(a) Upon retirement, any employee of the state who has accumulated sick leave under chapter 50, part 8 of this title, or any teacher who has accumulated sick leave under § 49-5-710, or any state university and community college system or University of Tennessee employee member who has accumulated sick leave to an extent not exceeding that sick leave provided under chapter 50, part 8 of this title, shall be credited with such accumulated sick leave as creditable service at the rate specified in subsection (b); provided, that:

(1) The last employing department or agency employer shall certify in the manner prescribed by the retirement system the number of unused accumulated sick leave days to the credit of such member at the time of retirement;

(2) The employer shall certify that the accrued sick leave claimed is substantiated by records of the employer's agency compiled during the course of employment for which the leave was earned and not from records compiled solely for purposes of establishing retirement credit; and

(3) Employee members of the state university and community college system and the University of Tennessee shall receive no more retirement credit for such accumulated sick leave than any other state employee, and shall not be credited with such leave as creditable service at a rate exceeding twelve (12) days per year of service.

(b) Each twenty (20) days of accumulated sick leave shall equal a month of retirement credit, or any time less than twenty (20) days, a fractional part thereof. Any teacher or education agency employee who renders a school year of service that is less than twelve (12) full months is nevertheless entitled to receive credit for unused accumulated sick leave at retirement. The amount of such credit shall be proportionate to twelve (12) months divided by the number of months in the school year for that position. The number of months scheduled to work per year during the majority of the member's last three (3) years of service shall be used to establish whether the retiring member is a nine-month, ten-month, eleven-month or twelve-month employee for purposes of this section.

(c) The governing body of any employer participating in the retirement system pursuant to chapter 35, part 2 of this title may authorize its employees who have unused accumulated sick leave at retirement to be credited with such accrued leave pursuant to this section. Before any such credit is granted, the governing body must pass a resolution authorizing the credit and accepting the liability therefor.

(d) Any retiree who returns to service and again becomes a member pursuant to § 8-36-802, and whose accumulated sick leave is restored to such retiree's sick leave account, shall only be entitled to retirement credit for unused sick leave based on the certification of such retiree's last employer. Any previously granted sick leave shall be deducted from the original benefit should it be reinstated in accordance with § 8-36-802(b).

(e) Notwithstanding the foregoing, sick leave conversions shall be permitted only if:

(1) The leave is for unused accrued paid time off for sick leave or for comparable paid time off under an established leave policy without regard to whether the leave is due to illness or incapacity;

(2) The leave policy qualifies as a bona fide sick leave plan for purposes of § 409A of the Internal Revenue Code (26 U.S.C. § 409A), and Treasury Regulation § 1.409A-1(a)(5);

(3) The sick leave plan provides for service credit for a member's unused paid time off; provided, that the eligibility requirements for participation in the plan do not permit an employee to become a member only in the plan year in which the member terminates employment;

(4) The conversion is automatic and the member has no right to request a cash payment;

(5) The unused paid time off is converted to service credit under a specified formula which satisfies the definitely determinable standard of Treasury Regulation § 1.401-1(b)(1)(i);

(6) The plan otherwise provides for service credit unrelated to the conversion of any member's unused paid time off; and

(7) The member's annual benefit, as adjusted by the leave conversion, does not exceed the limit under § 415(b) of the Internal Revenue Code (26 U.S.C. § 415(b)).