1-1 By: Ellis, Duncan S.B. No. 555
1-2 (In the Senate - Filed February 6, 2001; February 7, 2001,
1-3 read first time and referred to Committee on Education;
1-4 March 5, 2001, reported adversely, with favorable Committee
1-5 Substitute by the following vote: Yeas 9, Nays 0; March 5, 2001,
1-6 sent to printer.)
1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 555 By: Zaffirini
1-8 A BILL TO BE ENTITLED
1-9 AN ACT
1-10 relating to a college savings plan for qualified higher education
1-11 expenses.
1-12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-13 SECTION 1. Chapter 54, Education Code, is amended by adding
1-14 Subchapter G to read as follows:
1-15 SUBCHAPTER G. HIGHER EDUCATION SAVINGS PLAN
1-16 Sec. 54.701. DEFINITIONS. In this subchapter:
1-17 (1) "Beneficiary" means an individual designated as
1-18 the individual whose qualified higher education expenses are
1-19 expected to be paid from the savings trust account.
1-20 (2) "Board" means the Prepaid Higher Education Tuition
1-21 Board.
1-22 (3) "Eligible educational institution" has the meaning
1-23 assigned by Section 529, Internal Revenue Code of 1986, as amended.
1-24 (4) "Financial institution" means a bank, trust
1-25 company, savings and loan association, credit union, broker-dealer,
1-26 mutual fund, insurance company, or other similar financial
1-27 institution authorized to transact business in this state.
1-28 (5) "Nonqualified withdrawal" means a withdrawal from
1-29 a savings trust account other than:
1-30 (A) a qualified withdrawal;
1-31 (B) a withdrawal made as the result of the death
1-32 or disability of the beneficiary of the account; or
1-33 (C) a withdrawal made due to a scholarship or to
1-34 an allowance or payment described by Section 135(d)(1)(B) or (C),
1-35 Internal Revenue Code of 1986, as amended, received by the
1-36 beneficiary to the extent the amount of the withdrawal does not
1-37 exceed the amount of the scholarship, allowance, or payment, in
1-38 accordance with federal law.
1-39 (6) "Plan" means the higher education savings plan
1-40 established under this subchapter.
1-41 (7) "Plan manager" means a financial institution under
1-42 contract with the board to serve as plan administrator.
1-43 (8) "Qualified higher education expenses" means
1-44 tuition, fees, or expenses for books, supplies, and equipment
1-45 required for the enrollment or attendance of an individual at an
1-46 eligible educational institution, the costs of room and board, and
1-47 any other higher education expenses that may be permitted under
1-48 Section 529, Internal Revenue Code of 1986, as amended.
1-49 (9) "Qualified withdrawal" means a withdrawal from a
1-50 savings trust account to pay the qualified higher education
1-51 expenses of the beneficiary of the account.
1-52 (10) "Savings trust account" means an account
1-53 established through the plan by an individual under this subchapter
1-54 on behalf of a beneficiary in order to apply distributions from the
1-55 account toward qualified higher education expenses at eligible
1-56 educational institutions.
1-57 (11) "Savings trust agreement" means the agreement
1-58 between a plan manager and an individual establishing a savings
1-59 trust account.
1-60 Sec. 54.702. POWERS AND DUTIES OF BOARD. (a) The board
1-61 shall:
1-62 (1) develop and implement the plan in a manner
1-63 consistent with this subchapter;
1-64 (2) select the financial institution or institutions
2-1 to serve as plan manager; and
2-2 (3) adopt rules governing withdrawal of money from a
2-3 savings trust account and develop policies and penalties for
2-4 nonqualified withdrawals.
2-5 (b) The board may seek rulings and other guidance from the
2-6 United States Department of the Treasury, the Internal Revenue
2-7 Service, and the Securities and Exchange Commission relating to the
2-8 plan as necessary for proper implementation and development of the
2-9 plan. The board shall make changes to the plan as necessary for
2-10 savings trust account owners and beneficiaries of the plan to
2-11 obtain or maintain federal income tax benefits or treatment
2-12 provided by Section 529, Internal Revenue Code of 1986, as amended,
2-13 and exemptions under federal securities laws.
2-14 (c) The board shall collect administrative fees and service
2-15 charges in connection with any agreement, contract, or transaction
2-16 relating to the plan in amounts not exceeding the cost of
2-17 establishing and maintaining the plan.
2-18 (d) A savings trust agreement used by a plan manager must be
2-19 reviewed and approved by the board. The board shall review for
2-20 compliance with applicable law and must approve any informational
2-21 materials used by the plan manager to be furnished to participants
2-22 or potential participants in the plan.
2-23 (e) The board shall adopt a policy to prevent contributions
2-24 to an account on behalf of a beneficiary in excess of those
2-25 necessary to pay the qualified higher education expenses of the
2-26 beneficiary.
2-27 (f) The board shall monitor contributions to and withdrawals
2-28 from the plan and each plan account to ensure that any applicable
2-29 limits on contributions or withdrawals are not exceeded.
2-30 (g) The board shall prepare and file statements and
2-31 information returns relating to accounts to the extent required by
2-32 federal or state tax law.
2-33 Sec. 54.703. OPERATION OF PLAN; ACCOUNTS HELD IN TRUST.
2-34 (a) The board shall administer a higher education savings plan to
2-35 enable individuals to save money for the qualified higher education
2-36 expenses of an individual by establishing a savings trust account
2-37 in the plan.
2-38 (b) Money contributed to a savings trust account and
2-39 earnings on the account are held in trust by the board and the plan
2-40 manager for the sole benefit of the account owner and beneficiary.
2-41 Sec. 54.704. SELECTION OF FINANCIAL INSTITUTION AS PLAN
2-42 MANAGER. (a) The board shall contract with one or more financial
2-43 institutions to serve as plan manager and to invest the money in
2-44 savings trust accounts. The board shall ensure that investments by
2-45 a plan manager are made with the judgment and care that persons of
2-46 prudence, discretion, and intelligence exercise in the management
2-47 of the property of another, not in regard to speculation but in
2-48 regard to the permanent disposition of funds, considering the
2-49 probable income as well as the probable safety of capital.
2-50 (b) The board shall solicit proposals from financial
2-51 institutions to serve as plan managers.
2-52 (c) The board shall select a plan manager or managers from
2-53 among bidding financial institutions that demonstrate the most
2-54 advantageous combination to account owners and beneficiaries, based
2-55 on the following factors:
2-56 (1) financial stability and integrity;
2-57 (2) the ability of the financial institution, directly
2-58 or through a subcontract, to satisfy recordkeeping and reporting
2-59 requirements;
2-60 (3) the financial institution's plan for promoting the
2-61 plan and the investment that the financial institution is willing
2-62 to make to promote the plan;
2-63 (4) the historic ability of the portfolios or
2-64 investment strategies to be used by the financial institution to
2-65 track the estimated costs of higher education as calculated by the
2-66 United States Department of Education;
2-67 (5) the fees, if any, proposed to be charged to
2-68 account owners for maintaining accounts;
2-69 (6) the minimum contributions that the financial
3-1 institution will require and the willingness of the financial
3-2 institution to accept contributions through payroll deduction plans
3-3 or systematic deposit plans; and
3-4 (7) any other proposed benefits to this state or to
3-5 its residents.
3-6 (d) The board may require that any financial institution
3-7 selected provide several investment options to account owners,
3-8 taking into consideration the age of the beneficiary and the number
3-9 of years remaining until likely enrollment at an eligible
3-10 educational institution.
3-11 Sec. 54.705. DUTIES OF PLAN MANAGER. (a) A plan manager
3-12 shall:
3-13 (1) take all actions required to keep the plan in
3-14 compliance with this subchapter, to ensure that the plan qualifies
3-15 as a qualified state tuition program under Section 529, Internal
3-16 Revenue Code of 1986, as amended, and to ensure that the plan is
3-17 exempt from registration under federal securities law;
3-18 (2) keep adequate and separate records of each savings
3-19 trust account and provide the board with the information necessary
3-20 to prepare the reports required by Section 529, Internal Revenue
3-21 Code of 1986, as amended, or to file those reports on behalf of the
3-22 board;
3-23 (3) compile necessary information for statements to
3-24 account owners and statements required by federal or state tax law
3-25 and provide those compilations to the board; and
3-26 (4) provide representatives of the board with access
3-27 to the books and records of the manager as necessary to determine
3-28 compliance with the plan management contract.
3-29 (b) A plan manager shall hold all savings trust accounts in
3-30 trust for the sole benefit of the account owner and beneficiary on
3-31 behalf of the plan, acting in a fiduciary capacity and making
3-32 investments under the standard provided by Section 54.704(a).
3-33 (c) A plan manager shall develop a strategy to promote the
3-34 plan and, on approval by the board, promote the plan according to
3-35 that strategy.
3-36 Sec. 54.706. CONTRACT BETWEEN BOARD AND PLAN MANAGER.
3-37 (a) A contract between the board and a financial institution to
3-38 act as a plan manager under this subchapter must be for a term of
3-39 at least five years and may be renewable.
3-40 (b) If the contract is not renewed, the following conditions
3-41 apply at the end of the term of the contract, so long as applying
3-42 the conditions does not disqualify the plan as a qualified state
3-43 tuition program under Section 529, Internal Revenue Code of 1986,
3-44 as amended:
3-45 (1) the board shall continue to maintain the plan at
3-46 the financial institution;
3-47 (2) accounts previously established at the financial
3-48 institution may not be terminated, except as provided by
3-49 Subdivision (5) or Subsection (c);
3-50 (3) additional contributions may be made to the
3-51 accounts;
3-52 (4) no new accounts may be opened with that financial
3-53 institution; and
3-54 (5) if the board determines that continuing the
3-55 accounts at that financial institution is not in the best interest
3-56 of the account owners, the accounts may be transferred to another
3-57 financial institution acting as a plan manager.
3-58 (c) The board may cancel a plan manager contract with a
3-59 financial institution for a violation of the contract or a
3-60 provision of this subchapter by the financial institution at any
3-61 time. If a contract is terminated under this subsection, the board
3-62 shall take custody of accounts held at that financial institution
3-63 and shall promptly seek to transfer the accounts to another
3-64 financial institution acting as a plan manager and into investment
3-65 instruments as similar to the original investment instruments as
3-66 possible.
3-67 Sec. 54.707. SAVINGS TRUST ACCOUNTS. (a) An individual may
3-68 open a savings trust account to save money for the payment of the
3-69 qualified higher education expenses of a beneficiary. The
4-1 individual who opens the account is the owner of the account. The
4-2 owner of the account may also be the beneficiary.
4-3 (b) An individual may open an account by completing a
4-4 savings trust agreement prescribed by the plan manager and approved
4-5 by the board and making the minimum contribution required by the
4-6 plan manager to open an account.
4-7 (c) A savings trust agreement must include the following
4-8 terms:
4-9 (1) the name and address of the savings trust account
4-10 owner;
4-11 (2) the name, address, and date of birth of the
4-12 beneficiary on whose behalf the account is opened;
4-13 (3) the maximum and minimum contributions allowed to
4-14 the account;
4-15 (4) provisions for withdrawals, refunds, transfers,
4-16 and any penalties;
4-17 (5) terms and conditions for a substitution of the
4-18 beneficiary originally named;
4-19 (6) terms and conditions for termination of the
4-20 account, including any refunds, withdrawals, or transfers, and
4-21 applicable penalties, and the name of the person or persons
4-22 entitled to terminate the account;
4-23 (7) all other rights and obligations of the account
4-24 owner, the plan manager, and the board; and
4-25 (8) any other terms and conditions the board considers
4-26 necessary or appropriate, including those necessary to conform the
4-27 savings trust account to the requirements of Section 529, Internal
4-28 Revenue Code of 1986, as amended, or other applicable federal law.
4-29 (d) An account owner may change the designated beneficiary
4-30 of an account as provided by Section 529, Internal Revenue Code of
4-31 1986, as amended, in accordance with procedures established by the
4-32 board.
4-33 Sec. 54.708. CONTRIBUTIONS AND WITHDRAWALS; PENALTY FOR
4-34 NONQUALIFIED WITHDRAWAL. (a) Contributions to a savings trust
4-35 account may be made only in cash.
4-36 (b) An employee of the state or a political subdivision of
4-37 the state may make contributions to a savings trust account by
4-38 payroll deductions made by the appropriate officer of the state or
4-39 political subdivision. Contributions to a savings trust account
4-40 also may be made by electronic funds transfer.
4-41 (c) An account owner may withdraw all or part of the balance
4-42 of an account on prior notice as authorized by board rules. The
4-43 board shall adopt rules governing the determination whether a
4-44 withdrawal is a qualified withdrawal or a nonqualified withdrawal.
4-45 The rules may require an account owner requesting to make a
4-46 qualified withdrawal to provide a certification of qualified higher
4-47 education expenses.
4-48 (d) In the case of a nonqualified withdrawal from an
4-49 account, an amount equal to 10 percent of the portion of the
4-50 withdrawal constituting income as determined in accordance with
4-51 Section 529, Internal Revenue Code of 1986, as amended, shall be
4-52 withheld as a penalty.
4-53 (e) The amount of the penalty prescribed by Subsection (d)
4-54 may be increased if the board determines that the increased penalty
4-55 is necessary to constitute a greater than de minimis penalty for
4-56 purposes of qualifying the plan as a qualified state tuition
4-57 program under Section 529, Internal Revenue Code of 1986, as
4-58 amended.
4-59 (f) The amount of the penalty prescribed by Subsection (d)
4-60 may be decreased by board rule if the board determines that:
4-61 (1) the amount of the penalty prescribed by Subsection
4-62 (d) is greater than required to constitute a greater than de
4-63 minimis penalty for purposes of qualifying the plan as a qualified
4-64 state tuition program under Section 529, Internal Revenue Code of
4-65 1986, as amended; and
4-66 (2) the penalty together with other revenue generated
4-67 under this subchapter is producing more revenue than required to
4-68 cover the costs of operating the plan and to recover any prior
4-69 costs not previously recovered.
5-1 (g) Penalties collected under this subchapter shall be used
5-2 to cover costs of administering this subchapter, and any excess
5-3 shall be treated as earnings of the savings trust accounts in the
5-4 plan.
5-5 Sec. 54.709. ADMINISTRATION OF ACCOUNTS. (a) The plan
5-6 manager shall provide separate accounting for each savings trust
5-7 account.
5-8 (b) An account owner or beneficiary may not direct the
5-9 investment of any contributions to or earnings on an account.
5-10 (c) If the board terminates the contract of a financial
5-11 institution to act as a plan manager and accounts must be
5-12 transferred from that financial institution to another financial
5-13 institution, the board shall select the financial institution to
5-14 which the balances of the accounts are transferred.
5-15 (d) A savings trust agreement must provide that, if after a
5-16 specified period the savings trust agreement has not been
5-17 terminated and the beneficiary's rights in the account have not
5-18 been exercised, the board, after making reasonable efforts to
5-19 contact the owner and beneficiary of the account or their agents,
5-20 shall report the unclaimed money in the account to the comptroller.
5-21 (e) Money in a savings trust account is exempt from
5-22 attachment, execution, and seizure for the satisfaction of debt or
5-23 liability of an account owner or beneficiary.
5-24 (f) A savings trust account may not be assigned for the
5-25 benefit of creditors, used as security or collateral for any loan,
5-26 or otherwise subject to alienation, sale, transfer, assignment,
5-27 pledge, encumbrance, or charge.
5-28 (g) A distribution from an account to any individual or for
5-29 the benefit of any individual during a calendar year shall be
5-30 reported to the Internal Revenue Service and to the account owner
5-31 or the beneficiary to the extent required by federal law.
5-32 (h) The plan manager shall provide an annual statement to
5-33 each account owner not later than the January 31 after the end of
5-34 each calendar year and may provide statements more frequently than
5-35 annually. A statement must identify the contributions made during
5-36 the reporting period, the total contributions made through the end
5-37 of the reporting period, the value of the account at the end of the
5-38 reporting period, withdrawals made during the reporting period, and
5-39 any other information the board requires.
5-40 Sec. 54.710. PLAN LIMITATIONS. (a) Nothing in this
5-41 subchapter or in any savings trust agreement entered into under
5-42 this subchapter may be construed to:
5-43 (1) give a beneficiary any rights or legal interest
5-44 with respect to a savings trust account unless the beneficiary is
5-45 the account owner;
5-46 (2) guarantee that amounts saved under the plan will
5-47 be sufficient to cover the qualified higher education expenses of a
5-48 beneficiary; or
5-49 (3) establish state residency for tuition or other
5-50 purposes for a beneficiary because of the designation as a
5-51 beneficiary.
5-52 (b) Nothing in this subchapter or in any savings trust
5-53 agreement entered into under this subchapter may be construed to
5-54 create any obligation of the state, any agency or instrumentality
5-55 of the state, or the plan manager to guarantee for the benefit of
5-56 an account owner or beneficiary:
5-57 (1) the return of any amount contributed to an
5-58 account;
5-59 (2) the rate of interest or other return on an
5-60 account;
5-61 (3) the payment of interest or other return on an
5-62 account; or
5-63 (4) tuition rates or the cost of related education
5-64 expenditures.
5-65 (c) The board by rule shall require that every savings trust
5-66 agreement, deposit slip, and other similar document used in
5-67 connection with a contribution to an account clearly indicate that
5-68 the account is not insured by this state and that neither the
5-69 principal deposited nor the investment return is guaranteed by this
6-1 state.
6-2 Sec. 54.711. NO PROMISE OF ADMISSION, ENROLLMENT, OR
6-3 GRADUATION. The opening or maintenance of a savings trust account
6-4 does not promise or guarantee that a beneficiary of the account
6-5 will:
6-6 (1) be admitted to any eligible educational
6-7 institution;
6-8 (2) be admitted to a particular eligible educational
6-9 institution;
6-10 (3) be allowed to continue enrollment at an eligible
6-11 educational institution after admission; or
6-12 (4) receive a degree or certificate from an eligible
6-13 educational institution.
6-14 Sec. 54.712. RESIDENCY NOT REQUIRED. A savings trust
6-15 account owner or beneficiary is not required to be a resident of
6-16 this state.
6-17 Sec. 54.713. POLICIES FOR PROMOTION AND DISCLOSURE OF
6-18 INFORMATION. The board shall adopt policies for promotion of the
6-19 plan and the disclosure of plan information to savings trust
6-20 account owners and beneficiaries in a manner consistent with this
6-21 subchapter and the requirements of Section 529, Internal Revenue
6-22 Code of 1986, as amended, to ensure that:
6-23 (1) promotional material and plan information disclose
6-24 that no money invested in the plan is insured by this state and
6-25 that neither the principal deposited nor the investment returned is
6-26 guaranteed by this state; and
6-27 (2) any fees imposed under this subchapter are
6-28 disclosed in promotional material and plan information provided to
6-29 the public and to account owners and beneficiaries.
6-30 Sec. 54.714. CONFIDENTIALITY OF RECORDS. (a) Except as
6-31 otherwise provided by this section, all information relating to the
6-32 plan is public and subject to disclosure under Chapter 552,
6-33 Government Code.
6-34 (b) Information relating to a beneficiary or owner of a
6-35 savings trust account, including any personally identifiable
6-36 information about an owner or beneficiary, is confidential except
6-37 that the board may disclose that information to an account owner
6-38 regarding the owner's account.
6-39 Sec. 54.715. TERMINATION OR MODIFICATION OF PLAN. If the
6-40 comptroller determines that the plan is not financially feasible,
6-41 the comptroller shall notify the governor and the legislature and
6-42 recommend that the board not administer a higher education savings
6-43 plan or that the plan be modified or terminated.
6-44 Sec. 54.716. EFFECT OF TERMINATION OF PLAN ON SAVINGS TRUST
6-45 AGREEMENT. If the plan is terminated, the balance of each savings
6-46 trust account shall be paid to the account owner, to the extent
6-47 possible, and any unclaimed assets shall escheat to the state in
6-48 accordance with general law regarding unclaimed property.
6-49 SECTION 2. Section 54.601, Education Code, is amended by
6-50 amending Subdivision (4) and adding Subdivision (13) to read as
6-51 follows:
6-52 (4) "Fund" means the Texas tomorrow constitutional
6-53 trust fund.
6-54 (13) "Account" means the Texas college savings plan
6-55 account.
6-56 SECTION 3. Subsection (b), Section 54.602, Education Code,
6-57 is amended to read as follows:
6-58 (b) The board shall administer the prepaid higher education
6-59 tuition program established under this subchapter and the higher
6-60 education savings plan established under Subchapter G.
6-61 SECTION 4. Sections 54.603 and 54.634, Education Code, are
6-62 amended to read as follows:
6-63 Sec. 54.603. SUNSET PROVISION. The Prepaid Higher Education
6-64 Tuition Board is subject to Chapter 325, Government Code (Texas
6-65 Sunset Act). Unless continued in existence as provided by that
6-66 chapter, the board is abolished and the programs established under
6-67 this subchapter and under Subchapter G terminate [program
6-68 terminates] September 1, 2007.
6-69 Sec. 54.634. ESTABLISHMENT OF TRUST FUND; COLLEGE SAVINGS
7-1 PLAN ACCOUNT. (a) The Texas tomorrow constitutional trust fund is
7-2 created as a trust fund to be held with the comptroller [outside
7-3 the state treasury]. The fund consists of:
7-4 (1) state appropriations for purposes of the fund;
7-5 (2) money acquired from other governmental or private
7-6 sources;
7-7 (3) money paid under prepaid tuition contracts; and
7-8 (4) the income from money deposited in the fund.
7-9 (b) The board shall administer the assets of the fund. The
7-10 board is the trustee of the fund's assets.
7-11 (c) The board may:
7-12 (1) segregate contributions and payments to the fund
7-13 into various accounts; and
7-14 (2) acquire, hold, manage, purchase, sell, assign,
7-15 trade, transfer, and dispose of any security, evidence of
7-16 indebtedness, or other investment in which the fund's assets may be
7-17 invested.
7-18 (d) The Texas college savings plan account is created within
7-19 the Texas tomorrow constitutional trust fund and is financed
7-20 through administrative fees and service charges as authorized by
7-21 Section 54.702(c).
7-22 SECTION 5. Subchapter F, Chapter 54, Education Code, is
7-23 amended by adding Section 54.6401 to read as follows:
7-24 Sec. 54.6401. COMPLIANCE WITH LIMITS ON CONTRIBUTIONS AND
7-25 WITHDRAWALS. The board shall monitor contributions to and
7-26 withdrawals from the fund and any account within the fund to ensure
7-27 that any applicable limits on contributions or withdrawals are not
7-28 exceeded.
7-29 SECTION 6. This Act takes effect immediately if it receives
7-30 a vote of two-thirds of all the members elected to each house, as
7-31 provided by Section 39, Article III, Texas Constitution. If this
7-32 Act does not receive the vote necessary for immediate effect, this
7-33 Act takes effect September 1, 2001.
7-34 * * * * *