Yes.
Plan participants may exclude from income amounts directly transferred from an IRC Section 403(b) tax sheltered annuity to a governmental defined benefit plan that are used to purchase permissive service credit. Likewise, a participant may use directly transferred amounts to repay contributions or earnings that previously were refunded because of a forfeiture of service credit under either the transferee plan or an IRC Section 403(b) tax sheltered annuity maintained by a governmental employer in the same state.1
PPA 2006 modifies the definition of permissive service credit. Under the new definition, “permissive service credit” means service credit that relates to benefits to which a participant is not otherwise entitled under a governmental plan, rather than service credit that a participant has not received under a plan.