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Permissive service credit

Ken Davis

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The professors in my university's college of medicince receive two paychecks. One from the university for teaching duties and one from the faculty practice plan, a separate 501©(3) organization, for their clinical practice of medicine. The FPP does not currently sponsor a retirement plan and it is being discussed that it may make sense to have the physicians become 100% employees of the university so that the state teachers retirement system will provide benefits on 100% of their compensation.

We've received word from the TRS that moving the docs completely to the university will result in a reduction of the creditable years of service each doc has in the TRS. I think this is to compensate for the fact that the TRS, for all the years that two paychecks were handed out, received no contributions on compensation paid from the FPP. Without this reduction, TRS would be paying out benefits based on 100% of salary, while in past years contributions to TRS were made on only part of the salary.

The TRS will give the docs the option to buy back the reduction of the years of service, but wants the money up front. Some amounts required to buy back the years are fairly large and the docs may not have other qualified retirement accounts that may be transferred to the TRS as the purchase price.

So, it is likely that many docs will have to borrow the money from a bank to make the purchase and pay back the bank with after-tax dollars. Is this purchase covered by 415(n) even though they are buying back years which they agreed to give up to have their benefits calculated on 100% of salary? In other words, do years which had been credited to a person, but have been taken away, meet the definition of permissive service credit in 415(n)(3)?

If 415(n) doesn't apply, then what are the possible consequences of a voluntary purchase with after-tax dollars?


Ken Davis

Univ. of South Alabama

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