By: Ellis, Duncan, Zaffirini S.B. No. 555
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
1-25 (C) a withdrawal made due to a scholarship or to
2-1 an allowance or payment described by Section 135(d)(1)(B) or (C),
2-2 Internal Revenue Code of 1986, as amended, received by the
2-3 beneficiary to the extent the amount of the withdrawal does not
2-4 exceed the amount of the scholarship, allowance, or payment, in
2-5 accordance with federal law.
2-6 (6) "Plan" means the higher education savings plan
2-7 established under this subchapter.
2-8 (7) "Plan manager" means a financial institution under
2-9 contract with the board to serve as plan administrator.
2-10 (8) "Qualified higher education expenses" means
2-11 tuition, fees, or expenses for books, supplies, and equipment
2-12 required for the enrollment or attendance of an individual at an
2-13 eligible educational institution, the costs of room and board, and
2-14 any other higher education expenses that may be permitted under
2-15 Section 529, Internal Revenue Code of 1986, as amended.
2-16 (9) "Qualified withdrawal" means a withdrawal from a
2-17 savings trust account to pay the qualified higher education
2-18 expenses of the beneficiary of the account.
2-19 (10) "Savings trust account" means an account
2-20 established through the plan by an individual under this subchapter
2-21 on behalf of a beneficiary in order to apply distributions from the
2-22 account toward qualified higher education expenses at eligible
2-23 educational institutions.
2-24 (11) "Savings trust agreement" means the agreement
2-25 between a plan manager and an individual establishing a savings
2-26 trust account.
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 used by a plan manager must be
3-24 reviewed and approved by the board. The board shall review for
3-25 compliance with applicable law and must approve any informational
3-26 materials used by the plan manager to be furnished to participants
4-1 or potential participants in the plan.
4-2 (e) The board shall adopt a policy to prevent contributions
4-3 to an account on behalf of a beneficiary in excess of those
4-4 necessary to pay the qualified higher education expenses of the
4-5 beneficiary.
4-6 (f) The board shall monitor contributions to and withdrawals
4-7 from the plan and each plan account to ensure that any applicable
4-8 limits on contributions or withdrawals are not exceeded.
4-9 (g) The board shall prepare and file statements and
4-10 information returns relating to accounts to the extent required by
4-11 federal or state tax law.
4-12 Sec. 54.703. OPERATION OF PLAN; ACCOUNTS HELD IN TRUST.
4-13 (a) The board shall administer a higher education savings plan to
4-14 enable individuals to save money for the qualified higher education
4-15 expenses of an individual by establishing a savings trust account
4-16 in the plan.
4-17 (b) Money contributed to a savings trust account and
4-18 earnings on the account are held in trust by the board and the plan
4-19 manager for the sole benefit of the account owner and beneficiary.
4-20 Sec. 54.704. SELECTION OF FINANCIAL INSTITUTION AS PLAN
4-21 MANAGER. (a) The board shall contract with one or more financial
4-22 institutions to serve as plan manager and to invest the money in
4-23 savings trust accounts. The board shall ensure that investments by
4-24 a plan manager are made with the judgment and care that persons of
4-25 prudence, discretion, and intelligence exercise in the management
4-26 of the property of another, not in regard to speculation but in
5-1 regard to the permanent disposition of funds, considering the
5-2 probable income as well as the probable safety of capital.
5-3 (b) The board shall solicit proposals from financial
5-4 institutions to serve as plan managers.
5-5 (c) The board shall select a plan manager or managers from
5-6 among bidding financial institutions that demonstrate the most
5-7 advantageous combination to account owners and beneficiaries, based
5-8 on the following factors:
5-9 (1) financial stability and integrity;
5-10 (2) the ability of the financial institution, directly
5-11 or through a subcontract, to satisfy recordkeeping and reporting
5-12 requirements;
5-13 (3) the financial institution's plan for promoting the
5-14 plan and the investment that the financial institution is willing
5-15 to make to promote the plan;
5-16 (4) the historic ability of the portfolios or
5-17 investment strategies to be used by the financial institution to
5-18 track the estimated costs of higher education as calculated by the
5-19 United States Department of Education;
5-20 (5) the fees, if any, proposed to be charged to
5-21 account owners for maintaining accounts;
5-22 (6) the minimum contributions that the financial
5-23 institution will require and the willingness of the financial
5-24 institution to accept contributions through payroll deduction plans
5-25 or systematic deposit plans; and
5-26 (7) any other proposed benefits to this state or to
6-1 its residents.
6-2 (d) The board may require that any financial institution
6-3 selected provide several investment options to account owners,
6-4 taking into consideration the age of the beneficiary and the number
6-5 of years remaining until likely enrollment at an eligible
6-6 educational institution.
6-7 Sec. 54.705. DUTIES OF PLAN MANAGER. (a) A plan manager
6-8 shall:
6-9 (1) take all actions required to keep the plan in
6-10 compliance with this subchapter, to ensure that the plan qualifies
6-11 as a qualified state tuition program under Section 529, Internal
6-12 Revenue Code of 1986, as amended, and to ensure that the plan is
6-13 exempt from registration under federal securities law;
6-14 (2) keep adequate and separate records of each savings
6-15 trust account and provide the board with the information necessary
6-16 to prepare the reports required by Section 529, Internal Revenue
6-17 Code of 1986, as amended, or to file those reports on behalf of the
6-18 board;
6-19 (3) compile necessary information for statements to
6-20 account owners and statements required by federal or state tax law
6-21 and provide those compilations to the board; and
6-22 (4) provide representatives of the board with access
6-23 to the books and records of the manager as necessary to determine
6-24 compliance with the plan management contract.
6-25 (b) A plan manager shall hold all savings trust accounts in
6-26 trust for the sole benefit of the account owner and beneficiary on
7-1 behalf of the plan, acting in a fiduciary capacity and making
7-2 investments under the standard provided by Section 54.704(a).
7-3 (c) A plan manager shall develop a strategy to promote the
7-4 plan and, on approval by the board, promote the plan according to
7-5 that strategy.
7-6 Sec. 54.706. CONTRACT BETWEEN BOARD AND PLAN MANAGER.
7-7 (a) A contract between the board and a financial institution to
7-8 act as a plan manager under this subchapter must be for a term of
7-9 at least five years and may be renewable.
7-10 (b) If the contract is not renewed, the following conditions
7-11 apply at the end of the term of the contract, so long as applying
7-12 the conditions does not disqualify the plan as a qualified state
7-13 tuition program under Section 529, Internal Revenue Code of 1986,
7-14 as amended:
7-15 (1) the board shall continue to maintain the plan at
7-16 the financial institution;
7-17 (2) accounts previously established at the financial
7-18 institution may not be terminated, except as provided by
7-19 Subdivision (5) or Subsection (c);
7-20 (3) additional contributions may be made to the
7-21 accounts;
7-22 (4) no new accounts may be opened with that financial
7-23 institution; and
7-24 (5) if the board determines that continuing the
7-25 accounts at that financial institution is not in the best interest
7-26 of the account owners, the accounts may be transferred to another
8-1 financial institution acting as a plan manager.
8-2 (c) The board may cancel a plan manager contract with a
8-3 financial institution for a violation of the contract or a
8-4 provision of this subchapter by the financial institution at any
8-5 time. If a contract is terminated under this subsection, the board
8-6 shall take custody of accounts held at that financial institution
8-7 and shall promptly seek to transfer the accounts to another
8-8 financial institution acting as a plan manager and into investment
8-9 instruments as similar to the original investment instruments as
8-10 possible.
8-11 Sec. 54.707. SAVINGS TRUST ACCOUNTS. (a) An individual may
8-12 open a savings trust account to save money for the payment of the
8-13 qualified higher education expenses of a beneficiary. The
8-14 individual who opens the account is the owner of the account. The
8-15 owner of the account may also be the beneficiary.
8-16 (b) An individual may open an account by completing a
8-17 savings trust agreement prescribed by the plan manager and approved
8-18 by the board and making the minimum contribution required by the
8-19 plan manager to open an account.
8-20 (c) A savings trust agreement must include the following
8-21 terms:
8-22 (1) the name and address of the savings trust account
8-23 owner;
8-24 (2) the name, address, and date of birth of the
8-25 beneficiary on whose behalf the account is opened;
8-26 (3) the maximum and minimum contributions allowed to
9-1 the account;
9-2 (4) provisions for withdrawals, refunds, transfers,
9-3 and any penalties;
9-4 (5) terms and conditions for a substitution of the
9-5 beneficiary originally named;
9-6 (6) terms and conditions for termination of the
9-7 account, including any refunds, withdrawals, or transfers, and
9-8 applicable penalties, and the name of the person or persons
9-9 entitled to terminate the account;
9-10 (7) all other rights and obligations of the account
9-11 owner, the plan manager, and the board; and
9-12 (8) any other terms and conditions the board considers
9-13 necessary or appropriate, including those necessary to conform the
9-14 savings trust account to the requirements of Section 529, Internal
9-15 Revenue Code of 1986, as amended, or other applicable federal law.
9-16 (d) An account owner may change the designated beneficiary
9-17 of an account as provided by Section 529, Internal Revenue Code of
9-18 1986, as amended, in accordance with procedures established by the
9-19 board.
9-20 Sec. 54.708. CONTRIBUTIONS AND WITHDRAWALS; PENALTY FOR
9-21 NONQUALIFIED WITHDRAWAL. (a) Contributions to a savings trust
9-22 account may be made only in cash.
9-23 (b) An employee of the state or a political subdivision of
9-24 the state may make contributions to a savings trust account by
9-25 payroll deductions made by the appropriate officer of the state or
9-26 political subdivision. Contributions to a savings trust account
10-1 also may be made by electronic funds transfer.
10-2 (c) An account owner may withdraw all or part of the balance
10-3 of an account on prior notice as authorized by board rules. The
10-4 board shall adopt rules governing the determination whether a
10-5 withdrawal is a qualified withdrawal or a nonqualified withdrawal.
10-6 The rules may require an account owner requesting to make a
10-7 qualified withdrawal to provide a certification of qualified higher
10-8 education expenses.
10-9 (d) In the case of a nonqualified withdrawal from an
10-10 account, an amount equal to 10 percent of the portion of the
10-11 withdrawal constituting income as determined in accordance with
10-12 Section 529, Internal Revenue Code of 1986, as amended, shall be
10-13 withheld as a penalty.
10-14 (e) The amount of the penalty prescribed by Subsection (d)
10-15 may be increased if the board determines that the increased penalty
10-16 is necessary to constitute a greater than de minimis penalty for
10-17 purposes of qualifying the plan as a qualified state tuition
10-18 program under Section 529, Internal Revenue Code of 1986, as
10-19 amended.
10-20 (f) The amount of the penalty prescribed by Subsection (d)
10-21 may be decreased by board rule if the board determines that:
10-22 (1) the amount of the penalty prescribed by Subsection
10-23 (d) is greater than required to constitute a greater than de
10-24 minimis penalty for purposes of qualifying the plan as a qualified
10-25 state tuition program under Section 529, Internal Revenue Code of
10-26 1986, as amended; and
11-1 (2) the penalty together with other revenue generated
11-2 under this subchapter is producing more revenue than required to
11-3 cover the costs of operating the plan and to recover any prior
11-4 costs not previously recovered.
11-5 (g) Penalties collected under this subchapter shall be used
11-6 to cover costs of administering this subchapter, and any excess
11-7 shall be treated as earnings of the savings trust accounts in the
11-8 plan.
11-9 Sec. 54.709. ADMINISTRATION OF ACCOUNTS. (a) The plan
11-10 manager shall provide separate accounting for each savings trust
11-11 account.
11-12 (b) An account owner or beneficiary may not direct the
11-13 investment of any contributions to or earnings on an account.
11-14 (c) If the board terminates the contract of a financial
11-15 institution to act as a plan manager and accounts must be
11-16 transferred from that financial institution to another financial
11-17 institution, the board shall select the financial institution to
11-18 which the balances of the accounts are transferred.
11-19 (d) A savings trust agreement must provide that, if after a
11-20 specified period the savings trust agreement has not been
11-21 terminated and the beneficiary's rights in the account have not
11-22 been exercised, the board, after making reasonable efforts to
11-23 contact the owner and beneficiary of the account or their agents,
11-24 shall report the unclaimed money in the account to the comptroller.
11-25 (e) Money in a savings trust account is exempt from
11-26 attachment, execution, and seizure for the satisfaction of debt or
12-1 liability of an account owner or beneficiary.
12-2 (f) A savings trust account may not be assigned for the
12-3 benefit of creditors, used as security or collateral for any loan,
12-4 or otherwise subject to alienation, sale, transfer, assignment,
12-5 pledge, encumbrance, or charge.
12-6 (g) A distribution from an account to any individual or for
12-7 the benefit of any individual during a calendar year shall be
12-8 reported to the Internal Revenue Service and to the account owner
12-9 or the beneficiary to the extent required by federal law.
12-10 (h) The plan manager shall provide an annual statement to
12-11 each account owner not later than the January 31 after the end of
12-12 each calendar year and may provide statements more frequently than
12-13 annually. A statement must identify the contributions made during
12-14 the reporting period, the total contributions made through the end
12-15 of the reporting period, the value of the account at the end of the
12-16 reporting period, withdrawals made during the reporting period, and
12-17 any other information the board requires.
12-18 Sec. 54.710. PLAN LIMITATIONS. (a) Nothing in this
12-19 subchapter or in any savings trust agreement entered into under
12-20 this subchapter may be construed to:
12-21 (1) give a beneficiary any rights or legal interest
12-22 with respect to a savings trust account unless the beneficiary is
12-23 the account owner;
12-24 (2) guarantee that amounts saved under the plan will
12-25 be sufficient to cover the qualified higher education expenses of a
12-26 beneficiary; or
13-1 (3) establish state residency for tuition or other
13-2 purposes for a beneficiary because of the designation as a
13-3 beneficiary.
13-4 (b) Nothing in this subchapter or in any savings trust
13-5 agreement entered into under this subchapter may be construed to
13-6 create any obligation of the state, any agency or instrumentality
13-7 of the state, or the plan manager to guarantee for the benefit of
13-8 an account owner or beneficiary:
13-9 (1) the return of any amount contributed to an
13-10 account;
13-11 (2) the rate of interest or other return on an
13-12 account;
13-13 (3) the payment of interest or other return on an
13-14 account; or
13-15 (4) tuition rates or the cost of related education
13-16 expenditures.
13-17 (c) The board by rule shall require that every savings trust
13-18 agreement, deposit slip, and other similar document used in
13-19 connection with a contribution to an account clearly indicate that
13-20 the account is not insured by this state and that neither the
13-21 principal deposited nor the investment return is guaranteed by this
13-22 state.
13-23 Sec. 54.711. NO PROMISE OF ADMISSION, ENROLLMENT, OR
13-24 GRADUATION. The opening or maintenance of a savings trust account
13-25 does not promise or guarantee that a beneficiary of the account
13-26 will:
14-1 (1) be admitted to any eligible educational
14-2 institution;
14-3 (2) be admitted to a particular eligible educational
14-4 institution;
14-5 (3) be allowed to continue enrollment at an eligible
14-6 educational institution after admission; or
14-7 (4) receive a degree or certificate from an eligible
14-8 educational institution.
14-9 Sec. 54.712. RESIDENCY NOT REQUIRED. A savings trust
14-10 account owner or beneficiary is not required to be a resident of
14-11 this state.
14-12 Sec. 54.713. POLICIES FOR PROMOTION AND DISCLOSURE OF
14-13 INFORMATION. The board shall adopt policies for promotion of the
14-14 plan and the disclosure of plan information to savings trust
14-15 account owners and beneficiaries in a manner consistent with this
14-16 subchapter and the requirements of Section 529, Internal Revenue
14-17 Code of 1986, as amended, to ensure that:
14-18 (1) promotional material and plan information disclose
14-19 that no money invested in the plan is insured by this state and
14-20 that neither the principal deposited nor the investment returned is
14-21 guaranteed by this state; and
14-22 (2) any fees imposed under this subchapter are
14-23 disclosed in promotional material and plan information provided to
14-24 the public and to account owners and beneficiaries.
14-25 Sec. 54.714. CONFIDENTIALITY OF RECORDS. (a) Except as
14-26 otherwise provided by this section, all information relating to the
15-1 plan is public and subject to disclosure under Chapter 552,
15-2 Government Code.
15-3 (b) Information relating to a beneficiary or owner of a
15-4 savings trust account, including any personally identifiable
15-5 information about an owner or beneficiary, is confidential except
15-6 that the board may disclose that information to an account owner
15-7 regarding the owner's account.
15-8 Sec. 54.715. TERMINATION OR MODIFICATION OF PLAN. If the
15-9 comptroller determines that the plan is not financially feasible,
15-10 the comptroller shall notify the governor and the legislature and
15-11 recommend that the board not administer a higher education savings
15-12 plan or that the plan be modified or terminated.
15-13 Sec. 54.716. EFFECT OF TERMINATION OF PLAN ON SAVINGS TRUST
15-14 AGREEMENT. If the plan is terminated, the balance of each savings
15-15 trust account shall be paid to the account owner, to the extent
15-16 possible, and any unclaimed assets shall escheat to the state in
15-17 accordance with general law regarding unclaimed property.
15-18 SECTION 2. Section 54.601, Education Code, is amended by
15-19 amending Subdivision (4) and adding Subdivision (13) to read as
15-20 follows:
15-21 (4) "Fund" means the Texas tomorrow constitutional
15-22 trust fund.
15-23 (13) "Account" means the Texas college savings plan
15-24 account.
15-25 SECTION 3. Subsection (b), Section 54.602, Education Code,
15-26 is amended to read as follows:
16-1 (b) The board shall administer the prepaid higher education
16-2 tuition program established under this subchapter and the higher
16-3 education savings plan established under Subchapter G.
16-4 SECTION 4. Sections 54.603 and 54.634, Education Code, are
16-5 amended to read as follows:
16-6 Sec. 54.603. SUNSET PROVISION. The Prepaid Higher Education
16-7 Tuition Board is subject to Chapter 325, Government Code (Texas
16-8 Sunset Act). Unless continued in existence as provided by that
16-9 chapter, the board is abolished and the programs established under
16-10 this subchapter and under Subchapter G terminate [program
16-11 terminates] September 1, 2007.
16-12 Sec. 54.634. ESTABLISHMENT OF TRUST FUND; COLLEGE SAVINGS
16-13 PLAN ACCOUNT. (a) The Texas tomorrow constitutional trust fund is
16-14 created as a trust fund to be held with the comptroller [outside
16-15 the state treasury]. The fund consists of:
16-16 (1) state appropriations for purposes of the fund;
16-17 (2) money acquired from other governmental or private
16-18 sources;
16-19 (3) money paid under prepaid tuition contracts; and
16-20 (4) the income from money deposited in the fund.
16-21 (b) The board shall administer the assets of the fund. The
16-22 board is the trustee of the fund's assets.
16-23 (c) The board may:
16-24 (1) segregate contributions and payments to the fund
16-25 into various accounts; and
16-26 (2) acquire, hold, manage, purchase, sell, assign,
17-1 trade, transfer, and dispose of any security, evidence of
17-2 indebtedness, or other investment in which the fund's assets may be
17-3 invested.
17-4 (d) The Texas college savings plan account is created within
17-5 the Texas tomorrow constitutional trust fund and is financed
17-6 through administrative fees and service charges as authorized by
17-7 Section 54.702(c).
17-8 SECTION 5. Subchapter F, Chapter 54, Education Code, is
17-9 amended by adding Section 54.6401 to read as follows:
17-10 Sec. 54.6401. COMPLIANCE WITH LIMITS ON CONTRIBUTIONS AND
17-11 WITHDRAWALS. The board shall monitor contributions to and
17-12 withdrawals from the fund and any account within the fund to ensure
17-13 that any applicable limits on contributions or withdrawals are not
17-14 exceeded.
17-15 SECTION 6. This Act takes effect immediately if it receives
17-16 a vote of two-thirds of all the members elected to each house, as
17-17 provided by Section 39, Article III, Texas Constitution. If this
17-18 Act does not receive the vote necessary for immediate effect, this
17-19 Act takes effect September 1, 2001.