(a) In general. If a member makes one or more contributions to the plan to purchase permissive service credit under the plan, the requirements of § 415, Internal Revenue Code, shall be treated as met with respect to these contributions if:
(1) The requirements of § 415(b), Internal Revenue Code, are met, determined by treating the accrued benefit derived from all such contributions as an annual benefit for purposes of § 415(b), Internal Revenue Code, provided, however, the plan shall not fail to meet the reduced limit under § 415(b)(2)(C), Internal Revenue Code, solely by reason of this section; or
(2) The requirements of § 415(c), Internal Revenue Code, are met, determined by treating all such contributions as annual additions for purposes of § 415(c), Internal Revenue Code, provided, however, the plan shall not fail to meet the percentage limitation under § 415(c)(1)(B), Internal Revenue Code, solely by reason of this section.
(b) Limitation on nonqualified service credit. The plan shall fail to meet the requirements of this section if:
(1) More than five years of nonqualified service credit are taken into account; or
(2) Any nonqualified service credit is taken into account before the member has at least five years of participation under the plan.
(c) Definitions.
(1) PERMISSIVE SERVICE CREDIT. a. For purposes of this section, means service credit that is:
1. Recognized by the plan for purposes of calculating a member’s benefit under the plan;
2. Which such member has not otherwise received under the plan; and
3. Which such member may receive only by making a voluntary additional contribution, in an amount determined under the plan, which does not exceed the amount necessary to fund the benefit attributable to such service credit.
b. Permissive service credit may include service credit for periods for which there is no performance of service, and, notwithstanding subparagraph 2. of paragraph a., may include service credited in order to provide an increased benefit for service credit which a member is receiving under the plan.
(2) NONQUALIFIED SERVICE CREDIT. a. For purposes of this section, means permissive service credit other than that allowed with respect to the following:
1. Service, including parental, medical, sabbatical, and similar leave, as an employee of the government of the United States, any state or political subdivision thereof, or any agency or instrumentality of any of the foregoing, other than military service or service for credit which was obtained as a result of a repayment described in § 415(k)(3), Internal Revenue Code;
2. Service, including parental, medical, sabbatical, and similar leave, as an employee, other than as an employee described in subparagraph 1., of an educational organization described in § 170(b)(1)(A)(ii), Internal Revenue Code, which is a public, private, or sectarian school which provides elementary or secondary education, through grade 12, or a comparable level of education, as determined under state law;
3. Service as an employee of an association of employees who are described in subparagraph 1.; or
4. Military service, other than qualified military service, recognized by the plan.
b. In the case of service described in subparagraph 1., subparagraph 2., or subparagraph 3., such service shall be nonqualified service if recognition of such service would cause a member to receive a retirement benefit for the same service under more than one plan.
(d) Special rules for trustee-to-trustee transfers. In the case of a trustee-to-trustee transfer to which § 403(b)(13)(A) or § 457(e)(17)(A), Internal Revenue Code, applies, without regard to whether the transfer is made between plans maintained by the same employer:
(1) The limitations of subsection (b) shall not apply in determining whether the transfer is for the purchase of permissive service credit; and
(2) The distribution rules applicable to the defined benefit governmental plan to which any amounts are so transferred shall apply to such amounts and any benefits attributable to such amounts.
(e) Effective date. This section shall be effective with respect to permissive service credit contributions made in years beginning after December 31, 1997. Notwithstanding the foregoing, in the case of an eligible participant, the limitations of § 415(c)(1), Internal Revenue Code, shall not be applied to reduce the amount of permissive service credit which may be purchased to an amount which is less than the amount which was allowed to be purchased under the terms of the plan as in effect on August 5, 1997. For purposes of this subsection, an eligible participant is an individual who became a member in the plan before January 1, 1998.
Last modified: May 3, 2021