Federal Pensions: Judicial Survivors' Annuities System Costs
(17-SEP-08, GAO-08-1104).
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, 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 at
least 50 percent of the plan's costs during the 3-year period. 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.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-08-1104
ACCNO: A84241
TITLE: Federal Pensions: Judicial Survivors' Annuities System
Costs
DATE: 09/17/2008
SUBJECT: Children
Cost analysis
Federal employees retirement system
Financial analysis
Financial management systems
Fund audits
Funds management
Judges
Judicial compensation
Pensions
Retirement
Retirement income
Systems analysis
Systems evaluation
Financial management
Judicial Survivors Annuities Fund
Judicial Survivors Annuity System
******************************************************************
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GAO-08-1104
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
September 2008:
Federal Pensions:
Judicial Survivors' Annuities System Costs:
GAO-08-1104:
GAO Highlights:
Highlights of GAO-08-1104, a report to congressional committees.
Why GAO Did This Study:
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, 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 at least 50 percent of
the plan�s costs during the 3-year period. 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.
What GAO Found:
For the 2005 to 2007 time frame covered by this review, the
participating judges funded approximately 54 percent of JSAS costs, and
the federal government funded 46 percent. The increase in the
government�s contribution rate over the 3-year period was a result of
increases in costs. The increase in costs reflected the combined
effects of changes in actuarial assumptions; lower-than-expected rates
of return on plan assets; demographic changes such as retirement,
death, disability, new members, and pay increases; as well as an
increase in plan benefit obligations.
Figure: Judges� and Federal Share of Costs:
[refer to PDF for image]
This figure is a stacked vertical bar graph depicting the following
data:
Year: 2005;
Government's share: 38.9%;
Judge's share: 61.1%.
Year: 2006;
Government's share: 49.7%;
Judge's share: 50.3%.
Year: 2007;
Government's share: 50.5%;
Judge's share: 49.5%.
Source: JSAS actuarial valuation reports 2005-2007.
[End of figure]
GAO determined that an adjustment to the judges� contribution rate was
not needed because their average contribution share for the 3-year
period exceeded the 50 percent minimum contribution goal specified by
law. 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 60 percent of JSAS�s costs.
What GAO Recommends:
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� rate. GAO
disagrees with AOUSC�s interpretation of the act�s requirements.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-1104]. For more
information, contact Steven J. Sebastian, (202) 512-3406
[email protected], Joseph A. Applebaum, (202) 512-6336,
[email protected].
[End of section]
Contents:
Letter:
Objectives, Scope, and Methodology:
Results in Brief:
Background:
Portion of JSAS Cost Covered by Judges' Contributions Varied:
No Adjustment Required to Contribution Rates:
Agency Comments and Our Evaluation:
Appendix I: Retirement Plans Available to Federal Judges:
Appendix II: Explanation of the Method Used to Determine the Federal
Government's Contribution Rate and Lump Sum Payout:
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 2005 to 2007:
Table 2: Percentage Share of Contribution for Judges and the Federal
Government:
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:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
September 17, 2008:
The Honorable Patrick J. Leahy
Chairman:
The Honorable Arlen Specter:
Ranking Member:
Committee on the Judiciary:
United States Senate:
The Honorable John Conyers, Jr.
Chairman:
The Honorable Lamar Smith:
Ranking Member:
Committee on the Judiciary:
House of Representatives:
This report was prepared in response to the Federal Courts
Administration Act of 1992,[Footnote 1] which requires that we review
certain aspects of the Judicial Survivors' Annuities System (JSAS).
JSAS is a voluntary plan, and it is the only survivor benefit plan
available to Article III[Footnote 2] judges and certain non-Article III
judges.[Footnote 3] JSAS provides annuities to surviving spouses and
dependent children of (1) deceased Supreme Court justices, (2) deceased
judges of the United States, and (3) other deceased judicial
officials[Footnote 4] 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 would be needed to achieve the 50 percent ratio.
The judicial system has determined that JSAS costs are the same as
normal cost; for this review, we have examined the normal cost rates of
the plan. The plan's actuary, using the plan's funding method--in this
case, the aggregate cost method[Footnote 5]--determines the plan's
normal cost rate and the normal cost for each plan year. The normal
cost rate 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. The normal cost for a plan year is the normal
cost rate multiplied by the participants' salaries for that year. This
is our fifth report since the passage of the 1992 Act.[Footnote 6]
Objectives, Scope, and Methodology:
Our objectives were to determine whether participating judges'
contributions for the 3 plan years ending on September 30, 2007, 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 used the normal cost rates determined by
actuarial valuations of the system for each of the 3 fiscal years. We
also examined participants' contributions, the federal government's
contribution, and other relevant information in each plan years' JSAS
actuarial valuation report. An independent accounting firm hired by the
Administrative Office of the United States Courts (AOUSC) audited the
JSAS financial and actuarial information included in the JSAS actuarial
valuation reports, with input from the plan's actuary regarding
relevant data, such as the actuarial present value of accumulated plan
benefits. The plan's actuary certified those amounts that are included
in the JSAS actuarial valuation reports. We discussed the contents of
the JSAS actuarial valuation reports with officials from AOUSC for the
3 plan years (2005 through 2007).
In addition, we discussed with the plan's actuary the actuarial
assumptions made to project future benefits of the plan. We noted that
the JSAS actuarial valuation for plan years 2005 through 2007 used a
0.0 percent salary increase per year, above inflation, in contrast to
the September 30, 2007, Civil Service Retirement and Disability System
valuation which used a 0.75 percent salary increase per year, above
inflation. We determined that the use of 0.0 percent salary increase
for the JSAS is reasonable, and consistent with a recent trend analysis
we performed on judicial pay plans.[Footnote 7] We also reviewed the
qualifications of the plan's actuary who prepared the JSAS actuarial
valuation reports for plan years 2005 to 2007 and nothing came to our
attention that would lead us to question the qualifications of the
actuary. We did not independently audit the JSAS actuarial valuation
reports or the actuarially calculated cost figures.
We conducted this performance audit in accordance with generally
accepted government auditing standards. Those standards require that we
plan and perform the audit to obtain sufficient, appropriate evidence
to provide a reasonable basis for our findings and conclusions based on
our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives. We performed our review in Washington, D.C., from June 2008
through August 2008. We made a draft of this report available to the
Director of AOUSC for review and comment.
Results in Brief:
For the 3 years covered by our review, the participating judges'
contributions funded about 54 percent of JSAS normal costs-slightly
more than 61 percent and 50 percent of JSAS normal costs during the
plan years 2005 and 2006, respectively and slightly less than 50
percent during plan year 2007. The federal government's share of JSAS
normal costs over the 3-year period amounted to, on average,
approximately 46 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 increased from 1.48 percent of salaries in plan year
2005, to 2.5 percent of salaries in plan year 2006, and to 2.59 percent
of salaries in plan year 2007.
The increase in the federal government's contribution rate was the
result of increases in JSAS normal costs. The increase in normal costs
resulted from several combined factors, such as changes in the
actuarial assumptions; lower than expected returns on plan assets;
demographic changes such as retirement, death, disability, new members,
and pay increases; as well as an increase in plan benefit obligations.
We determined that no adjustment to the judges' contribution rate was
needed because the judges' average contribution share for the
statutorily designated 3 year period was approximately 54 percent,
which exceeded the 50 percent contribution goal specified by law. From
plan year 1999 through plan year 2007, the proportion of normal costs
funded by judges' contributions has averaged approximately 60 percent.
In commenting on a draft of this report, the 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.[Footnote 8] 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.
Background:
Depending on the circumstances, judicial participants may be eligible
for some combination of five retirement plans, including the Civil
Service Retirement System (CSRS) or the Federal Employees' Retirement
System (FERS). Three other separate retirement plans, described in
appendix I, 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.
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, if they were not married when they took
office, 6 months after being elevated to a higher court, or during an
open season authorized by statute. Active and senior judges[Footnote 9]
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 been amended several times.
Because of concern that too few judges were participating in the plan,
Congress made broad reforms effective in 1986 with the Judicial
Improvements Act of 1985.[Footnote 10] 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 child 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.
[Footnote 11] 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 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.
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.[Footnote 12]
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.[Footnote 13]
As of September 30, 2007, there were 1,303 active and senior judges,
223 retired judges, and 333 survivor annuitants covered under JSAS,
according to the JSAS actuarial valuation report for plan year 2007.
Calculation of Federal Share:
JSAS is financed by judges' contributions and direct appropriations in
an amount estimated to be sufficient to fund the future benefits paid
to survivors of current and deceased participants.[Footnote 14] The
plan's actuary, using the plan's funding method--in this case, the
aggregate cost method--determines the plan's normal cost rate and the
normal costs for each plan year. The normal cost rate 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. Normal cost calculations
are estimates and require that many actuarial assumptions be made about
the future, including, but not limited to mortality rates, turnover
rates, and returns on investment, salary increases, and COLA increases
over the life spans of 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. The expected annual federal,
actuarially recommended contribution is the product of the federal
government's contribution rate and the participating judges' salaries.
However, the actual federal government contribution is approved through
annual appropriations which have varied, both above and below the
actuarially recommended amount.
To determine the actuarially recommended annual contribution of the
federal government, AOUSC, which is responsible for the administration
of the JSAS, engages an enrolled actuary[Footnote 15] 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 present value of net assets in the plan. Appendix II provides
more details on the methodology used to determine the federal
government's contribution rate and lump sum payments.
Portion of JSAS Cost Covered by Judges' Contributions Varied:
For JSAS plan years 2005 through 2007, the participating judges
contributed, on average, about 54 percent of the plan's costs. In plan
years 2005 and 2006, participating judges paid slightly more than 61
percent and 50 percent of JSAS normal costs, respectively, and in plan
year 2007, they paid slightly less than 50 percent of JSAS normal
costs.
Table 1 shows the judges' and the federal government's contribution
rates and shares of JSAS' normal costs (using the aggregate cost
method, which is discussed in appendix II) for the period covered in
our review.
Table 1: Percentage Share of JSAS Normal Costs Borne by Participating
Judges and the Federal Government, Plan Years 2005 to 2007:
Source of contributions: Judges;
JSAS normal cost rates and shares: 2005: Rate[A]: 2.32;
JSAS normal cost rates and shares: 2005: Share[B]: 61.1;
JSAS normal cost rates and shares: 2006: Rate[A]: 2.53;
JSAS normal cost rates and shares: 2006: Share[B]: 50.3;
JSAS normal cost rates and shares: 2007: Rate[A]: 2.54;
JSAS normal cost rates and shares: 2007: Share[B]: 49.5;
2005-2007 Average: share[C]: 53.6.
Source of contributions: Government;
JSAS normal cost rates and shares: 2005: Rate[A]: 1.48;
JSAS normal cost rates and shares: 2005: Share[B]: 38.9;
JSAS normal cost rates and shares: 2006: Rate[A]: 2.50;
JSAS normal cost rates and shares: 2006: Share[B]: 49.7;
JSAS normal cost rates and shares: 2007: Rate[A]: 2.59;
JSAS normal cost rates and shares: 2007: Share[B]: 50.5;
2005-2007 Average: share[C]: 46.4.
Source of contributions: Total normal costs;
JSAS normal cost rates and shares: 2005: Rate[A]: 3.80;
JSAS normal cost rates and shares: 2005: Share[B]: 100.0;
JSAS normal cost rates and shares: 2006: Rate[A]: 5.03;
JSAS normal cost rates and shares: 2006: Share[B]: 100.0;
JSAS normal cost rates and shares: 2007: Rate[A]: 5.13;
JSAS normal cost rates and shares: 2007: Share[B]: 100.0;
2005-2007 Average: share[C]: 100.0.
Source: JSAS actuarial valuation reports, 2005-2007.
[A] Normal cost expressed as a percentage of the present value of
participant's future salaries.
[B] Percentage of total normal cost.
[C] This represents the average of the annual share of JSAS normal
costs.
[End of table]
The judges' and the federal government's contribution rates for each of
the 3 years shown in Table 1 were based on the actuarial valuations
that occurred at the end of the prior year. For example, the judges'
contribution rate of 2.32 percent and the federal government's
contribution rate of 1.48 in plan year 2005 were based on the September
30, 2004, valuation contained in the plan year 2005 JSAS report.
The total normal costs expressed as a percentage of the present value
of participant's future salaries shown in table 1 increased from 3.8
percent in plan year 2005 to 5.13 percent in plan year 2007. The
judges' share of the JSAS normal costs decreased from approximately 61
percent in plan year 2005, to approximately 50 percent in plan years
2006 and 2007. The federal government's share of JSAS normal costs
increased, from approximately 39 percent in plan year 2005, to
approximately 50 percent in plan years 2006 and 2007. During those same
years, the government's contribution rates increased from 1.48 percent
of salaries in plan year 2005 to 2.5 percent of salaries in plan year
2006, and then to 2.59 percent in plan year 2007. The increase in the
federal government's contribution rates was a result of the increase in
normal costs resulting from several combined factors, such as changes
in actuarial assumptions; lower-than-expected investment experience on
plan assets; demographic changes--retirement, death, disability, new
members, pay increases; as well as an increase in plan benefit
obligations. However, the majority of the increase in the federal
government's contribution rate is because of changes in actuarial
assumptions and a lesser degree the government's contributing less than
the actuarially recommended amounts, in plan years 2005, 2006, and
2007.
No Adjustment Required to Contribution Rates:
Based on our review of the judges' contribution rates for the JSAS, we
determined that there was no need for any adjustments in the judges'
contribution rate. JSAS actuarial reports for the 3 years under review
show that participating judges' contributed at least 50 percent of JSAS
normal costs as required by the Federal Courts Administration Act for
plan years 2005 and 2006, and slightly below half for plan year 2007.
As shown in Table 1 above, the judges' average contribution for JSAS
normal costs for this review period was approximately 54 percent, which
exceeded the 50 percent contribution goal for judges.
Table 2 provides a summary of the percentage share of contribution for
judges and the federal government over the past 9 years.
Table 2: Percentage Share of Contribution for Judges and the Federal
Government:
Aggregate normal costs[B];
Plan year: 1999: 3.92;
Plan year: 2000: 5.04;
Plan year: 2001: 5.07;
Plan year: 2002: 3.66;
Plan year: 2003: 2.97;
Plan year: 2004: 3.00;
Plan year: 2005: 3.80;
Plan year: 2006: 5.03;
Plan year: 2007: 5.13;
Average share[A]: 100.0.
Government's contribution rate[B];
Plan year: 1999: 1.50;
Plan year: 2000: 2.60;
Plan year: 2001: 2.60;
Plan year: 2002: 1.34;
Plan year: 2003: .65;
Plan year: 2004: .68;
Plan year: 2005: 1.48;
Plan year: 2006: 2.50;
Plan year: 2007: 2.59;
Average share[A]: [Empty].
Judges' contribution rate[B];
Plan year: 1999: 2.42;
Plan year: 2000: 2.44;
Plan year: 2001: 2.47;
Plan year: 2002: 2.32;
Plan year: 2003: 2.32;
Plan year: 2004: 2.32;
Plan year: 2005: 2.32;
Plan year: 2006: 2.53;
Plan year: 2007: 2.54;
Average share[A]: [Empty].
Judges' share[C];
Plan year: 1999: 61.7;
Plan year: 2000: 48.4;
Plan year: 2001: 48.7;
Plan year: 2002: 63.4;
Plan year: 2003: 78.0;
Plan year: 2004: 77.3;
Plan year: 2005: 61.1;
Plan year: 2006: 50.3;
Plan year: 2007: 49.5;
Average share[A]: 59.8.
Government's share[C];
Plan year: 1999: 38.3;
Plan year: 2000: 51.6;
Plan year: 2001: 51.3;
Plan year: 2002: 36.6;
Plan year: 2003: 22.0;
Plan year: 2004: 22.7;
Plan year: 2005: 38.9;
Plan year: 2006: 49.7;
Plan year: 2007: 50.5;
Average share[A]: 40.2.
Source: JSAS actuarial valuation reports, 1999-2007.
[A] This represents the average of the annual share of JSAS normal
costs.
[B] Normal cost expressed as a percentage of the present value of
participant's future salaries.
[C] Percentage of total normal cost.
[End of table]
As shown above, the judges' contribution share, in any given year, may
vary from the 50 percent contribution goal, either exceeding or not
meeting this goal. The judges' average contribution share for the 9-
year period was approximately 60 percent. Therefore, there is no reason
to modify the judges' contribution rates at this time.
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 September 10, 2008, 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 for a third
consecutive triennial cycle, judges have paid a greater share of the
cost of this system. AOUSC stated that our report showed that over the
past 9 years, judges' contributions have funded approximately 60
percent of the costs of JSAS. In AOUSC's view, we did not present in
our report the downward adjustment that would be needed to the
participating judges' contribution rates to attain the 50 percent
level, and 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. For the 3-years covered by this review, we
determined and reported that judges' contributions represented
approximately 54 percent of the normal costs of JSAS, and therefore, an
adjustment to the judges' contribution rates was not needed under the
existing legislation because the judges' contribution achieved 50
percent of JSAS costs. We have consistently applied this interpretation
of the Act's requirements in all of our previously mandated reviews.
However, if one were to interpret the Act as calling for an equal
sharing of the program's cost between participants and the government,
then, on the basis of the information contained in the JSAS actuarial
reports over the last 9 years, participating judges' future
contributions would have to decrease a total of 0.32 percentage points
below the current 2.2 percent of salaries for active judges and senior
judges and 3.5 percent for retired judges in order to fund 50 percent
of JSAS costs over the last 9 years. If the decrease were distributed
equally among the judges, those currently contributing 2.2 percent of
salaries would have to contribute 1.88 percent, and those currently
contributing 3.5 percent of retirement salaries would have to
contribute 3.18 percent.
We have not declined to include downward adjustment information, as
AOUSC states, but we are not recommending such an adjustment because of
our interpretation of the statute's requirements.
We are sending copies of this report to interested congressional
committees and 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 [hyperlink, http://www.gao.gov].
Please contact Steven J. Sebastian at (202) 512-3406
[email protected], or Joseph A. Applebaum at (202) 512-6336
[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 Julie Phillips, Assistant Director;
Jehan Abdel-Gawad; and Kwabena Ansong.
Signed by:
Steven J. Sebastian:
Director:
Financial Management and Assurance:
Signed by:
Joseph A. Applebaum:
Chief Actuary:
Applied Research and Methods:
[End of section]
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.
* 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.
* The Judicial Officers' Retirement Fund is available to bankruptcy and
full-time magistrate judges.
* The United States Court of Federal Claims Judges' Retirement System
is available to the United States Court of Federal Claims judges.
Also, judges who are not automatically covered under the Judicial
Retirement System may opt to participate in the Federal Employees'
Retirement System (FERS)[Footnote 16] 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-of-living 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 judicial retirement plans are required to
contribute to and receive Social Security benefits.
[End of section]
Appendix II: Explanation of the Method Used to Determine the Federal
Government's Contribution Rate and Lump Sum Payout:
Aggregate funding method. This method, as used by the Judicial
Survivors' Annuities System (JSAS) plan, defines the normal cost rate
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 following
discussion is intended to illustrate the use of the aggregate funding
method.
For plan year 2007, the JSAS's actuary estimated the present value of
future benefits for participating judges and beneficiaries was
$649,628,473 and the JSAS had assets amounting to $491,788,627. The
difference between these amounts, $157,839,846, must be financed
through future contributions to be paid by the participating judges and
the federal government. Using the same assumptions as used to estimate
the present value of future benefits, the actuary estimated the present
value of participating judges' future salaries to be $3,078,464,410 so
that the amount to be financed represented 5.13% ($157,839,846 divided
by $3,078,464,410) of the future participating judges' salaries. This
percentage is the JSAS's normal cost rate. If all the actuarial
assumptions proved exactly correct, then a total contribution of 5.13%
of the participating judges' salaries annually would make up the
difference between the JSAS's future payments and its assets (the
$157,839,846 mentioned above). The JSAS's actuary also estimated the
present value of participating judges' future contributions to be
$78,123,909. Thus the federal government's share for plan year 2007 is
the difference between $157,839,846 and $78,123,909, or $79,715,937.
Federal government's actuarially recommended contribution rate. The
federal government's actuarially recommended contribution rate is equal
to the federal government's share of future financing ($79,715,937)
divided by the present value of the participating judges' future
salaries ($3,078,464,410). For the plan year 2007 the rate was 2.59%
($79,715,937 divided by $3,078,464,410). Thus, the actuarially
recommended federal contribution is the product of the federal
government's actuarially recommended contribution rate and the
participating judges' salaries. The federal government's contribution
is approved through an annual appropriation. It has varied, both above
and below the actuarially recommended amount.
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:
* Lump sum payout equals the 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.
[End of section]
Appendix III: Comments from the Administrative Office of the United
States Courts:
Administrative Office Of The United States Courts:
"A Tradition Of Service To The Federal Judiciary"
James C. Duff, Director:
Washington, D.C. 20544:
September 10, 2008:
Mr. Steven J. Sebastian:
Director, Financial Management and Assurance:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Mr. Sebastian:
Thank you for the opportunity to review the draft report entitled
Federal Pensions: Judicial Survivors' Annuities System Costs (GAO-08-
1104). The report accurately reflects the government's and
participating judges' contribution rates into the Judicial Survivors'
Annuities System (JSAS), and shows that for a third consecutive
triennial cycle judges have paid a greater share of the cost of this
system.
As reported over the past nine years, judges' contributions have funded
approximately 60 percent of the cost of JSAS. The report states that
GAO's responsibility is to recommend a change if judges' contributions
are less than 50 percent; however, Section 201(i) of Public Law 102-
572, the "Federal Courts Administration Act of 1992," directs the
Comptroller General to report to Congress at the end of each three-
fiscal-year period as to whether the judges' contributions account for
50 percent of the costs of the Judicial Survivors' Annuities Fund and
to determine what adjustments would be needed to achieve the 50 percent
figure. In view of the plain language of section 201(i), it would be
useful to include an explanation as to why GAO has declined to
determine the appropriate downward adjustment to judges' contribution
rates to attain the 50 percent level.
Additionally, we have provided separately a few technical comments.
We appreciated the review team's professionalism in working with the
Judiciary on this study.
Sincerely,
Signed by:
James C. Duff:
Director:
[End of section]
Footnotes:
[1] Pub. L. No. 102-572, 106 Stat. 4506 (Oct. 29, 1992).
[2] This refers to judicial positions defined under Article III of the
U.S. Constitution which establishes the judicial branch as one of the
three separate and distinct branches of the federal government. The
other two are the legislative and executive branches.
[3] Non-Article III judges are judges of the U.S. territories,
bankruptcy and magistrate judges, and judges of the U.S. Court of
Federal Claims.
[4] As noted in appendix I, virtually all of those eligible to
participate in JSAS are judges. For simplicity, we will refer to the
collective group of judicial participants as "judges" throughout this
report.
[5] The aggregate cost method is essentially the spreading of any
unfunded present value of future benefits as a level percentage of the
future payroll.
[6] GAO, Federal Pensions: Judicial Survivors' Annuities System Costs,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-955] (Washington,
D.C.: September 16, 2005); GAO, Federal Pensions: Judicial Survivors'
Annuities System Costs, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-02-763] (Washington, D.C.: June 26, 2002); Federal
Pensions: Judicial Survivors' Annuities System Costs, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-00-125] (Washington, D.C.:
May 25, 2000); and Federal Pensions: Judicial Survivors' Annuities
System Costs and Benefit Levels, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/GGD-97-87] (Washington, D.C.: June 27, 1997).
[7] GAO, Human Capital: Trends in Executive and Judicial Pay,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-708] (Washington,
D.C.: June 2006).
[8] Section 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. �376 (w).
[9] Article III judges, who are eligible to retire but continue to hear
cases on a full or part-time basis, are referred to as senior judges.
[10] Pub. L. No. 99-336, 100 Stat. 633 (June 19, 1986).
[11] Pub. L. No. 94-554, 90 Stat. 2603 (Oct. 19, 1976).
[12] The 1992 Act changes include senior judges and judges who resign
from their offices.
[13] A 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.
[14] JSAS investments are made only in U.S. Treasury securities.
[15] An 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.
[16] FERS is open and available to new federal employees including
judges. 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.
[End of section]
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