§821. Clarifications regarding purchase of permissive service credit

Pension Protection Act of 2006

Title VIII Pension Related Revenue Provisions

Subtitle C Improvements in Portability, Distribution, and Contribution Rules

(a) IN GENERAL.-Section 415(n) of the Internal Revenue Code of 1986 (relating to special rules for the purchase of permissive service credit) is amended-

(a)(1) by striking "an employee" in paragraph (1) and inserting "a participant", and

(a)(2) by adding at the end of paragraph (3)(A) the following new flush sentence:

"Such term may include service credit for periods for which there is no performance of service, and, notwithstanding clause (ii), may include service credited in order to provide an increased benefit for service credit which a participant is receiving under the plan. ".

(b) SPECIAL RULES FOR TRUSTEE-TO-TRUSTEE TRANSFERS.-Section 415(n )(3) of such Code is amended by adding at the end the following new subparagraph:

"(D) SPECIAL RULES FOR TRUSTEE-TO-TRUSTEE TRANSFERS.- In the case of a trustee-to-trustee transfer to which section 403(b)(13)(A) or 457(e)(17)(A) applies (without regard to whether the transfer is made between plans maintained by the same employer)-

"(i) the limitations of subparagraph (B) shall not apply in determining whether the transfer is for the purchase of permissive service credit, and

"(ii) the distribution rules applicable under this title 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.".

(c) NONQUALIFIED SERVICE.-Section 415(n )(3) of such Code is amended-

(c)(1) by striking "permissive service credit attributable to nonqualified service" each place it appears in subparagraph (B) and inserting "nonqualified service credit",

(c)(2) by striking so much of subparagraph (C) as precedes clause (i) and inserting:

"(C) NONQUALIFIED SERVICE CREDIT.- For purposes of subparagraph (B), the term 'nonqualified service credit' means permissive service credit other than that allowed with respect to-", and

(c)(3) by striking "elementary or secondary education (through grade 12), as determined under State law" in subparagraph (C)(ii) and inserting "elementary or secondary education (through grade 12), or a comparable level of education, as determined under the applicable law of the jurisdiction in which the service was performed".

(d) EFFECTIVE DATES.-

(d)(1) IN GENERAL.-The amendments made by subsections (a) and (c) shall take effect as if included in the amendments made by section 1526 of the Taxpayer Relief Act of 1997.

(d)(2) SUBSECTION (b).-The amendments made by subsection (b) shall take effect as if included in the amendments made by section 647 of the Economic Growth and Tax Relief Reconciliation Act of 2001.