LEGISLATIVE FISCAL ESTIMATE TO


ASSEMBLY, No. 2285


STATE OF NEW JERSEY

 

DATED: JANUARY 31, 1997

 

 

      Assembly Bill No. 2285 of 1996 permits members of the Judicial Retirement System (JRS), who have at least three years of service in the retirement system, to borrow up to, but not more, than 50 percent of the amount of their accumulated pension contributions. The amount borrowed, together with an interest rate of 4 percent per year on the unpaid balance of the loan, will be paid back to the system in equal installments deducted from the member's compensation. In addition, the bill provides for the repayment of the loan in the case of a member or pensioner who retires or dies before the outstanding balance of the loan has been recovered.

      The Office of Legislative Services notes that active members of the JRS contribute 3 percent of the difference in the salary of their current position and the salary of that position at January 18, 1982. According to the annual valuation of the retirement system, dated July 1, 1995, members' contributions for the year totaled $753,354. The total accumulated members' contributions were $4,513,523.

      The OLS notes that under this legislation, members of the JRS will be able to borrow 50 percent of their accumulated contributions at a below market interest rate of 4 percent per year. This rate is 4.75 percentage points lower than the 8.75 percent the actuary assumes as the return on investment.

      If members were to borrow 50 percent of the $4,513,523 in total accumulated member contributions, the investment earnings of the retirement system would decrease by $107,197 for the current valuation year. ($197,467 - $90,270 = $107,197) This investment "loss" would result in higher State contributions to fund the retirement system.

      It should be noted that most of the other State-administered retirement systems permit members to borrow up to 50 percent of their accumulated pension contributions. However, the members of the other retirement systems contribute more toward the cost of funding their future pension benefits than members of the JRS. For example, members of the Public Employees' Retirement System contribute 5.0 percent of salary and the State contributes 2.29 percent of payroll. In comparison, members of the JRS contribute 3.0 percent of part of their annual salary and the State contributes 42.5 percent of payroll.

 

      This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.

 

This fiscal estimate has been prepared pursuant to P.L.1980, c.67.