(a) For purposes of compliance with § 401(a)(31) of the Internal Revenue Code (26 U.S.C. § 401(a)(31)), this section applies notwithstanding any other law to the contrary that would otherwise limit a distributee's election to make a rollover. A distributee may elect, at the time and in the manner prescribed by the 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.

(b) For purposes of this section:

(1) “Direct rollover” means a payment by the plan to the eligible retirement plan specified by the distributee;

(2) “Distributee” means an employee or former employee. “Distributee” 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 § 414(p) of the Internal Revenue Code (26 U.S.C. § 414(p)). Effective April 16, 2010, “distributee” also includes a nonspouse beneficiary who is a designated beneficiary as defined by § 401(a)(9)(E) of the Internal Revenue Code (26 U.S.C. § 401(a)(9)(E)). However, a nonspouse beneficiary may only make a direct rollover to an individual retirement account or individual retirement annuity established for the purpose of receiving the distribution, and the account or annuity shall be treated as an “inherited” individual retirement account or annuity;

(3) “Eligible retirement plan” means any of the following that accepts the distributee's eligible rollover distribution:

(A) A qualified retirement plan described in § 401(a) of the Internal Revenue Code (26 U.S.C. § 401(a));

(B) An annuity plan described in § 403(a) of the Internal Revenue Code (26 U.S.C. § 403(a));

(C) An individual retirement account described in § 408(a) of the Internal Revenue Code (26 U.S.C. § 408(a));

(D) An individual retirement annuity described in § 408(b) of the Internal Revenue Code (26 U.S.C. § 408(b));

(E) Effective January 1, 2002, an annuity contract described in § 403(b) of the Internal Revenue Code (26 U.S.C. § 403(b));

(F) Effective January 1, 2002, a plan eligible under § 457(b) of the Internal Revenue Code (26 U.S.C. § 457(b)) that is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or a political subdivision of a state that agrees to separately account for amounts transferred into that plan from the retirement system; or

(G) Effective January 1, 2008, a Roth IRA described in § 408A of the Internal Revenue Code (26 U.S.C. § 408A); and

(4) “Eligible rollover distribution”:

(A) Means any distribution of all or any portion of the balance to the credit of the distributee, except that “eligible rollover distribution” does not include:

(i) Any distribution that is one (1) 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 (10) years or more;

(ii) Any distribution to the extent such distribution is required under § 401(a)(9) of the Internal Revenue Code (26 U.S.C. § 401(a)(9));

(iii) The portion of any distribution that is not includible in gross income; provided, however, effective January 1, 2002, a portion of a distribution shall 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, but such portion may be transferred only:

(a) To an individual retirement account or annuity described in § 408(a) or (b) of the Internal Revenue Code (26 U.S.C. § 408(a) or (b)) or to a qualified defined contribution plan described in § 401(a) of the Internal Revenue Code (26 U.S.C. § 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;

(b) On or after January 1, 2007, to a qualified defined benefit plan described in § 401(a) of the Internal Revenue Code (26 U.S.C. § 401(a)) or to an annuity contract described in § 403(b) of the Internal Revenue Code (26 U.S.C. § 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 § 408A of the Internal Revenue Code (26 U.S.C. § 408A) ; and

(iv) Any other distribution which the Internal Revenue Service does not consider eligible for rollover treatment, such as certain corrective distributions necessary to comply with the provisions of § 415 of the Internal Revenue Code (26 U.S.C. § 415) or any distribution that is reasonably expected to total less than two hundred dollars ($200) during the year or any greater amount as provided under Treasury Regulation § 1.401(a)(31)-1, Q&A-11; and

(B) Includes a distribution to a surviving spouse, or to a spouse or former spouse who is an alternate payee under a qualified domestic relations order, as defined in § 414(p) of the Internal Revenue Code (26 U.S.C. § 414(p)).

(c) Prior to making a direct rollover, the retirement system may require the individual requesting the direct rollover to establish that the receiving plan or account meets the requirements of this section and the Internal Revenue Code.

(d) This section shall be administered in accordance with the direct rollover provisions of the Internal Revenue Code.