840 CMR: PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION
840 CMR 3.00: INTERNAL REVENUE CODE COMPLIANCE PROVISIONS
SENATE… …………………..No. 16
The Commonwealth of Massachusetts
_______________
In the One Hundred and Nine ty-Third General Court
(2023-2024)
_______________
REPORT OF THE
PUBLIC EMPLOYEE RETIREMENT
ADMINISTRATION COMMISSION
SUBMITTING AMENDMENTS TO THE RULES
AND REGULATIONS GOVERNING RETIREMENT
OF PUBLIC EMPLOYEES IN MASSACHUSETTS
(840 CMR 3.00 and 840 CMR 13.00)
(pursuant to Section 50 of
Chapter 7 of the General Laws)
January 26, 2023
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840 CMR 3.00. Internal Revenue Code Compliance Provisions
REGULATORY AUTHORITY
840 CMR 3.00: M.G.L. c. 32, § 21(4).
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3.01. Internal Revenue Code Compliance Provisions
Effective as of January 1, 1989, any retirement system subject to M.G.L. c.
32 will satisfy the qualification requirements in Internal Revenue Code
Section 401, as applicable, as a governmental plan within the meaning of
Internal Revenue Code Section 414(d). In order to meet those requirements,
the retirement system is subject to the following provisions, notwithstanding
any other provision of Massachusetts law.
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3.02. Internal Revenue Code Section 401(a)(1), (2)
Effective as of September 1, 1974, the assets of any retirement system
subject to M.G.L. c. 32 are held in trust and may not be used for or diverted
to any purpose other than for the exclusive benefit of the members and their
beneficiaries and for paying the retirement system's reasonable
administrative expenses.
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3.03. Internal Revenue Code Section 401(a)(8)
Effective as of September 1, 1974, and to confirm existing procedures, any
retirement system subject to M.G.L. c. 32 will not use forfeitures that arise
for any reason, including from termination of employment or death, to
increase the benefits of any member.
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3.04. Internal Revenue Code Section 401(a)(9)
(1) Effective as of January 1, 1989, any retirement system subject to M.G.L.
c. 32 will pay all benefits in accordance with a good faith interpretation of
the requirements of Internal Revenue Code Section 401(a)(9), as applicable
to a governmental plan within the meaning of Internal Revenue Code
Section 414(d).
(2) Notwithstanding any other provision of 840 CMR 3.04(2), effective on
and after January 1, 2003, any retirement system subject to M.G.L. c. 32 is
subject to the following provisions:
(a) Members must apply for benefits by completing all required forms
and benefits must begin by the required beginning date, which is the
later of April 1
st
of the calendar year following the calendar year in
which the member reaches age 72 (70½ if the member was born before
July 1, 1949) or April 1
st
of the calendar year following the calendar year
in which the member terminates employment.
(b) The member's entire interest must be distributed over the member's
life or the lives of the member and a designated beneficiary, or over a
period not extending beyond the life expectancy of the member or of the
member and a designated beneficiary.
(c) The life expectancy of a member, the member's spouse, or the
member's beneficiary may not be recalculated after the initial
determination for purposes of determining benefits.
(d) If a member dies after the required distribution of benefits has
begun, the remaining portion of the member's interest must be
distributed at least as rapidly as under the method of distribution before
the member's death.
(e) If a member dies before required distribution of the member's
benefits has begun, the member's entire interest must be either:
1. distributed (in accordance with federal regulations) over the
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life or life expectancy of the designated beneficiary, with the
distributions beginning no later than December 31
st
of the calendar
year following the calendar year of the member's death; or
2. distributed within five years of the member's death.
(3) The amount of an annuity paid to a member's beneficiary may not
exceed the maximum determined under the incidental death benefit
requirement of Internal Revenue Code Section 401(a)(9)(G), and
effective for any annuity commencing on or after January 1, 2008, the
minimum distribution incidental benefit rule under Treasury
Regulation Section 1.401(a)(9)-6, Q&A-2.
(4) The death and disability benefits provided by the retirement system are
limited by the incidental benefit rule set forth in Internal Revenue Code
Section 401(a)(9)(G) and Treasury Regulation Section 1.401-1(b)(1)(i) or any
successor regulation thereto. As a result, the total death or disability benefits
payable may not exceed 25% of the cost for all of the members' benefits
received from the retirement system.
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3.05. Internal Revenue Code Section 401(a)(17)
(1) In compliance with the provisions of M.G.L. c. 32, § 1 and in furtherance
of the application of the compensation limitations set forth in M.G.L. c. 32, §
1, the annual compensation any retirement system subject to M.G.L c. 32
takes into account for any purpose, including contributions or benefits, may
not exceed the amount allowed by Internal Revenue Code Section 401(a)(17)
as of the first day of the plan year.
(2) The annual compensation of each member taken into account in
determining benefits or contributions for any plan year beginning on
January 1, 1996, and prior to January 1, 2002, may not exceed $150,000, as
adjusted for cost-of-living increases in accordance with Internal Revenue
Code Section 401(a)(17)(B).
(3) Effective only for the 1996 plan year, the rules of Internal Revenue Code
Section 414(q)(6) will apply in determining the annual compensation
limitation, except that a member of the family group will include only the
spouse of the member and any lineal descendant of the member who has not
attained age 19 before the close of the year. If the annual compensation of a
member and his family members is so limited, the annual compensation of
the member and each such family member will be equal to the compensation
of each such individual determined without regard to Internal Revenue Code
Sections 401(a)(17) and 414(q)(6) divided by such annual compensation for
all such individuals as so determined and the quotient multiplied by the
applicable Internal Revenue Code Section 401(a)(17) limitation amount, as
described in 840 CMR 3.05(1) and (2).
(4) The annual compensation of each member taken into account in
determining benefits or contributions for any plan year beginning on or after
January 1, 2002, may not exceed $200,000, as adjusted for cost-of-living
increases in accordance with Internal Revenue Code Section 401(a)(17)(B).
(5) For purposes of 840 CMR 3.04(2)(e)1. through (e)4., annual
compensation means compensation during the fiscal year. The cost-of-living
adjustment in effect for a calendar year applies to annual compensation for
the determination period that begins with or within such calendar year. If
the determination period consists of fewer than 12 months, the annual
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compensation limit is an amount equal to the otherwise applicable annual
compensation limit multiplied by a fraction, the numerator of which is the
number of months in the short determination period, and the denominator
of which is 12. If the compensation for any prior determination period is
taken into account in determining a member's contributions or benefits for
the current plan year, the compensation for such prior determination period
is subject to the applicable annual compensation limit in effect for that prior
period.
(6) The limits referenced in 840 CMR 3.04(2)(e)1. through (e)5. apply only
to plan years beginning on or after January 1, 1996, and only to individuals
who first become members in plan years beginning on and after January 1,
1996. Individuals who become members before plan years beginning on and
after January 1, 1996, are not subject to the limits of Internal Revenue Code
Section 401(a)(17). Pursuant to Section 13212(d)(3)(A) of OBRA '93, the
annual compensation in effect under Internal Revenue Code Section
401(a)(17) does not apply to any such member in any year.
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3.06. Internal Revenue Code Section 401(a)(25)
Effective as of January 1, 1985, any retirement system subject to M.G.L. c.
32 will determine the amount of any benefit that is determined on the basis of
actuarial assumptions using assumptions adopted by PERAC; such benefits
will not be subject to employer discretion.
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3.07. Internal Revenue Code Section 401(a)(31)
840 CMR 3.07 applies to distributions made on or after January 1, 1993 by a
retirement system subject to M.G.L. c. 32, provided that any regulations
adopted by a retirement board that applied the rules of Code Section
401(a)(31) to distributions from its system shall be deemed to apply in lieu
of 840 CMR 3.07. Notwithstanding any contrary provision or retirement law
that would otherwise limit a distributee's election under 840 CMR 3.07, a
distributee may elect, at the time and in the manner prescribed by the
retirement board, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
(1) Eligible Rollover Distribution: An eligible rollover distribution is any
distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or the life expectancy)
of the distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the extent such distribution
is required under Internal Revenue Code Section 401(a)(9); the portion of
any distribution that is not includible in gross income; and any other
distribution that is reasonably expected to total less than $200 during the
year. Effective January 1, 2002, a portion of a distribution will not fail to be
an eligible rollover distribution merely because the portion consists of after-
tax employee contributions that are not includible in gross income.
However, such portion may be transferred only:
(a) to an individual retirement account or annuity described in
Internal Revenue Code Section 408(a) or (b), or to a qualified defined
contribution plan described in Internal Revenue Code Section 401(a)
that agrees to separately account for amounts so transferred (and
earnings thereon), including separately accounting for the portion of
the distribution that is includible in gross income and the portion of
the distribution that is not so includible;
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(b) on or after January 1, 2007, to a qualified defined benefit plan
described in Internal Revenue Code Section 401(a) or to an annuity
contract described in Internal Revenue Code Section 403(b), that agrees
to separately account for amounts so transferred (and earnings thereon),
including separately accounting for the portion of the distribution that is
includible in gross income and the portion of the distribution that is not
so includible; or
(c) on or after January 1, 2008, to a Roth IRA described in Internal
Revenue Code Section 408A.
(2) Eligible Retirement Plan: An eligible retirement plan is:
(a) effective January 1, 2002, a plan eligible under Internal Revenue
Code Section 457(b) that is maintained by a state, political subdivision
of a state, or any agency or instrumentality of a state or political
subdivision of a state that agrees to separately account for amounts
transferred into the plan from the retirement system,
(b) an individual retirement account described in Internal Revenue
Code Section 408(a),
(c) an individual retirement annuity described in Internal Revenue
Code Section 408(b),
(d) an annuity plan described in Internal Revenue Code Section 403(a),
(e) effective January 1, 2002, an annuity contract described in
Internal Revenue Code Section 403(b),
(f) a qualified trust described in Internal Revenue Code Section
401(a), that accepts the distributee's eligible rollover distribution, or
(g) effective January 1, 2008, a Roth IRA described in Internal
Revenue Code Section 408A.
(h) effective December 19, 2015, a SIMPLE IRA described in
Internal Revenue Code Section 408(p), provided that the rollover
contribution is made after the 2-year period described in Internal
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Revenue Code Section 72(t)(6).
(3) Effective January 1, 2002, the definition of eligible rollover distribution
also includes a distribution to a surviving spouse (as defined by federal law),
or to a spouse or former spouse who is an alternate payee under a domestic
relations order, as defined in Internal Revenue Code Section 414(p).
(4) Distributee. A distributee includes an employee or former employee. It
also includes the employee's or former employee's surviving spouse and the
employee's or former employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Internal Revenue Code Section 414(p). Effective January 1, 2007, it further
includes a nonspouse beneficiary who is a designated beneficiary as defined
by Internal Revenue Code Section 401(a)(9)(E). However, a nonspouse
beneficiary may rollover the distribution only to an individual retirement
account or individual retirement annuity established for the purpose of
receiving the distribution and the account or annuity will be treated as an
"inherited" individual retirement account or annuity.
(5) Direct Rollover. A direct rollover is a payment by the retirement system
to the eligible retirement plan specified by the distributee.
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3.08. Internal Revenue Code Section 415
(1) Basic 415 Limitations. Effective as of September 1, 1974, in compliance
with the provisions of M.G.L. c. 32, § 5(3)(f) and in furtherance of the
application of the compensation limitations set forth in M.G.L. c. 32, § 1,
member contributions paid to, and retirement benefits paid from, any
retirement system subject to M.G.L. c. 32 (system) shall be limited to such
extent as may be necessary to conform to the requirements of Internal
Revenue Code Section 415 for a qualified governmental pension plan.
(2) Limitation Year. For purposes of Internal Revenue Code Section 415, the
limitation year is the calendar year.
(3) Participation in Other Qualified Plans: Aggregation of Limits.
(a) The 415(b) limit with respect to any member who at any time has
been a member in any other defined benefit plan as defined in Internal
Revenue Code Section 414(j) maintained by the member's employer in
this system shall apply as if the total benefits payable under all such
defined benefit plans in which the member has been a member were
payable from one plan.
(b) The 415(c) limit with respect to any member who at any time has
been a member in any other defined contribution plan as defined in
Internal Revenue Code Section 414(i) maintained by the member's
employer in this system shall apply as if the total annual additions
under all such defined contribution plans in which the member has
been a member were payable from one plan.
(4) Basic 415(b) Limitation.
(a) Before January 1, 1995, a member may not receive an annual benefit
that exceeds the limits specified in Internal Revenue Code Section 415(b),
subject to the applicable adjustments in that section.
(b) On and after January 1, 1995, a member may not receive an annual
benefit that exceeds the dollar amount specified in Internal Revenue
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Code Section 415(b)(1)(A), subject to the applicable adjustments in
Internal Revenue Code Section 415(b) and subject to any additional
limits that may be specified in M.G.L. c. 32. In no event shall a member's
annual benefit payable in any limitation year from a plan subject to this
title be greater than the limit applicable at the annuity starting date, as
increased in subsequent years pursuant to Internal Revenue Code
Section 415(d).
(5) Definition of Annual Benefit: For purposes of Internal Revenue Code
Section 415(b), the "annual benefit" means a benefit payable annually in the
form of a straight life annuity (with no ancillary benefits) without regard to
the benefit attributable to after- tax employee contributions (except pursuant
to Internal Revenue Code Section 415(n)) and to rollover contributions (as
defined in Internal Revenue Code Section 415(b)(2)(A)). The "benefit
attributable" shall be determined in accordance with Treasury Regulations.
(6) Adjustments to Basic 415(b) Limitation for Form of Benefit . If the benefit
under the system is other than the form specified in 840 CMR 3.08(5), then
the benefit shall be adjusted so that it is the equivalent of the annual benefit,
using factors prescribed in Treasury Regulations.
(a) If the form of benefit without regard to the automatic benefit
increase feature is not a straight life annuity or a qualified joint and
survivor annuity, then the preceding sentence is applied by either
reducing the Internal Revenue Code Section 415(b), the benefit limit
applicable at the annuity starting date or adjusting the form of benefit to
an actuarially equivalent amount (determined using the assumptions
specified in Treasury Regulation Section 1.415(b)-1(c)(2)(ii)) that takes
into account the additional benefits under the form of benefit as follows:
(b) For a retirement benefit which is payable in a form other than a
straight life annuity, and the form of benefit is not subject to Code
Section 417(e)(3) for the purposes of applying the limitation in
subsection (4), is adjusted to an actuarially equivalent straight life
annuity that equals:
1. for limitation years beginning on or after January 1, 2012,
the greater of the annual amount of the straight life annuity (if any)
payable under the plan at the same annuity starting date, and the
annual amount of a straight life annuity commencing at the same
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annuity starting date that has the same actuarial present value as the
member's form of benefit computed using an interest rate of 5% and
the applicable mortality table under § 417(e)(3) (i.e., Rev. Rul. 2001-
62) (and for years after December 31, 2008, the applicable mortality
tables described in Code Section 417(e)(3)(B) (Notice 2008-85 or
any subsequent Internal Revenue Service guidance implementing
Code Section 417(e)(3)(B)); and
2. for limitation years beginning before January 1, 2012, the
annual amount of a straight life annuity commencing at the same
annuity starting date that has the same actuarial present value as
the member's form of benefit computed using whichever of the
following produces the greater annual amount:
a. the interest rate and mortality table or other tabular
factor specified in the plan for adjusting benefits in the
same form; and
b. a 5% interest rate assumption and the applicable
mortality table (Code Section 415, Treas. Reg. 1.415(b)-
1(c)(2)).
(c) For a retirement benefit which is payable in a form other than a
straight life annuity, and the form of the benefit is subject to Code
Section 417(e)(3) the benefit for purposes of applying the limitation in
subsection (4), is adjusted to an actuarially equivalent straight life
annuity that equals:
1. if the annuity starting date is in a plan year beginning after
2005, the annual amount of the straight life annuity commencing
at the same annuity starting date that has the same actuarial
present value as the participant's form of benefit using whichever
of the following produces the greatest annual amount:
a. the interest rate and the mortality table or other tabular
factor specified in the plan for adjusting benefits in the same
form;
b. a 5.5% interest rate assumption and the applicable mortality
table; and
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c. the applicable interest rate under §417(e)(3) (effective
January 1, 2013, using the rate in effect for the second month
immediately prior to the first day of the limitation year with a
one-year stabilization period) and the applicable mortality
table, divided by 1.05 and for years after December 31, 2008,
the applicable mortality tables described in Code Section
417(e)(3)(B) (Notice 2008-85 or any subsequent Internal
Revenue Service guidance implementing Code Section
417(e)(3)(B);
(7) Benefits not Taken into Account for 415(b) Limitation. For purposes of
M.G.L. c. 32, the following benefits shall not be taken into account
in applying these limits:
(a) Any ancillary benefit which is not directly related to retirement
income benefits;
(b) That portion of any joint and survivor annuity that constitutes a
qualified joint and survivor annuity;
(c) Any other benefit not required under Internal Revenue Code
Section 415(b)(2) and Regulations thereunder to be taken into account
for purposes of the limitation of Internal Revenue Code Section
415(b)(1).
(8) Other Adjustments in 415(b) Limitation.
(a) In the event the member's retirement benefits become payable
before age 62, the benefit is limited to:
1. if the annuity starting date is in a limitation year beginning
before January 1, 2012, the annual amount of a benefit payable in the
form of a single life annuity commencing at the member's annuity
starting date that is the actuarial equivalent of the dollar limitation
determined, with actuarial equivalence computed using whichever
of the following produces the smaller annual amount:
a. the interest rate and mortality table or other tabular factor
specified in the plan for determining actuarial equivalence
for early retirement purposes; or
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b. a 5% interest rate assumption and the applicable mortality table;
2. if the annuity starting date is in a limitation year beginning
on or after January 1, 2012, and the plan does not have an
immediately commencing straight life annuity payable at both age
62 and the age of benefit commencement, the annual amount of a
benefit payable in the form of a straight life annuity commencing at
the member's annuity starting date that is the actuarial equivalent of
the dollar limitation, with actuarial equivalence computed using a
5% interest rate assumption and the applicable mortality table and
expressing the member's age based on completed calendar months as
of the annuity starting date; and
3. if the annuity starting date is in a limitation year beginning
on or after January 1, 2012, and the plan has an immediately
commencing straight life annuity payable at both age 62 and the
age of benefit commencement, the lesser of:
a. the adjusted dollar limitation determined in
accordance with 840 CMR 3.08(a)2.; and
b. the product of the dollar limitation multiplied by the
ratio of the annual amount of the immediately commencing
straight life annuity under the plan at the member's annuity
starting date to the annual amount of the immediately
commencing straight life annuity under the plan at age 62,
both determined without applying the limitations of Code
Section 415. Code Section 415; Treas. Reg. 1.415(b)-1(d).
(b) In the event the member's benefit is based on at least 15 years of
service as a full-time employee of any police or fire department or on 15
years of military service, the adjustments provided for in subsection a.
above shall not apply.
(c) The reductions provided for in 840 CMR 3.08(8)(a) shall not
be applicable to pre-retirement disability benefits or pre-retirement
death benefits.
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(9) Less than Ten Years of Participation or Service Adjustment for 415(b)
Limitations. The maximum retirement benefits payable to any member who
has completed less than ten years of service shall be the amount determined
under 840 CMR 3.08(4), as adjusted under 840 CMR 3.08(6) and/or (8),
multiplied by a fraction, the numerator of which is the number of the
member's years of participation and the denominator of which is ten. The
limit under 840 CMR 3.08(10) (concerning the $10,000 limit) shall be
similarly reduced for any member who has accrued less than ten years of
service, except the fraction shall be determined with respect to years of
service instead of years of participation. The reduction provided by 840
CMR 3.08(9) cannot reduce the maximum benefit below 10% of the limit
determined without regard to this subsection. The reduction provided for in
840 CMR 3.08(9) shall not be applicable to pre-retirement disability
benefits or pre-retirement death benefits.
(10) Ten Thousand Dollar Limit. Notwithstanding the foregoing, the
retirement benefit payable with respect to a member shall be deemed not to
exceed the 415 limit if the benefits payable, with respect to such member under this system and under all other qualified defined benefit pension
plans to which the member's employer contributes, do not exceed $10,000
for the applicable limitation year and for any prior limitation year and the
employer has not any time maintained a qualified defined contribution plan in which the member participated.
(11) Effect of COLA without a Lump Sum Component on 415(b) Testing.
Effective on and after January 1, 2003, for purposes of applying the limits
under Internal Revenue Code Section 415(b) (the "Limit") to a member with
no lump sum benefit, the following will apply:
(a) a member's applicable Limit will be applied to the member's annual
benefit in the member's first limitation year without regard to any automatic cost of living adjustments;
(b) to the extent that the member's annual benefit equals or exceeds
the Limit, the member will no longer be eligible for cost of living
increases until such time as the benefit plus the accumulated increases
are less than the Limit;
(c) thereafter, in any subsequent limitation year, a member's annual
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benefit, including any automatic cost of living increases, shall be tested
under the then applicable benefit Limit including any adjustment to the
Internal Revenue Code Section 415(b)(1)(A) dollar limit under Internal
Revenue Code Section 415(d), and the Treasury Regulations thereunder.
(12) Effect of COLA with a Lump Sum Component on 415(b) Testing. On and
after January 1, 2009, with respect to a member who receives a portion of
the member's annual benefit in a lump sum, a member's applicable Limit
will be applied taking into consideration cost of living increases as required
by Internal Revenue Code Section 415(b) and applicable Treasury
Regulations.
(13) 415(c) Limitations. After-tax member contributions or other annual
additions with respect to a member may not exceed the lesser of $40,000
(as adjusted pursuant to Internal Revenue Code Section 415(d)) or 100% of
the member's compensation.
(a) Annual additions are defined to mean the sum (for any year) of
employer contributions to a defined contribution plan, member
contributions, and forfeitures credited to a member's individual account.
Member contributions are determined without regard to rollover
contributions and to picked-up employee contributions that are paid to a
defined benefit plan.
(b) For purposes of applying the 415(c) limits only and for no other
purpose, the definition of compensation where applicable will be
compensation actually paid or made available during a limitation year,
except as noted below and as permitted by Treasury Regulation Section
1.415(c)- 2, or successor regulation; provided, however, that member
contributions picked up under Internal Revenue Code Section 414(h)
shall not be treated as compensation.
(c) Unless another definition of compensation that is permitted by
Treasury Regulation Section 1.415(c)-2, or successor regulation, is
specified by a system subject to this title, compensation will be defined as
wages within the meaning of Internal Revenue Code Section 3401(a) and
all other payments of compensation to an employee by an employer for
which the employer is required to furnish the employee a written
statement under Internal Revenue Code Sections 6041(d), 6051(a)(3)
and 6052 and will be determined without regard to any rules under
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Internal Revenue Code Section 3401(a) that limit the remuneration
included in wages based on the nature or location of the employment or
the services performed (such as the exception for agricultural labor in
Internal Revenue Code Section 3401(a)(2)).
1. However, for limitation years beginning after December 31,
1997, compensation will also include amounts that would otherwise
be included in compensation but for an election under Internal
Revenue Code Section 125(a), 402(e)(3), 402(h)(1)(B), 402(k), or
457(b). For limitation years beginning after December 31, 2000,
compensation will also include any elective amounts that are not
includible in the gross income of the employee by reason of Internal
Revenue Code Section 132(f)(4).
2. For limitation years beginning on and after January 1, 2007,
compensation for the limitation year will also include compensation
paid by the later of 2% months after an employee's severance from
employment or the end of the limitation year that includes the date
of the employee's severance from employment if:
a. the payment is regular compensation for services
during the employee's regular working hours, or
compensation for services outside the employee's regular
working hours (such as overtime or shift differential),
commissions, bonuses or other similar payments, and,
absent a severance from employment, the payments would
have been paid to the employee while the employee
continued in employment with the employer; or
b. the payment is for unused accrued bona fide sick,
vacation or other leave that the employee would have been
able to use if employment had continued.
Any payments not described in 840 CMR 3.08(13)(c)2.are
not considered compensation if paid after severance from
employment, even if they are paid within 2½ months
following severance from employment, except for payments
to the member who does not currently perform services for
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840 CMR 3.00: INTERNAL REVENUE CODE COMPLIANCE PROVISIONS
the employer by reason of qualified military service (within
the meaning of section 414(u)(1) of the Internal Revenue
Code) to the extent these payments do not exceed the
amounts the individual would have received if the member
had continued to perform services for the employer rather
than entering qualified military service.
A member who is in qualified military service (within the
meaning of section 414(u)(1) of the Internal Revenue Code)
shall be treated as receiving compensation from the employer
during such period of qualified military service equal to:
(a) the compensation the member would have received
during such period if the member were not in qualified
military service, determined based on the rate of pay
the member would have received from the employer
but for the absence during the period of qualified
military service; or
(b) if the compensation the member would have received
during such period was not reasonably certain, the
member's average compensation from the employer
during the 12 month period immediately preceding the
qualified military service (or, if shorter, the period of
employment immediately preceding the qualified
military service).
3. Back pay, within the meaning of Treasury Regulation Section
1.415(c)- 2(g)(8), shall be treated as compensation for the
limitation year to which the back pay relates to the extent the
back pay represents wages and compensation that would
otherwise be included under this definition.
(14) Service Purchases under Internal Revenue Code Section 415(n).
Effective for permissive service credit contributions made in accordance
with the applicable provisions of M.G.L. c . 32, in limitation years beginning
after December 31, 1997, if a member makes one or more contributions to
purchase permissive service credit under a plan, then the requirements of
Internal Revenue Code Section 415(n) will be treated as met only if:
840 CMR: PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION
840 CMR 3.00: INTERNAL REVENUE CODE COMPLIANCE PROVISIONS
(a) the requirements of Internal Revenue Code Section 415(b) are
met, determined by treating the accrued benefit derived from all such
contributions as an annual benefit for purposes of Internal Revenue
Code Section 415(b), or
(b) the requirements of Internal Revenue Code Section 415(c) are
met, determined by treating all such contributions as annual
additions for purposes of Internal Revenue Code Section 415(c).
(c) For purposes of applying 840 CMR 3.08(14), the system will not
fail to meet the reduced limit under Internal Revenue Code Section
415(b)(2)(C) solely by reason of 840 CMR 3.08(14) and will not fail to
meet the percentage limitation under Internal Revenue Code Section
415(c)(1)(B) solely by reason of 840 CMR 3.08(14).
(d) For purposes of 840 CMR 3.08(14) the term "permissive service
credit" means service credit:
1. recognized by the system for purposes of calculating a
member's benefit under the system;
2. which such member has not received under the system; and
3. which such member may receive only by making a voluntary
additional contribution, in an amount determined under the
system, which does not exceed the amount necessary to fund the
benefit attributable to such service credit.
Effective for permissive service credit contributions made in
limitation years beginning after December 31, 1997, such term may
include service credit for periods for which there is no
performance of service, and, notwithstanding 840 CMR
3.08(14)(d)2., may include service credited in order to provide an
increased benefit for service credit which a member is receiving
under the system.
840 CMR: PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION
840 CMR 3.00: INTERNAL REVENUE CODE COMPLIANCE PROVISIONS
(e) The system will fail to meet the requirements of 840 CMR 3.08(14) if:
1. more than five years of nonqualified service credit are
taken into account for purposes of 840 CMR 3.08(14)(e); or
2. any nonqualified service credit is taken into account
under 840 CMR 3.08(14)(e)2. before the member has at
least five years of participation under the plan.
(f) For purposes of 840 CMR 3.08(14)(e), effective for permissive
service credit contributions made in limitation years beginning after
December 31, 1997, the term "nonqualified service credit" means
permissive service credit other than that allowed with respect to:
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 Internal Revenue Code Section
415(k)(3));
2. service (including parental, medical, sabbatical, and similar
leave) as an employee (other than as an employee described in
clause (1)) of an education organization described in Internal
Revenue Code Section 170(b)(1)(A)(ii) 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 the applicable law of the jurisdiction in
which the service was performed,
3. service as an employee of an association of employees who
are described in clause (1); or
4. military service (other than qualified military service
under Internal Revenue Code Section 414(u)) recognized by
such governmental plan.
840 CMR: PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION
840 CMR 3.00: INTERNAL REVENUE CODE COMPLIANCE PROVISIONS
In the case of service described in clause (1), (2), or (3), such service
will 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.
(g) In the case of a trustee -to-trustee transfer after December 31, 2001,
to which Internal Revenue Code Section 403(b)(13)(A) or Internal
Revenue Code Section 457(e)(17)(A) applies (without regard to whether
the transfer is made between plans maintained by the same employer):
1. the limitations of 840 CMR 3.08(14)(e) will not
apply in determining whether the transfer is for the
purchase of permissive service credit; and
2. the distribution rules applicable under federal law to
the system will apply to such amounts and any benefits
attributable to such amounts.
(h) For an eligible member, the limitation of Internal Revenue Code
Section 415(c)(1) 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 system as in effect on August 5, 1997. For purposes of this
paragraph an eligible member is an individual who first became a
member in the plan before January 1, 1998.
(15) Modification of Contributions for 415(c) and 415(n) Purposes .
Notwithstanding any other provision of law to the contrary, the system may
modify a request by a member to make a contribution under M.G.L. c. 32 if
the amount of the contribution would exceed the limits provided in Internal
Revenue Code Section 415 by using the following methods:
(a) If the law requires a lump sum payment for the purchase of service
credit, the system may establish a periodic payment plan for the
member to avoid a contribution in excess of the limits under Internal
Revenue Code Section 415(c) or 415(n).
(b) If payment pursuant to 840 CMR 3.08(15)(a) will not avoid a
contribution in excess of the limits imposed by Internal Revenue Code
Section 415(c) or 415(n), the system may either reduce the member's
840 CMR: PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION
840 CMR 3.00: INTERNAL REVENUE CODE COMPLIANCE PROVISIONS
contribution to an amount within the limits of those sections or refuse
the member's contribution.
(16) Repayments of Cashouts. Any repayment of contributions (including
interest thereon) to the system with respect to an amount previously
refunded upon a forfeiture of service credit under the system or another
governmental plan maintained by the State or a local government within the
State shall not be taken into account for purposes of Internal Revenue Code
Section 415, in accordance with applicable Treasury Regulations.
(17) Reduction of Benefits Priority. Reduction of benefits and/or
contributions to all plans, where required, shall be accomplished by first
reducing the member's benefit under any defined benefit plans in which the
member participated, such reduction to be made first with respect to the
plan in which the member most recently accrued benefits and thereafter in
such priority as shall be determined by the plan and the plan administrator
of such other plans, and next, by reducing or allocating excess forfeitures for
defined contribution plans in which the member participated, such
reduction to be made first with respect to the plan in which the member
most recently accrued benefits and thereafter in such priority as shall be
established by the plan and the plan administrator for such other plans
provided, however, that necessary reductions may be made in a different
manner and priority pursuant to the agreement of the plan and the plan
administrator of all other plans covering such member.
(18) Amendment. Nothing contained in 840 CMR 3.08 will limit the
Legislature from modifying benefits to the extent such modifications are
permissible by applicable state and federal law.
840 CMR: PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION
840 CMR 3.00: INTERNAL REVENUE CODE COMPLIANCE PROVISIONS
3.09. Internal Revenue Code Section 503(b)
Effective as of January 1, 1989, a retirement board subject to M.G.L. c. 32
may not engage in a transaction prohibited by Internal Revenue Code
Section 503(b).
840 CMR: PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION
840 CMR 3.00: INTERNAL REVENUE CODE COMPLIANCE PROVISIONS
3.10. Internal Revenue Code Sections 414(u), 401(a)(37) and the
HEART Act
(1) Effective December 12, 1994, notwithstanding any other provision of
retirement system law, contributions, benefits and service credit with
respect to qualified military service are governed by Internal Revenue Code
Section 414(u) and the Uniformed Services Employment and Reemployment
Rights Act of 1994.
(2) Mandatory Provision. Effective with respect to deaths occurring on or
after January 1, 2007, while a member is performing qualified military
service (as defined in 38 USC c. 43), to the extent required by Internal
Revenue Code Section 401(a)(37), survivors of a member in a State or local
retirement or pension system, are entitled to any additional benefits that the
system would provide if the member had resumed employment and then
died, such as accelerated vesting or survivor benefits that are contingent on
the member's death while employed. In any event, a deceased member's
period of qualified military service must be counted for vesting purposes.
(3) Optional Provision. Effective with respect to deaths and disabilities (as
determined under M.G.L. c. 32, § 6) occurring on or after July 1, 2007, while
a member is performing qualified military service (as defined in 38 USC c.
43), to the extent permitted by Internal Revenue Code Section 414(u)(9), for benefit accrual purposes and for vesting purposes, the member will be
treated as having earned years of service for the period of qualified military
service, having returned to employment on the day before the death or
disability (as determined under M.G.L. c. 32, § 6), and then having
terminated on the date of death or disability (as determined under M.G.L. c.
32, § 6). 840 CMR 3.10(3) shall be applied to all similarly situated
individuals in a reasonably equivalent manner.
(4) Mandatory Provision for 415(c) Language. Beginning January 1, 2009, to
the extent required by Internal Revenue Code Section 414(u)(12), an
individual receiving differential wage payments (as defined under Internal Revenue Code Section 3401(h)(2)) from an employer shall be treated as
employed by that employer, and the differential wage payment shall be
treated as compensation for purposes of applying the limits on annual
additions under Internal Revenue Code Section 415(c). 840 CMR 3.10(4)
shall be applied to all similarly situated individuals in a reasonably
equivalent manner.
840 CMR: PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION
840 CMR 3.00: INTERNAL REVENUE CODE COMPLIANCE PROVISIONS
3.11 Internal Revenue Code Section 411(e)
Effective as of September 1, 1974, in addition to any protection provided
by this ordinance and Massachusetts law:
(1) A member will be 100% vested in all Plan benefits upon attainment of the
Plan's age and service requirements for the Plan's normal retirement
benefit; and
(2) A member will be 100% vested in all Plan benefits, to the extent funded,
if the Plan is terminated or experiences a complete discontinuance of
employer contributions.
3.12 Electronic Transactions
In those circumstances where a written election or consent is not required by a
retirement system or the Internal Revenue Code, an oral, electronic, or telephonic
form in lieu of or in addition to a written form may be
840 CMR: PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION
840 CMR 13.00. ROLLOVERS FOR SERVICE PURCHASES AND
BUYBACKS
840 CMR 13.00: Rollovers for Service Purchases and Buybacks
REGULATORY AUTHORITY
M.G.L. c. 7, § 50,
M.G.L. c. 32, § 21. 840 CMR: PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION
840 CMR 13.00 ROLLOVERS FOR SERVICE PURCHASES AND BUYBACKS
13.01. Acceptance of Pre-Tax Rollovers from "Eligible
Retirement Plans"
The following provisions are intended to enable public employees in
Massachusetts to take advantage of the expanded tax -deferred roll-over
opportunities permitting the purchase of creditable service from assets held in
other tax-deferred retirement plans.
(1) A Retirement Board may accept any portion of an Eligible Rollover
Distribution in payment of all or a portion of a member's purchase of service
credit or service buybacks pursuant to M.G.L. c. 32, §§1 through 28 and §
105. A Retirement Board may accept an Eligible Rollover Distribution paid
directly to the system in a Direct Rollover. Rollovers from other permissible
sources will be allowed to the extent permitted by law, subject to any
conditions, proofs, or acceptance the Retirement Board deems appropriate.
(2) The following definitions shall apply to 840 CMR 13.01:
Direct Rollover is a payment from an Eligible Retirement Plan
specified by the member and made directly to the Retirement System.
Eligible Retirement Plan is any program defined in Code Sections
401(a)(31) and 402(c)(8)(B), from which the member has a right to an
Eligible Rollover Distribution, as follows:
(a) an individual retirement account under Code Section 408(a);
(b) an individual retirement annuity under Code Section 408(b)
(other than an endowment contract);
(c) a qualified plan under Code Sections 401(a) or 403(a);
(d) an eligible deferred compensation plan under Code Section
457(b) which is maintained by a state, a political subdivision of a
state, or any agency or instrumentality of a state or a political
subdivision of a state;
(e) an annuity contract under Code Section 403(b); and
(f) a SIMPLE IRA, provided that the rollover contribution is made after 840 CMR: PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION
840 CMR 13.00 ROLLOVERS FOR SERVICE PURCHASES AND BUYBACKS
the two-year period beginning on the date the distributee first
participated in any qualified salary reduction arrangement maintained by
the distributee’s employer under Code § 408(p)(2), as described in Code §
72(t)(6).
Eligible Rollover Distribution is any distribution of all or any portion of
the balance to the credit of the member from an Eligible Retirement
Plan. An Eligible Rollover Distribution does not include:
(a) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the
life (or life expectancy) of the member or the joint lives (or joint life
expectancies) of the member and the member's designated
beneficiary, or for a specified period of ten years or more;
(b) any distribution to the extent such distribution is required
under Section 401(a)(9) of the Internal Revenue Code ("Code");
(c) any distribution which is made upon hardship of the member; or
(d) the portion of any distribution that is not includible in gross income. 840 CMR: PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION
840 CMR 13.00 ROLLOVERS FOR SERVICE PURCHASES AND BUYBACKS
13.02. Acceptance of After-Tax Rollovers from "Qualified
Defined Benefit Retirement Plans"
840 CMR 13.02 is intended to implement the provisions of § 822 of the
Pension Protection Act of 2006 (PPA) and to enable public employees
in Massachusetts to roll-over after-tax amounts from other defined
benefit retirement plans qualified pursuant to Code § 401(a) if the
Massachusetts retirement system accepts such rollovers.
A Retirement Board may accept direct rollovers of after-tax funds from
a qualified defined benefit plan (Code § 401(a) or § 403(b)). If such
rollovers are permitted, the after-tax amounts must be accounted for
separately.
Retirement Boards are not required to accept such transfers.