(a) An employee who is eligible to purchase credited service under AS 39.35.310, 39.35.330, 39.35.340, 39.35.342, 39.35.345, 39.35.360, or 39.35.370, a member who is eligible to purchase credited service under AS 39.35.375, or an elected public official who is eligible to purchase credited service under AS 39.35.381 is an employee for purposes of this section. An employee may, in lieu of making payments directly to the plan, elect to have the employee's employer make payments as provided in this section.

(b) An employee may elect to have the employer make payments for all or any portion of the amounts payable for the employee's purchase of credited service through a salary reduction program as follows:

(1) the amounts paid under a salary reduction program are in lieu of contributions by the employee making the election; the electing employee's salary or other compensation shall be reduced by the amount paid by the employer under this subsection;

(2) the employee shall make an irrevocable election under this section to purchase credited service as permitted in AS 39.35.310, 39.35.330, 39.35.340, 39.35.342, 39.35.345, 39.35.360, 39.35.370, 39.35.375, or 39.35.381 and before the employee's termination of employment; the irrevocable election must specify the number of payroll periods that deductions will be made from the employee's compensation and the dollar amount of deductions for each payroll period during the specified number of payroll periods; the deductions made under this paragraph cease upon the earlier of the member's termination of employment with the employer or the member's death; amounts paid by an employer under (f) of this section may not be applied toward the payment of the dollar amount of the deductions representing the portion of the credited service that is being purchased by the member through payroll deduction in accordance with the member's irrevocable election under this subsection;

(3) amounts paid by an employer under this subsection shall be treated as employer contributions for the purpose of determining tax treatment under the Internal Revenue Code; the amounts paid by the employer under this section may not be included in the member's gross income for income tax purposes until those amounts are distributed by refund or retirement benefit payments.

(c) Unless otherwise provided, employee contributions paid by the employer under this section are treated for all other purposes under the plan in the same manner and to the same extent as employee contributions that are not paid by an employer under this section and AS 39.35.160. The plan may assess interest or administrative charges attributable to any salary reduction election made under this section. The interest or administrative charges shall be added to the contribution that is made to the plan by the employee each payroll period, and that is paid by the employer. The interest or administrative charges may not be treated as employee contributions for any purposes under AS 39.35.095 - 39.35.680, and an employee or an employee's beneficiary does not have a right to the return of the interest or administrative charges. Interest assessed under this section shall be at the rate specified by regulations adopted by the board.

(d) For plan fiscal years beginning on or after July 1, 2001, the requirements of AS 39.35.370(i) may not be applied to reduce the amount of credited service that may be purchased under this section by an employee who first becomes an employee of the plan before July 1, 2001, to an amount that is less than the amount of credited service allowed to be purchased with the application of any of the limits prescribed in 26 U.S.C. 415.

(e) Contributions to the plan to purchase credited service do not qualify for treatment under this section if recognition of that service would cause an employee to receive a retirement benefit for the same service from the plan and from one or more other retirement plans or systems of the state.

(f) The board may accept rollover contributions from a member. A rollover contribution as described in this subsection shall also be treated as employer contributions for the purpose of determining tax treatment under the Internal Revenue Code and may be made by any one or a combination of the following methods:

(1) subject to the limitations prescribed in 26 U.S.C. 401(a)(3) and 26 U.S.C. 402(c), accepting eligible rollover distributions directly from one or more eligible retirement plans as defined by 26 U.S.C. 402(c)(8)(B);

(2) subject to the limitations prescribed in 26 U.S.C. 403(b)(13), accepting direct trustee-to-trustee transfers of all or a portion of the accounts of the member, on or after January 1, 2002, from a tax sheltered annuity described in 26 U.S.C. 403(b);

(3) subject to the limitations prescribed in 26 U.S.C. 457(e)(17), accepting direct trustee-to-trustee transfers of all or a portion of the accounts of the member, on or after January 1, 2002, from an eligible deferred compensation plan of a tax-exempt organization or a state or local government described in 26 U.S.C. 457(b);

(4) accepting direct trustee-to-trustee transfer from an account established for the benefit of the member in AS 39.30.150 - 39.30.180 (Alaska Supplemental Annuity Plan).

(g) Payments made under this section shall be applied to reduce the employee's outstanding indebtedness described in AS 39.35.310, 39.35.330, 39.35.340, 39.35.342, 39.35.345, 39.35.360, 39.35.370, 39.35.375, or 39.35.381 at the time that the contributions are received by the plan.

(h) If an employee retires before all payments are made under this section, the plan shall calculate the employee's benefits based only on the payments actually made with respect to the credited service purchased.

(i) On satisfaction of the eligibility requirements of AS 39.35.310, 39.35.330, 39.35.340, 39.35.341, 39.35.345, 39.35.360, 39.35.370, 39.35.375, or 39.35.381, the requirements of this section, and the administrative filing requirements specified by the commissioner, the plan shall adjust the employee's credited service history and add any additional service credits acquired.

(j) After an election is made under this section, the election is binding on and irrevocable for the employee and the employee's employer during the employee's remaining period of current employment, and the employee does not have the option of choosing to receive the contributed amounts directly in cash.