Pemissive Service Credits

[Guest gaham]

I am a little confused about the changes to 415 under TRA'97 relating to the purchase of permissive service credits. We are in the process of terminating a small governmental plan because the entity has become a participating entity in the statewide retirement system (effective 1/1/2000). Our small plan has "pick up" contributions as well as some after tax employee contributions that predate the "pick up" amendment. The statewide plan is permitting the purchase of service credits in that plan and is allowing a direct rollover to it in order to purchase this service. Am I correct in my understanding that any rollover to purchase past service will not be subject to 415© but will be subject to the limitations of 415(B)? Am I also correct in my understanding that any distribution from the small plan attributable to after tax employee contributions that cannot be rolled over or out of pocket dollars will be subject to the new rules?

[Carol V. Calhoun]

It is not clear that the new 415(n) rules apply to a transfer or rollover between plans to purchase service credit, as opposed to using new money for the purchase. Under the regulations before 415(n), a transfer or rollover was not treated as subject to either the 415© or 415(B) rules, presumably on the theory that the amounts had already been subjected to the 415© limits at the time they were contributed to the original plan.

Also, after-tax dollars cannot be rolled over, but they can be transferred directly from one plan to another. A rollover occurs only when someone could take a distribution from the plan, but instead elects to have the amount sent to a new plan. A direct rollover can occur even when the participant has no distribution right, and occurs pursuant to the action of the two plans involved.

Finally, I would agree that new after-tax money will be subject to the new rules. The new rules basically permit purchases which fall within their terms to be subjected to either the 415(B) or 415(B) rules, so you would want to look to see which one is more advantageous.