PORTABILITY OF PERMISSIVE SERVICE CREDIT UNDER GOVERNMENTAL PENSION PLANS.

SEC. 1526. PORTABILITY OF PERMISSIVE SERVICE CREDIT UNDER GOVERNMENTAL PENSION PLANS. (a) In General.—Section 415 (relating to limitations on benefits and contributions under qualified plans) is amended by adding at the end the following new subsection: “(n) Special Rules Relating to Purchase of Permissive Service Credit.— “(1) In general.—If an employee makes 1 or more contributions to a defined benefit governmental plan (within the meaning of section 414(d)) to purchase permissive service credit under such plan, then the requirements of this section shall be treated as met only if— “(A) the requirements of subsection (b) are met, determined by treating the accrued benefit derived from all such contributions as an annual benefit for purposes of subsection (b), or “(B) the requirements of subsection (c) are met, determined by treating all such contributions as annual additions for purposes of subsection (c). “(2) Application of limit.—For purposes of— “(A) applying paragraph (1)(A), the plan shall not fail to meet the reduced limit under subsection (b)(2)(C) solely by reason of this subsection, and “(B) applying paragraph (1)(B), the plan shall not fail to meet the percentage limitation under subsection (c)(1)(B) solely by reason of this subsection. “(3) Permissive service credit.—For purposes of this subsection— “(A) In general.—The term ‘permissive service credit’ means service credit— “(i) recognized by the governmental plan for purposes of calculating a participant’s benefit under the plan,111 STAT. 1073 “(ii) which such participant has not received under such governmental plan, and “(iii) which such participant may receive only by making a voluntary additional contribution, in an amount determined under such governmental plan, which does not exceed the amount necessary to fund the benefit attributable to such service credit. “(B) Limitation on nonqualified service credit.—A plan shall fail to meet the requirements of this section if— “(i) more than 5 years of permissive service credit attributable to nonqualified service are taken into account for purposes of this subsection, or “(ii) any permissive service credit attributable to nonqualified service is taken into account under this subsection before the employee has at least 5 years of participation under the plan. “(C) Nonqualified service.—For purposes of subparagraph (B), the term ‘nonqualified service’ means service for which permissive service credit is allowed other than— “(i) 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 subsection (k)(3)), “(ii) service (including parental, medical, sabbatical, and similar leave) as an employee (other than as an employee described in clause (i)) of an educational organization described in section 170(b)(1)(A)(ii) which is a public, private, or sectarian school which provides elementary or secondary education (through grade 12), as determined under State law, “(iii) service as an employee of an association of employees who are described in clause (i), or “(iv) military service (other than qualified military service under section 414(u)) recognized by such governmental plan. In the case of service described in clauses (i), (ii), or (iii), such service will be nonqualified service if recognition of such service would cause a participant to receive a retirement benefit for the same service under more than one plan.”. (b) Special Rule for Repayment of Cashouts.—Section 415(k) (relating to special rules) is amended by adding at the end the following new paragraph: “(3) Repayments of cashouts under governmental plans.—In the case of any repayment of contributions (including interest thereon) to the governmental plan with respect to an amount previously refunded upon a forfeiture of service credit under the plan or under another governmental plan maintained by a State or local government employer within the same State, any such repayment shall not be taken into account for purposes of this section.”. (c) Effective Dates.—111 STAT. 1074 (1) In general.—The amendments made by this section shall apply to permissive service credit contributions made in years beginning after December 31, 1997. (2) Transition rule.— (A) In general.—In the case of an eligible participant in a governmental plan (within the meaning of section 414(d) of the Internal Revenue Code of 1986), the limitations of section 415(c)(1) of such Code shall not be applied to reduce the amount of permissive service credit which may be purchased to an amount less than the amount which was allowed to be purchased under the terms of the plan as in effect on the date of the enactment of this Act. (B) Eligible participant.—For purposes of subparagraph (A), an eligible participant is an individual who first became a participant in the plan before the first plan year beginning after the last day of the calendar year in which the next regular session (following the date of the enactment of this Act) of the governing body with authority to amend the plan ends.