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PURCHASE OF SERVICE CREDIT
Direct Rollover/Trustee-to-Trustee Transfer of Funds
for the Purchase of Service Credit

Frequently Asked Questions and Answers

1. Q. Can the rollover funds include both employer and employee contributions?

A. Yes, funds contributed to a qualified plan by either the employee or the employer can be rolled over provided that they meet the rules regarding tax-deferred and non-tax-deferred funds as outlined below.

2. Q. Can the amount of the check, which reflects tax-deferred contributions, exceed the lump sum cost of the purchase?

A. No, the amount of the check(s) must be less than or equal to the lump sum cost for the purchase or purchases of service. If it exceeds the total lump sum costs, the check will be returned to you.

3. Q. Will the Division of Pensions and Benefits provide the disbursing plan or financial institution issuing the check a Letter of Acceptance?

A. Yes. A Letter of Acceptance confirms that our plan is a qualified plan and we will accept a direct rollover or direct trustee-to-trustee transfer. The distributing plan can view and print the Letter of Acceptance Adobe PDF (53K) from our Web site.

4. Q. My financial institution or plan requires the completion of a form. Where should the form be sent for completion?

A. Please submit the above types of forms to:

NJ Division of Pensions and Benefits
PO Box 295
Trenton NJ 08625-0295
Attn: Accounting Services Section

(Please do not submit form(s) to the Division until you have received your Purchase Cost Quotation)

5. Q. If the tax-deferred payment is paid to me from the financial institution or plan, do I have the option of rolling over the payment and applying it towards the cost of the purchase?

A. Yes, you may do this provided you submit a personal payment for the partial or lump sum cost of the purchase within 60 days of receipt of the direct payment you received from disbursing plan or financial institution. This is called an indirect rollover. It is necessary that you submit a copy of the check from the disbursing plan or financial institution or documentation from the plan, which will confirm that you completed this process within 60 days.

6. Q. Can I arrange for a direct rollover/direct trustee-to-trustee transfer of tax-deferred funds to satisfy the balance due for a current purchase arrears payment obligation?

A. Yes, provided the purchase arrears payment obligation reflects only the purchase or purchases of additional service credit. All requests for a purchase arrears payoff amount must be submitted in writing to the attention of the Adjustment Section, at the address listed above. Please indicate in your request letter your name, mailing address, pension membership number or Social Security number, a daytime telephone number, the type of service you are purchasing, and the type of funds you wish to use for the purchase arrears payoff.

7. Q. What is the difference between a direct rollover and a direct trustee-to-trustee transfer?

A. In a direct rollover, you are taking a distribution from the disbursing plan. The distribution is non-taxable because you are directly rolling the funds to another eligible retirement plan. You will, however, receive a Form 1099R from the disbursing plan since it is considered a distribution. The 1099R should indicate a taxable amount of $0.00.

In a direct trustee-to-trustee transfer, funds are simply being moved from one plan to another. It is not considered a distribution and no Form 1099R will be issued to you from the disbursing plan.

8. Q. Can non-tax-deferred funds from an IRA or other qualified plan be used toward the partial or full cost of the purchase?

A. No, the funds must be tax-deferred (except if the funds include after tax contributions from an expired former membership account from a New Jersey State-administered Retirement System).

9. Q. Can I apply tax-deferred and non-tax-deferred contributions from an expired account in a New Jersey State-administered Retirement System to pay for either a portion of or the full cost of a purchase?

A. Yes, provided the former membership is expired and the funds in the account have not been escheated or transferred to the New Jersey Department of the Treasury's Unclaimed Property office. Members should include a completed Withdrawal Application form along with their Purchase Cost Quotation and Rollover Form.

10. Q. I am currently receiving a retirement benefit from an out-of-state governmental 457 qualified plan. Can I apply tax-deferred contributions from the out-of-state plan towards the cost of any type of purchase — such as the purchase of the out-of-state service?

A. No, if you are currently receiving a retirement benefit from the out-of-state plan, you cannot purchase this service nor can you authorize a direct rollover or transfer of tax-deferred contributions.

11. Q. I am eligible to receive a retirement benefit from an out-of-state governemental 457 qualified plan. Can I apply tax-deferred contributions from the out-of-state plan towards the cost of any type of purchase?

A. Yes, as long as you are eligible but not yet collecting a benefit. However, you can only authorize the use of tax-deferred contributions from an out-of-state governmental plan if you provide written proof from the plan that you are forfeiting your rights to receive a retirement benefit from that plan or have withdrawn your contributions from the plan. You may authorize a direct rollover once the appropriate proof has been received by the Division of Pensions and Benefits and a Purchase Cost Quotation has been issued. A maximum of 10 years of out-of-state service may be purchased.

Please note that the amount of the tax-deferred funds cannot exceed the lump sum cost of the purchase. Be sure to review Fact Sheet #2, Estimating the Cost of Purchasing Service Credit (PERS & TPAF) Adobe PDF (33K), or Fact Sheet #3, Estimating the Cost of Purchasing Service Credit (PFRS) Adobe PDF (30K), to estimate the cost of the purchase before withdrawing funds or forfeiting your rights to a retirement benefit.

12. Q. What if the out-of-state funds exceed the cost of the purchase?

A. If the out-of-state funds exceed the cost of the purchase, you should coordinate the distribution of the out-of-state funds with your plan or financial institution to issue separate checks prior to electing a direct rollover (also see Question #2). You may also want to consult with a professional tax advisor about any possible tax liabilities or penalties you may incur on the excess funds.

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Last update: November 18, 2009