PERAC Memo #16 - 2005: Update on Private Letter Ruling Request on Pre-Tax Buybacks
Update on Private Letter Ruling Request on Pre-Tax Buybacks
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This memo updates boards on the status of PERAC's pending 2001 IRS private letter ruling request, which would allow pre-tax payroll deductions for creditable service buybacks system-wide. Until the ruling is issued, only the Teachers' and Boston Retirement Systems (which received their own prior rulings) may process such buybacks pre-tax; all other boards must continue processing service purchase deductions on a post-tax basis (mandatory contributions and certain rollovers remain pre-tax as before). No action is required beyond continuing current post-tax practice pending further guidance.
Full Text
Memorandum 16 /2005
M E M O R A N D U M TO: All Retirement Boards FROM: Joseph E. Connarton, Executive Director RE: Update on Private Letter Ruling Request on Pre-Tax Buybacks
DATE: April 28, 2005
In September 2001, the Commission submitted a private letter ruling request to the Internal Revenue Service that, if approved, would allow deductions from salary to purchase creditable service to be made on a pre-tax basis. The IRS had previously issued private letter rulings to the Teachers’ Retirement System and to the Boston Retirement System, but these rulings apply only to those Systems. The process for obtaining the ruling for the remaining retirement systems has continued since that time and the ruling has not yet been issued.
As a result, except for members of the Teachers’ and Boston Retirement Systems, deductions from salary to purchase creditable service other than the mandatory contributions will continue to be post-tax. Mandatory contributions to the retirement system that are deducted from salary continue to be pre-tax consistent with the IRS private letter ruling issued in 1988. Certain rollovers to purchase creditable service also can be made on a pre-tax basis (see PERAC Memorandum #13/2002).
Enclosed is a copy of a letter from PERAC’s tax counsel, Ice Miller, that more fully discusses the status of the private letter ruling request.
If you have questions, please contact PERAC’s General Counsel, Barbara Phillips, at (617) 666-4446, ext. 902.
Enclosure