77R11111 QS-D                           
         By Junell, Raymond                                    H.B. No. 1446
         Substitute the following for H.B. No. 1446:
         By Rangel                                         C.S.H.B. No. 1446
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to a college savings plan for qualified higher education
 1-3     expenses.
 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-5           SECTION 1. Chapter 54, Education Code, is amended by adding
 1-6     Subchapter G to read as follows:
 1-7                SUBCHAPTER G.  HIGHER EDUCATION SAVINGS PLAN
 1-8           Sec. 54.701.  DEFINITIONS. In this subchapter:
 1-9                 (1)  "Beneficiary" means an individual designated as
1-10     the individual whose qualified higher education expenses are
1-11     expected to be paid from the savings trust account.
1-12                 (2)  "Board" means the Prepaid Higher Education Tuition
1-13     Board.
1-14                 (3)  "Eligible educational institution" has the meaning
1-15     assigned by Section 529, Internal Revenue Code of 1986, as amended.
1-16                 (4)  "Financial institution" means a bank, trust
1-17     company, savings and loan association, credit union, broker-dealer,
1-18     mutual fund, insurance company, or other similar financial
1-19     institution authorized to transact business in this state.
1-20                 (5)  "Nonqualified withdrawal" means a withdrawal from
1-21     a savings trust account other than:
1-22                       (A)  a qualified withdrawal;
1-23                       (B)  a withdrawal made as the result of the death
1-24     or disability of the beneficiary of the account; or
 2-1                       (C)  a withdrawal made due to a scholarship or to
 2-2     an allowance or payment described by Section 135(d)(1)(B) or (C),
 2-3     Internal Revenue Code of 1986, as amended, received by the
 2-4     beneficiary to the extent the amount of the withdrawal does not
 2-5     exceed the amount of the scholarship, allowance, or payment, in
 2-6     accordance with federal law.
 2-7                 (6)  "Plan" means the higher education savings plan
 2-8     established under this subchapter.
 2-9                 (7)  "Plan manager" means a financial institution under
2-10     contract with the board to serve as plan administrator.
2-11                 (8)  "Qualified higher education expenses" means
2-12     tuition, fees, or expenses for books, supplies, and equipment
2-13     required for the enrollment or attendance of an individual at an
2-14     eligible educational institution, the costs of room and board, and
2-15     any other higher education expenses that may be permitted under
2-16     Section 529, Internal Revenue Code of 1986, as amended.
2-17                 (9)  "Qualified withdrawal" means a withdrawal from a
2-18     savings trust account to pay the qualified higher education
2-19     expenses of the beneficiary of the account.
2-20                 (10)  "Savings trust account" means an account
2-21     established through the plan by an individual under this subchapter
2-22     on behalf of a beneficiary in order to apply distributions from the
2-23     account toward qualified higher education expenses at eligible
2-24     educational institutions.
2-25                 (11)  "Savings trust agreement" means the agreement
2-26     between an individual establishing a savings trust account and the
2-27     board.
 3-1           Sec. 54.702.  POWERS AND DUTIES OF BOARD. (a)  The board
 3-2     shall:
 3-3                 (1)  develop and implement the plan in a manner
 3-4     consistent with this subchapter;
 3-5                 (2)  select the financial institution or institutions
 3-6     to serve as plan manager; and
 3-7                 (3)  adopt rules governing withdrawal of money from a
 3-8     savings trust account and develop policies and penalties for
 3-9     nonqualified withdrawals.
3-10           (b)  The board may seek rulings and other guidance from the
3-11     United States Department of the Treasury, the Internal Revenue
3-12     Service, and the Securities and Exchange Commission relating to the
3-13     plan as necessary for proper implementation and development of the
3-14     plan.  The board shall make changes to the plan as necessary for
3-15     savings trust account owners and beneficiaries of the plan to
3-16     obtain or maintain federal income tax benefits or treatment
3-17     provided by Section 529, Internal Revenue Code of 1986, as amended,
3-18     and exemptions under federal securities laws.
3-19           (c)  The board shall collect administrative fees and service
3-20     charges in connection with any agreement, contract, or transaction
3-21     relating to the plan in amounts not exceeding the cost of
3-22     establishing and maintaining the plan.
3-23           (d)  A savings trust agreement must be developed and approved
3-24     by the board.  The board shall review for compliance with
3-25     applicable law and must approve in advance any informational
3-26     materials that the plan manager provides to participants or
3-27     potential participants in the plan.
 4-1           (e)  The board shall adopt a policy to prevent contributions
 4-2     to an account on behalf of a beneficiary in excess of those
 4-3     necessary to pay the qualified higher education expenses of the
 4-4     beneficiary.
 4-5           (f)  The board shall monitor contributions to and withdrawals
 4-6     from the plan and each plan account to ensure that any applicable
 4-7     limits on contributions or withdrawals are not exceeded.
 4-8           (g)  The board shall prepare and file statements and
 4-9     information returns relating to accounts to the extent required by
4-10     federal or state tax law.
4-11           Sec. 54.703.  OPERATION OF PLAN; ACCOUNTS HELD IN TRUST. (a)
4-12     The board shall administer a higher education savings plan to
4-13     enable individuals to save money for the qualified higher education
4-14     expenses of an individual by establishing a savings trust account
4-15     in the plan.
4-16           (b)  Money contributed to a savings trust account and
4-17     earnings on the account are held in trust by the board for the sole
4-18     benefit of the account owner and beneficiary.
4-19           Sec. 54.704.  SELECTION OF FINANCIAL INSTITUTION AS PLAN
4-20     MANAGER. (a)  The board shall contract with one or more financial
4-21     institutions to serve as plan manager and to invest the money in
4-22     savings trust accounts.  The board shall ensure that investments by
4-23     a plan manager are made with the judgment and care that persons of
4-24     prudence, discretion, and intelligence exercise in the management
4-25     of the property of another, not in regard to speculation but in
4-26     regard to the permanent disposition of funds, considering the
4-27     probable income as well as the probable safety of capital.
 5-1           (b)  The board shall solicit proposals from financial
 5-2     institutions to serve as plan managers.
 5-3           (c)  The board shall select a plan manager or managers from
 5-4     among bidding financial institutions that demonstrate the most
 5-5     advantageous combination to account owners and beneficiaries, based
 5-6     on the following factors:
 5-7                 (1)  financial stability and integrity;
 5-8                 (2)  the ability of the financial institution, directly
 5-9     or through a subcontract, to satisfy recordkeeping and reporting
5-10     requirements;
5-11                 (3)  the financial institution's strategy for promoting
5-12     the plan and the investment that the financial institution is
5-13     willing to make to promote the plan;
5-14                 (4)  the historic ability of the portfolios or
5-15     investment strategies to be used by the financial institution to
5-16     track the estimated costs of higher education as calculated by the
5-17     United States Department of Education;
5-18                 (5)  the fees, if any, proposed to be charged to
5-19     account owners for maintaining accounts;
5-20                 (6)  the minimum contributions that the financial
5-21     institution will require and the willingness of the financial
5-22     institution to accept contributions through payroll deduction plans
5-23     or systematic deposit plans; and
5-24                 (7)  any other proposed benefits to this state or to
5-25     its residents.
5-26           (d)  The board may require that any financial institution
5-27     selected provide several investment options to account owners,
 6-1     taking into consideration the age of the beneficiary and the number
 6-2     of years remaining until likely enrollment at an eligible
 6-3     educational institution.
 6-4           Sec. 54.705.  DUTIES OF PLAN MANAGER.  (a)  A plan manager
 6-5     shall:
 6-6                 (1)  take all actions required to keep the plan in
 6-7     compliance with this subchapter, to ensure that the plan qualifies
 6-8     as a qualified state tuition program under Section 529, Internal
 6-9     Revenue Code of 1986, as amended, and to ensure that the plan is
6-10     exempt from registration under federal securities law;
6-11                 (2)  keep adequate and separate records of each savings
6-12     trust account and provide the board with the information necessary
6-13     to prepare the reports required by Section 529, Internal Revenue
6-14     Code of 1986, as amended, or to file those reports on behalf of the
6-15     board;
6-16                 (3)  compile necessary information for statements to
6-17     account owners and statements required by federal or state tax law
6-18     and provide those compilations to the board; and
6-19                 (4)  provide representatives of the board with access
6-20     to the books and records of the manager as necessary to determine
6-21     compliance with the plan manager contract.
6-22           (b)  A plan manager shall hold all savings trust accounts in
6-23     trust as authorized by the board in the plan manager contract.  The
6-24     plan manager shall make investments according to the standard
6-25     provided by Section 54.704(a).
6-26           (c)  A plan manager shall develop a strategy to promote the
6-27     plan and, on approval by the board, promote the plan according to
 7-1     that strategy.
 7-2           Sec. 54.706.  CONTRACT BETWEEN BOARD AND PLAN MANAGER. (a)  A
 7-3     contract between the board and a financial institution to act as a
 7-4     plan manager under this subchapter must be for a term of at least
 7-5     five years and may be renewable.
 7-6           (b)  If the contract is not renewed, the following conditions
 7-7     apply at the end of the term of the contract, so long as applying
 7-8     the conditions does not disqualify the plan as a qualified state
 7-9     tuition program under Section 529, Internal Revenue Code of 1986,
7-10     as amended:
7-11                 (1)  the board shall continue to maintain the plan at
7-12     the financial institution;
7-13                 (2)  accounts previously established at the financial
7-14     institution may not be terminated, except as provided by
7-15     Subdivision (5) or Subsection (c);
7-16                 (3)  additional contributions may be made to the
7-17     accounts;
7-18                 (4)  new accounts may not be opened with that financial
7-19     institution; and
7-20                 (5)  if the board determines that continuing the
7-21     accounts at that financial institution is not in the best interest
7-22     of the account owners, the accounts may be transferred to another
7-23     financial institution acting as a plan manager.
7-24           (c)  The board may cancel a plan manager contract with a
7-25     financial institution for a violation of the contract or a
7-26     provision of this subchapter by the financial institution at any
7-27     time.  If a contract is terminated under this subsection, the board
 8-1     shall take custody of accounts held at that financial institution
 8-2     and shall promptly seek to transfer the accounts to another
 8-3     financial institution acting as a plan manager and into investment
 8-4     instruments as similar to the original investment instruments as
 8-5     possible.
 8-6           Sec. 54.707.  SAVINGS TRUST ACCOUNTS. (a)  An individual may
 8-7     open a savings trust account to save money for the payment of the
 8-8     qualified higher education expenses of a beneficiary.  The
 8-9     individual who opens the account is the owner of the account.  The
8-10     owner of the account may also be the beneficiary.
8-11           (b)  An individual may open an account by entering into a
8-12     savings trust agreement with the board as prescribed and approved
8-13     by the board and making the minimum contribution required by the
8-14     plan manager to open an account.
8-15           (c)  A savings trust agreement must include the following
8-16     terms:
8-17                 (1)  the name and address of the savings trust account
8-18     owner;
8-19                 (2)  the name, address, and date of birth of the
8-20     beneficiary on whose behalf the account is opened;
8-21                 (3)  the maximum and minimum contributions allowed to
8-22     the account;
8-23                 (4)  provisions for withdrawals, refunds, transfers,
8-24     and any penalties;
8-25                 (5)  terms and conditions for a substitution of the
8-26     beneficiary originally named;
8-27                 (6)  terms and conditions for termination of the
 9-1     account, including any refunds, withdrawals, or transfers, and
 9-2     applicable penalties, and the name of the person or persons
 9-3     entitled to terminate the account;
 9-4                 (7)  all other rights and obligations of the account
 9-5     owner, the plan manager, and the board; and
 9-6                 (8)  any other terms and conditions the board considers
 9-7     necessary or appropriate, including those necessary to conform the
 9-8     savings trust account to the requirements of Section 529, Internal
 9-9     Revenue Code of 1986, as amended, or other applicable federal law.
9-10           (d)  An account owner may change the designated beneficiary
9-11     of an account as provided by Section 529, Internal Revenue Code of
9-12     1986, as amended, in accordance with procedures established by the
9-13     board.
9-14           Sec. 54.708.  CONTRIBUTIONS AND WITHDRAWALS; PENALTY FOR
9-15     NONQUALIFIED WITHDRAWAL. (a)  Contributions to a savings trust
9-16     account may be made only in cash.
9-17           (b)  An account owner may withdraw all or part of the balance
9-18     of an account on prior notice as authorized by board rules.  The
9-19     board shall adopt rules governing the determination whether a
9-20     withdrawal is a qualified withdrawal or a nonqualified withdrawal.
9-21     The rules may require an account owner requesting to make a
9-22     qualified withdrawal to provide a certification of qualified higher
9-23     education expenses.
9-24           (c)  In the case of a nonqualified withdrawal from an
9-25     account, an amount equal to 10 percent of the portion of the
9-26     withdrawal constituting income as determined in accordance with
9-27     Section 529, Internal Revenue Code of 1986, as amended, shall be
 10-1    withheld as a penalty.
 10-2          (d)  The amount of the penalty prescribed by Subsection (c)
 10-3    may be increased if the board determines that the increased penalty
 10-4    is necessary to constitute a greater than de minimis penalty for
 10-5    purposes of qualifying the plan as a qualified state tuition
 10-6    program under Section 529, Internal Revenue Code of 1986, as
 10-7    amended.
 10-8          (e)  The amount of the penalty prescribed by Subsection (c)
 10-9    may be decreased by board rule if the board determines that:
10-10                (1)  the amount of the penalty prescribed by Subsection
10-11    (c) is greater than required to constitute a greater than de
10-12    minimis penalty for purposes of qualifying the plan as a qualified
10-13    state tuition program under Section 529, Internal Revenue Code of
10-14    1986, as amended; and
10-15                (2)  the penalty together with other revenue generated
10-16    under this subchapter is producing more revenue than required to
10-17    cover the costs of operating the plan and to recover any prior
10-18    costs not previously recovered.
10-19          (f)  Penalties collected under this subchapter shall be used
10-20    to cover costs of administering this subchapter, and any excess
10-21    shall be treated as earnings of the savings trust accounts in the
10-22    plan.
10-23          Sec. 54.709.  ADMINISTRATION OF ACCOUNTS. (a)  The plan
10-24    manager shall provide separate accounting for each savings trust
10-25    account.
10-26          (b)  An account owner or beneficiary may not direct the
10-27    investment of any contributions to or earnings on an account.
 11-1          (c)  If the board terminates the contract of a financial
 11-2    institution to act as a plan manager and accounts must be
 11-3    transferred from that financial institution to another financial
 11-4    institution, the board shall select the financial institution to
 11-5    which the balances of the accounts are transferred.
 11-6          (d)  A savings trust agreement must provide that, if after a
 11-7    specified period the savings trust agreement has not been
 11-8    terminated and the beneficiary's rights in the account have not
 11-9    been exercised, the board, after making reasonable efforts to
11-10    contact the owner and beneficiary of the account or their agents,
11-11    shall report the unclaimed money in the account to the comptroller.
11-12          (e)  Money in a savings trust account is exempt from
11-13    attachment, execution, and seizure for the satisfaction of debt or
11-14    liability of an account owner or beneficiary.
11-15          (f)  A savings trust account may not be assigned for the
11-16    benefit of creditors, used as security or collateral for any loan,
11-17    or otherwise subject to alienation, sale, transfer, assignment,
11-18    pledge, encumbrance, or charge.
11-19          (g)  A distribution from an account to any individual or for
11-20    the benefit of any individual during a calendar year shall be
11-21    reported to the Internal Revenue Service and to the account owner
11-22    or the beneficiary to the extent required by federal law.
11-23          (h)  The plan manager shall provide an annual statement to
11-24    each account owner not later than the January 31 after the end of
11-25    each calendar year and may provide statements more frequently than
11-26    annually.  A statement must identify the contributions made during
11-27    the reporting period, the total contributions made through the end
 12-1    of the reporting period, the value of the account at the end of the
 12-2    reporting period, withdrawals made during the reporting period, and
 12-3    any other information the board requires.
 12-4          Sec. 54.710.  PLAN LIMITATIONS. (a)  Nothing in this
 12-5    subchapter or in any savings trust agreement entered into under
 12-6    this subchapter may be construed to:
 12-7                (1)  give a beneficiary any rights or legal interest
 12-8    with respect to a savings trust account unless the beneficiary is
 12-9    the account owner;
12-10                (2)  guarantee that amounts saved under the plan will
12-11    be sufficient to cover the qualified higher education expenses of a
12-12    beneficiary; or
12-13                (3)  establish state residency for tuition or other
12-14    purposes for a beneficiary because of the designation as a
12-15    beneficiary.
12-16          (b)  Nothing in this subchapter or in any savings trust
12-17    agreement entered into under this subchapter may be construed to
12-18    create any obligation of the state, any agency or instrumentality
12-19    of the state, or the plan manager to guarantee for the benefit of
12-20    an account owner or beneficiary:
12-21                (1)  the return of any amount contributed to an
12-22    account;
12-23                (2)  the rate of interest or other return on an
12-24    account;
12-25                (3)  the payment of interest or other return on an
12-26    account; or
12-27                (4)  tuition rates or the cost of related education
 13-1    expenditures.
 13-2          (c)  The board by rule shall require that every savings trust
 13-3    agreement, deposit slip, and other similar document used in
 13-4    connection with a contribution to an account clearly indicate that
 13-5    the account is not insured by this state and that neither the
 13-6    principal deposited nor the investment return is guaranteed by this
 13-7    state.
 13-8          Sec. 54.711.  NO PROMISE OF ADMISSION, ENROLLMENT, OR
 13-9    GRADUATION.  The opening or maintenance of a savings trust account
13-10    does not promise or guarantee that a beneficiary of the account
13-11    will:
13-12                (1)  be admitted to any eligible educational
13-13    institution;
13-14                (2)  be admitted to a particular eligible educational
13-15    institution;
13-16                (3)  be allowed to continue enrollment at an eligible
13-17    educational institution after admission; or
13-18                (4)  receive a degree or certificate from an eligible
13-19    educational institution.
13-20          Sec. 54.712.  RESIDENCY NOT REQUIRED.  A savings trust
13-21    account owner or beneficiary is not required to be a resident of
13-22    this state.
13-23          Sec. 54.713.  POLICIES FOR PROMOTION AND DISCLOSURE OF
13-24    INFORMATION. The board shall adopt policies for promotion of the
13-25    plan and the disclosure of plan information to savings trust
13-26    account owners and beneficiaries in a manner consistent with this
13-27    subchapter and the requirements of Section 529, Internal Revenue
 14-1    Code of 1986, as amended, to ensure that:
 14-2                (1)  promotional material and plan information disclose
 14-3    that no money invested in the plan is insured by this state and
 14-4    that neither the principal deposited nor the investment returned is
 14-5    guaranteed by this state; and
 14-6                (2)  any fees imposed under this subchapter are
 14-7    disclosed in promotional material and plan information provided to
 14-8    the public and to account owners and beneficiaries.
 14-9          Sec. 54.714.  CONFIDENTIALITY OF RECORDS. (a)  Except as
14-10    otherwise provided by this section, all information relating to the
14-11    plan is public and subject to disclosure under Chapter 552,
14-12    Government Code.
14-13          (b)  Information relating to a beneficiary or owner of a
14-14    savings trust account, including any personally identifiable
14-15    information about an owner or beneficiary, is confidential except
14-16    that the board may disclose that information to an account owner
14-17    regarding the owner's account.
14-18          Sec. 54.715.  TERMINATION OR MODIFICATION OF PLAN.  If the
14-19    comptroller determines that the plan is not financially feasible,
14-20    the comptroller shall notify the governor and the legislature and
14-21    recommend that the board not administer a higher education savings
14-22    plan or that the plan be modified or terminated.
14-23          Sec. 54.716.  EFFECT OF TERMINATION OF PLAN ON SAVINGS TRUST
14-24    AGREEMENT.  If the plan is terminated, the balance of each savings
14-25    trust account shall be paid to the account owner, to the extent
14-26    possible, and any unclaimed assets shall escheat to the state in
14-27    accordance with general law regarding unclaimed property.
 15-1          SECTION 2. Section 54.601, Education Code, is amended by
 15-2    amending Subdivision (4) and adding Subdivision (13) to read as
 15-3    follows:
 15-4                (4)  "Fund" means the Texas tomorrow constitutional
 15-5    trust fund.
 15-6                (13)  "Account" means the Texas college savings plan
 15-7    account.
 15-8          SECTION 3.  Section 54.602(b), Education Code, is amended to
 15-9    read as follows:
15-10          (b)  The board shall administer the prepaid higher education
15-11    tuition program established under this subchapter and the higher
15-12    education savings plan established under Subchapter G.
15-13          SECTION 4. Sections 54.603 and 54.634, Education Code, are
15-14    amended to read as follows:
15-15          Sec. 54.603.  SUNSET PROVISION. The Prepaid Higher Education
15-16    Tuition Board is subject to Chapter 325, Government Code (Texas
15-17    Sunset Act).  Unless continued in existence as provided by that
15-18    chapter, the board is abolished and the programs established under
15-19    this subchapter and under Subchapter G terminate [program
15-20    terminates] September 1, 2007.
15-21          Sec. 54.634. ESTABLISHMENT OF TRUST FUND; COLLEGE SAVINGS
15-22    PLAN ACCOUNT. (a)  The Texas tomorrow constitutional trust fund is
15-23    created as a trust fund to be held with the comptroller [outside
15-24    the state treasury].  The fund consists of:
15-25                (1)  state appropriations for purposes of the fund;
15-26                (2)  money acquired from other governmental or private
15-27    sources;
 16-1                (3)  money paid under prepaid tuition contracts; and
 16-2                (4)  the income from money deposited in the fund.
 16-3          (b)  The board shall administer the assets of the fund.  The
 16-4    board is the trustee of the fund's assets.
 16-5          (c)  The board may:
 16-6                (1)  segregate contributions and payments to the fund
 16-7    into various accounts; and
 16-8                (2)  acquire, hold, manage, purchase, sell, assign,
 16-9    trade, transfer, and dispose of any security, evidence of
16-10    indebtedness, or other investment in which the fund's assets may be
16-11    invested.
16-12          (d)  The Texas college savings plan account is created within
16-13    the Texas tomorrow constitutional trust fund and is financed
16-14    through administrative fees and service charges as authorized by
16-15    Section 54.702(c).
16-16          SECTION 5.  Subchapter F, Chapter 54, Education Code, is
16-17    amended by adding Section 54.6401 to read as follows:
16-18          Sec. 54.6401.  COMPLIANCE WITH LIMITS ON CONTRIBUTIONS AND
16-19    WITHDRAWALS. The board shall monitor contributions to and
16-20    withdrawals from the fund and any account within the fund to ensure
16-21    that any applicable limits on contributions or withdrawals are not
16-22    exceeded.
16-23          SECTION 6.  This Act takes effect immediately if it receives
16-24    a vote of two-thirds of all the members elected to each house, as
16-25    provided by Section 39, Article III, Texas Constitution.  If this
16-26    Act does not receive the vote necessary for immediate effect, this
16-27    Act takes effect September 1, 2001.