Service Credit - When Government Code section 20909 became effective on January 1, 2004, it allowed employees enrolled in the Public Employees’ Retirement System ("CalPERS") to purchase "air time," up to five (5) years of service credit that did not have to correspond with any other service performed with the current employer or any former employer. Shortly thereafter, the monicker "air time" was dropped and employees wishing to buy additional service credit under this section had to certify that the credit purchased corresponded with work performed at some point that was not already credited.

The Act clarifies that an employee can buy up to five (5) years of actual "air time" and CalPERS indicates on its website that certification is no longer required for most purchases. The other restrictions on this service credit purchase under Government Code section 20909 are still in effect (e.g., must have five (5) years of credited state service and must purchase in one year increments, etc.)

Prior to the Act, it was unclear whether funds in an employee’s deferred compensation account could be used to purchase air time without incurring taxable income on the amount transferred. CalPERS had sought a private letter ruling from the IRS on this issue. The Act allows funds in 403(b) and 457 plans to be used in a direct trustee to trustee transfer to purchase this service credit without triggering a taxable event. CalPERS’ website indicates that it will accept such funds for the purchase of additional service credit and that the Act obviated the need for a private letter ruling.

Public Safety Officers - Several provisions are applicable to public safety officers (generally police, firefighters and those providing emergency medical services employed by the State or a political subdivision of the State):

• The 10% early withdrawal penalty for service (not disability) distributions from governmental plans previously applicable before the retiree attained age 55, is now assessed only if the distribution is made before the retiree attains age 50 when the distribution is from a governmental defined benefit plan (effective for distributions made after enactment of the Act).
• Allows public safety officers (using a broader definition than the general definition described above) who separate for service (at or after normal retirement age, but not service retirees prior to normal retirement age) or for disability, to obtain tax free distributions of up to $3,000 per year from certain government plans to be used for premiums for qualified accident or health insurance or long-term care insurance. This provision is effective beginning January 1, 2007. The distribution must be directly to the insurer.