pension plans in the United States.

Judges Paid More Than Half of JSAS's Costs

years 2002 through 2004.12 We also examined participants' contributions,
the federal government's contribution, and other relevant information in
each annual report. An independent accounting firm hired by AOUSC audited
the JSAS financial and actuarial information included in the JSAS annual
reports, with input from an enrolled actuary regarding relevant data, such
as actuarial present value of accumulated plan benefits. An enrolled
actuary certified those amounts that are included in the JSAS annual
reports. We discussed the contents of the JSAS reports with officials from
AOUSC for the 3 plan years (2002 through 2004). In addition, we discussed
with the enrolled actuary the actuarial assumptions made to project future
benefits of the plan. We did not independently audit the JSAS annual
report or the actuarially calculated cost figures.

We performed our review in Washington, D.C., from May 2005 through July
2005, in accordance with U.S. generally accepted government auditing
standards. We made a draft of this report available to the Director of
AOUSC for review and comment. The Director's comments are reprinted in
appendix III.

For each of the JSAS plan years 2002 through 2004, participating judges
funded more than 50 percent of the JSAS normal costs. In plan year 2002,
participating judges paid approximately 75 percent of JSAS normal costs,
and in plan years 2003 and 2004, they paid approximately 64 and 78 percent
of JSAS normal costs, respectively.

On the basis of data from plan years 2002, 2003, and 2004, participating
judges paid, on average, approximately 72 percent of JSAS normal costs
while the federal government's share amounted to approximately 28 percent.
Table 1 shows judges' and the federal government's contribution rates and
shares of JSAS normal costs (using the aggregate cost method, which is
discussed in app. II) for the period covered in our review.

12In prior years, this report was submitted to Congress in compliance with
chapter 95 of Title 31, U.S. Code, and in accordance with GAO's
instructions. This requirement was repealed by Pub. L. No. 105-362 on
November 10, 1998, but AOUSC continues to prepare the report by adhering
to GAO instructions with regard to report format and content.

Table 1: Percentage Share of JSAS Normal Costs Borne by Participating
Judges and the Federal Government, Plan Years 2002-2004

JSAS normal cost rates and shares

2002 2003 2004
Source of 2002-2004
funds Ratea Shareb Ratea Shareb Ratea Shareb Average share c
Judges 2.39 74.9 2.35 63.7 2.36 78.4 72.3
Federal
government .80 25.1 1.34 36.3 .65 21.6 27.7
Total normal
costs 3.19 100.0 3.69 100.0 3.01 100.0 100.0

Source: JSAS actuarial reports, 2002-2004.

aNormal cost expressed as a percentage of participants' salaries.

bPercentage of total normal costs.

cThis represents the average of the annual share of JSAS normal costs.

The judges' and the federal government's contribution rates for each of
the 3 years, shown in table 1, were based on the actuarial valuation that
occurred at the end of the prior year. For example, the judges'
contribution rate of 2.39 percent and the federal government's
contribution rate of 0.80 percent in plan year 2002 were based on the
September 30, 2001, valuation contained in the plan year 2002 JSAS report.

The judges' contribution of JSAS normal costs shown in table 1 fluctuated
from approximately 75 percent in plan year 2002, to approximately 64
percent in plan year 2003, and to 78 percent in plan year 2004. The
federal government's contribution of JSAS normal costs also varied, from
approximately 25 percent in plan year 2002, to approximately 36 percent in
plan year 2003, and to approximately 22 percent in plan year 2004. During
those same years, judges' contribution rates remained almost constant,
while the federal government's contribution rate increased from 0.80
percent of salaries in plan year 2002 to 1.34 percent of salaries in plan
year 2003, and then decreased to 0.65 percent in plan year 2004. The
variance in the federal government's contribution rates was a result of
the fluctuation in normal costs resulting from several combined factors,
such as changes in assumptions; lower-than-expected return on plan assets;
demographic changes-retirement, death, disability, new members, and pay
increases; as well as an increase in plan benefit obligations.

Specifically, the value of total plan assets increased from $473.8 million
in plan year 2002 to $484.0 million in plan year 2003, and then decreased
to

Adjustment to Contribution Rates Not Needed

$479.8 million in plan year 2004. However, accumulated plan benefit
obligations increased steadily, from $385.4 million in plan year 2002, to
$388.5 million in plan year 2003, and to $393.9 million in plan year 2004.
Although the judges' contribution rate remained fairly constant, their
contribution of normal costs rose to approximately 78 percent in plan year
2004 because total normal costs decreased. During 2004 plan year,
contributions from the federal government and judges totaled almost $5.1
million, somewhat less than the actuarial cost of $6.9 million. A primary
reason for the difference between total contributions and the plan's
actuarial cost was that the approximately 1.3 percent return on the market
value of plan assets was lower than the 6.25 percent assumed rate of
investment return on plan assets. The resulting actuarial loss increased
the required contribution level for the plan by 0.82 percent of total
payroll for participating judges.

Based on information in JSAS actuarial reports for the 3 years under
review, we have determined that participating judges' future contributions
do not have to increase in order to cover the minimum 50 percent of JSAS
costs required by the Federal Courts Administration Act. We found that the
current contribution rates of 2.2 percent of salaries for active and
senior judges and 3.5 percent of retirement salaries for retired judges
are sufficient to cover at least 50 percent of JSAS costs.13 As shown in
table 1, the judges' average contribution for JSAS costs for this review
period was approximately 72 percent, which exceeded the 50 percent
contribution goal for judges.

Because future normal costs are estimates that may change in any given
year, adjusting judges' contribution rates14 whenever they are found to be
generating more or less than 50 percent of JSAS costs is not practical.
Future normal costs may change because of certain events that occur

13There is a distinction between retired judges who resign their offices
and those who retire to a status designated as "senior." Judges who retire
by resignation are entitled for life to the salary of the office at the
time of resignation and may engage in private law practice. Judges who
retire to senior status receive the current salary of the office-that is,
they receive salary increases that are approved for active judges and
generally may perform reduced judicial duties. Senior judges may not
engage in private law practice.

14Because current statutory provisions governing participant contribution
rates do not give AOUSC the authority to modify the contribution rate of
participants, new legislation would be required. No new legislation
governing participant contribution rates has been enacted since the 1992
Federal Courts Administration Act.

during the course of a year, such as the number of survivors or judges who
die, the number of new judges electing to participate in JSAS, and the
number of judges who retire, and because the values of, and rates of
return on, plan assets could create normal statistical variances that
would affect the annual normal costs of the plan. Because the plan has
only 1,536 participants and 304 survivor annuitants, such variances can
have a significant effect on expected normal costs and lead to short-term
variability. Therefore, it is important to take a long-term view when
evaluating whether contribution rates for judges are appropriate to
achieve a 50 percent JSAS contribution share for judges.

For example, as shown in table 2, although the judges' contribution share
for plan year 2004 was approximately 78 percent, the judges' average
contribution share for plan years 1996 through 2004 was approximately 55
percent-significantly closer to the 50 percent contribution goal.

Table 2: Average Percentage Share of Contribution for Judges and the
Federal Government

Plan year 1996 1997 1998 1999 2000 2001 2002 2003 2004 Average sharea

Aggregate normal

costs
6.26 5.77 5.07 3.86 4.97 4.96 3.19 3.69 3.01 100.0
Government's contribution 4.00 3.50 2.80 1.50 2.60 2.60 .80 1.34 .65 -- Judges' rateb 2.26 2.27 2.27 2.36 2.37 2.36 2.39 2.35 2.36 -- Judges' 36.1 39.3 44.8 61.1 47.7 47.6 74.9 63.7 78.4 54.84 cGovernment's
rateb contribution sharec share 63.9 60.7 55.2 38.9 52.3 52.4 25.1 36.3 21.6 45.16

Source: JSAS actuarial reports, 2002-2004.

aThis represents the average of the annual share of JSAS normal costs.

bNormal cost expressed as a percentage of participants' salaries.

cPercentage of total normal cost.

Another drawback to making frequent changes to the judges' contribution
rate in response to short-term fluctuations in their contribution share
could be a decline in JSAS participation. Increasing participation was a
major reason for the changes made to JSAS in 1992. From plan years 1998
through 2004, the number of judges participating in JSAS increased 8
percent, from 1,420 to 1,536.

Agency Comments
and Our Evaluation

We requested comments on a draft of this report from the Director of AOUSC
or his designee. In a letter dated August 23, 2005, the Director provided
written comments on the report, which we have reprinted in appendix III.
AOUSC also provided technical comments, which we have incorporated as
appropriate.

In its comments, AOUSC stated that our report showed that judges'
contributions to JSAS have become disproportionately high, but that we
were not suggesting a change in the contribution rate for judges.
Specifically, AOUSC stated that we did not present in our report the
adjustment that would be needed to the participating judges' contribution
rates to achieve the 50 percent funding of the program's costs by the
judges. In AOUSC's view, this omission is not consistent with Congress's
intent in enacting the Federal Courts Administration Act of 1992.

We disagree with AOUSC's view as to the purpose of section 201(i) of the
act. Since enactment, we have interpreted this section as providing a
minimum percentage of the costs of the program to be borne by its
participants because the statute requires us to recommend adjustments when
the judges' contributions have not achieved 50 percent of the costs of the
fund. We do not view the section as calling for parity between the
participants and the federal government with respect to funding the
program. Thus, for the 3 years covered by this review, we determined and
reported that judges' contributions funded approximately 72 percent of
normal costs of JSAS, and therefore, an adjustment to the judges'
contribution rates was not needed under the existing legislation because
the judges' contributions achieved 50 percent of JSAS costs. We have
consistently applied this interpretation of the act's requirement in all
of our previous mandated reviews.

However, if one were to interpret the act as calling for an equal sharing
of the program's costs between participants and the government, then, on
the basis of the information contained in the JSAS actuarial report as of
September 30, 2004, participating judges' future contributions would have
had to decrease a total of 0.86 percentage points below the current 2.2
percent of salaries for active judges and senior judges and 3.5 percent of
retirement salaries for retired judges in order to fund 50 percent of JSAS
costs over the past 3 years. If the decrease were distributed equally
among the judges, those currently contributing 2.2 percent of salaries
would have had to contribute 1.34 percent, and those currently
contributing 3.5 percent of retirement salaries would have had to
contribute 2.64 percent.

As we have noted both in this report and prior reports, because of the
yearly fluctuations that are experienced by JSAS, short-term trends are
not sufficient for use in making informed decisions. As we stated in our
report, future normal costs may change because of certain events that
occur during the course of a year, such as the number of survivors or
judges who die, the number of new judges electing to participate in JSAS,
and the number of judges who retire. Also, the values of, and rates of
return on, plan assets could create normal statistical variances that
would affect the annual normal costs of the plan. Therefore, it is
important to take a longterm view when evaluating whether rates for judges
are appropriate to achieve a 50 percent minimum JSAS contribution share
for judges.

We are sending copies of this report to the Director of AOUSC. Copies of
this report will be made available to others upon request. This report is
also available at no charge on the GAO Web site at http://www.gao.gov.
Please contact Steven J. Sebastian at (202) 512-3406 or
[email protected] if you or your staff have any questions concerning this
report. Contact points for our Offices of Congressional Relations and
Public Affairs may be found on the last page of this report. Key
contributors to this report were Hodge Herry, Assistant Director; Joseph
Applebaum; Jacquelyn Hamilton; Amy Bowser; and Kwabena Ansong.

Steven J. Sebastian
Director
Financial Management and Assurance

Appendix I: Retirement Plans Available to Federal Judges

The Administrative Office of the United States Courts (AOUSC) administers
three retirement plans for judges in the federal judiciary.

o The Judicial Retirement System automatically covers United States
Supreme Court justices, federal circuit and district court judges, and
territorial district court judges and is available, at their option, to
the Administrative Assistant to the Chief Justice, the Director of AOUSC,
and the Director of the Federal Judicial Center.

o The Judicial Officers' Retirement Fund is available to bankruptcy and
fulltime magistrate judges.

o The United States Court of Federal Claims Judges' Retirement System is
available to the United States Court of Federal Claims judges.

Also, except for judges who are automatically covered under the Judicial
Retirement System, judges and judicial officials may opt to participate in
the Federal Employees' Retirement System (FERS)1 or elect to participate
in the Judicial Retirement System for bankruptcy judges, magistrate
judges, or United States Court of Federal Claims judges.

Judges who retire under the judicial retirement plans generally continue
to receive the full salary amounts that were paid immediately before
retirement, assuming the judges met the age and service requirements.

Retired territorial district court judges generally receive the same
cost-ofliving adjustment that Civil Service Retirement System retirees
receive, except that their annuities cannot exceed 95 percent of an active
district court judge's salary. United States Court of Federal Claims judge
retirees continue to receive the same salary payable to active United
States Court of Federal Claims judges.

Those in the Judicial Retirement System and the United States Court of
Federal Claims Judges' Retirement System are eligible to retire when the
number of years of service and the judge's age total at least 80, with a
minimum retirement age of 65, and service ranging from 10 to 15 years.
Those in the Judicial Officers' Retirement Fund are eligible to retire at
age 65 with at least 14 years of service or may retire at age 65 with 8
years of service, on a less than full salary retirement. Participants in
all three

1FERS is open and available to new federal employees. The Civil Service
Retirement System (CSRS) has been closed to new employees since December
31, 1983. However, a newly appointed judge who had prior federal service
(at least 5 years of service before January 1, 1987) may still elect CSRS.

Appendix I: Retirement Plans Available to Federal Judges

judicial retirement plans are required to contribute to and receive Social
Security benefits.

Appendix II: Formulas Used to Determine Judges' and the Federal Government's
Contributions and Lump Sum Payments

Aggregate funding method. This method, as used by the Judicial Survivors'
Annuities System (JSAS) plan, defines the normal cost as the level
percentage of future salaries that will be sufficient, along with
investment earnings and the plan's assets, to pay the plan's benefits for
current participants and beneficiaries. The formula is as follows:

o The present value of future normal costs (PVFNC) equals the present
value of future benefits less net asset value.

PVFNC is the amount that remains to be financed by judges and the federal
government.

The normal cost (NC) percentage equals PVFNC divided by present value of
future salaries.

Federal government contribution. The following formula is used to
determine the federal government's contribution amount:

o The federal government contribution represents the portion of NC not
covered by participants' contributions.

Lump sum payout. Under JSAS, a lump sum payout may occur upon the
dissolution of marriage either through divorce or death of spouse. Payroll
contributions cease, but previous contributions remain in JSAS. Also, if
there is no eligible surviving spouse or child upon the death of a
participating judge, the lump sum payout to the judge's designated
beneficiaries is computed as follows:

o Lump sum payout equals total amount paid into the plan by the judge
plus 3 percent annual interest accrued less 2.2 percent of salaries for
each participating year (forfeited amount).

In effect, the interest plus any amount contributed in excess of 2.2
percent of judges' salaries will be refunded.

Appendix III: Comments from the Administrative Office of the United States
Courts

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