HBA-JLV C.S.H.B. 1446 77(R)BILL ANALYSIS


Office of House Bill AnalysisC.S.H.B. 1446
By: Junell
Higher Education
4/4/2001
Committee Report (Substituted)



BACKGROUND AND PURPOSE 

In 1996, the federal Small Business Protection Act established criteria for
the creation of a qualified state tuition program (QSTP) and provided
states with latitude in determining how to structure and administer QSTPs.
As a result, programs in different states vary considerably from one
another in structure. The 75th Legislature created the Texas Tomorrow Fund
(TTF), and in November 1997 Texas voters authorized a constitutional
amendment to officially guarantee TTF as a constitutionally guaranteed
trust fund backed by the full faith and credit of the State of Texas.
However, some have criticized TTF as lacking some of the flexibility and
potential for higher returns offered by other state-sponsored prepaid trust
fund programs. C.S.H.B. 1446 establishes a qualified higher education
savings trust plan to be administered by the Prepaid Higher Education
Tuition Board, with investments in the plan managed by a private firm. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that rulemaking
authority is expressly delegate to the Prepaid Higher Education Tuition
Board in SECTION 1 (Sections 54.702, 54.708, and 54.710, Education Code) of
this bill. 

ANALYSIS

C.S.H.B. 1446 amends the Education Code to establish the qualified higher
education  savings trust plan. The bill requires the Prepaid Higher
Education Tuition Board (board) to select the financial institution or
institutions to serve as plan manager, and to adopt rules governing the
withdrawal of money from a savings trust account and develop policies and
penalties for nonqualified withdrawals.  The bill authorizes the board to
seek rulings and other guidance from certain federal agencies relating to
the plan for proper implementation and development of the plan. 

The bill requires the board to collect administrative fees and service
charges in connection with the plan in amounts not exceeding the cost of
establishing and maintaining the plan.  The bill requires the board to
develop and approve a savings and trust agreement, and approve in advance
any informational materials to be furnished to participants in the plan.
The bill requires the board to adopt a policy to prevent excess
contributions to an account on behalf of a beneficiary (Sec. 54.702). 

The bill requires the board to administer a higher education savings plan
to enable individuals to save money for qualified higher education
expenses.  The bill provides that money contributed to a savings trust
account and earnings on the account are held in trust by the board for the
sole benefit of the account owner and beneficiary (Sec. 54.703). 

The bill sets forth requirements and procedures for the selection of a
financial institution from among bidding financial institutions as a plan
manager for savings trust accounts and sets forth the duties of the plan
manager.  The bill also sets forth conditions for a contract between the
board and the plan manager (Secs. 54.704-54.706). 

The bill authorizes an individual to open a savings trust account to save
money for the payment of the  qualified higher education expenses of a
beneficiary.  The bill provides that the individual who opens the account
is the owner of the account and the owner of the account may also be the
beneficiary.  The bill provides that an individual may open an account by
entering into a savings trust agreement prescribed by and approved by the
board, and by making the minimum contribution required by the plan manager
to open an account.  The bill provides the terms of a savings trust
agreement (Sec. 54.707). 

The bill provides conditions for contributions to and withdrawals from a
savings trust account and provides penalties for nonqualified withdrawals
(Sec. 54.708).  The bill also provides for the administration of a savings
trust account.  The bill prohibits an account owner or beneficiary from
directing the investment of any contributions to or earnings on an account.
The bill requires the board to select the financial institution to which
the balances of the accounts are transferred if the board terminates the
contract of a financial institution acting as a plan manager and the
accounts must be transferred from that financial institution to another
financial institution.  A savings trust agreement must provide that, if
after a specified period the savings trust agreement has not been
terminated and the beneficiary's rights in the account have not been
exercised, the board, after making reasonable contact efforts, is required
to report  the unclaimed money in the account  to the comptroller.  The
bill provides that money in a savings trust account is exempt from
attachment, execution, and seizure for the satisfaction of debt or
liability of an account owner or beneficiary. The bill prohibits the
savings trust account from being subject to alienation, sale, transfer,
assignment, pledge, encumbrance, or charge (Sec. 54.709). 

The bill provides for the limitations of the plan (Sec. 54.710).  The bill
also provides that the opening or maintenance of a savings trust account
does not promise or guarantee admission, enrollment, or graduation from any
eligible educational institution (Sec. 54.711).   An account owner or
beneficiary of a savings trust account is not required to be a resident of
this state (Sec. 54.712).  The bill provides policies for the promotion and
disclosure of plan information to savings trust account owners and
beneficiaries and provides for the confidentiality of information relating
to a beneficiary or owner of a savings trust account (Secs. 54.713 and
54.714). 

If the comptroller determines that the plan is not financially feasible,
the comptroller is required to notify the governor and the legislature and
recommend that the board not administer a higher education savings plan or
that the plan be modified or terminated (Sec. 54.715).  If the plan is
terminated, the balance of each savings trust account is required to be
paid to the account owner and any unclaimed assets are required to escheat
to the state in accordance with general law regarding unclaimed property
(Sec. 54.716). 

The bill provides that the Texas constitutional trust fund is created as a
trust fund to be held with the comptroller.  The bill also provides that
the Texas college savings plan account is created within the Texas tomorrow
constitutional trust fund and is financed through administrative fees and
service charges from the higher education savings plan (Sec. 54.634).  

EFFECTIVE DATE

On passage, or if the Act does not receive the necessary vote, the Act
takes effect September 1, 2001. 

COMPARISON OF ORIGINAL TO SUBSTITUTE

C.S.H.B. 1446 modifies the original to require the board to develop, rather
than review, and approve a savings and trust agreement and to approve in
advance any informational materials to be furnished to participants in the
plan (Sec. 54.702).   

The substitute removes the provision that money contributed to a savings
trust account and earnings on the account are held in trust by the plan
manager (Sec. 54.703).  The substitute requires a plan manager to hold all
savings trust accounts in trust as authorized by the board in the plan
manager contract (Sec. 54.705).