By: Morrison, Villarreal, McCall, Otto, H.B. No. 3900
      Cook of Navarro, et al.
 
A BILL TO BE ENTITLED
AN ACT
relating to the Texas tomorrow fund II prepaid tuition unit
undergraduate education program.
       BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
       SECTION 1.  Chapter 54, Education Code, is amended by adding
Subchapter H to read as follows:
SUBCHAPTER H. PREPAID TUITION UNIT UNDERGRADUATE EDUCATION
PROGRAM:  TEXAS TOMORROW FUND II
       Sec. 54.751.  DEFINITIONS. In this subchapter:
             (1)  "Accredited out-of-state institution of higher
education" means a public or private institution of higher
education that:
                   (A)  is located outside this state; and
                   (B)  is accredited by a recognized accrediting
agency.
             (2)  "Beneficiary" means the person designated under a
prepaid tuition contract as the person entitled to apply one or more
tuition units purchased under the contract to the payment of the
person's undergraduate tuition and required fees at a general
academic teaching institution, two-year institution of higher
education, private or independent institution of higher education,
or accredited out-of-state institution of higher education.
             (3)  "Board" means the Prepaid Higher Education Tuition
Board.
             (4)  "Fund" means the Texas tomorrow fund II.
             (5)  "General academic teaching institution" has the
meaning assigned by Section 61.003, except that the term does not
include a public state college.
             (6)  "Prepaid tuition contract" means a contract under
which a person purchases from the board on behalf of a beneficiary
one or more tuition units that the beneficiary is entitled to apply
to the payment of the beneficiary's undergraduate tuition and
required fees at a general academic teaching institution, two-year
institution of higher education, private or independent
institution of higher education, or accredited out-of-state
institution of higher education.
             (7)  "Private or independent institution of higher
education," "public junior college," "public state college,"
"public technical institute," and "recognized accrediting agency" 
have the meanings assigned by Section 61.003.
             (8)  "Program" means the prepaid tuition unit
undergraduate education program.
             (9)  "Purchaser" means a person who enters into a
prepaid tuition contract with the board on behalf of a beneficiary
for the purchase of one or more tuition units.
             (10)  "Required fee" means a fee, other than a
laboratory fee for a specific course, that is charged by a public or
private institution of higher education to all students at the
institution who are not exempt from the fee. For purposes of this
subdivision, a fee is a required fee only to the extent that the fee
is considered a qualified higher education expense under Internal
Revenue Code provisions applicable to the program.
             (11)  "Two-year institution of higher education" means
a public junior college, a public state college, and a public
technical institute.
       Sec. 54.752.  POWERS AND DUTIES OF BOARD CONCERNING PROGRAM.
(a) In addition to carrying out duties assigned under Subchapters F
and G, the Prepaid Higher Education Tuition Board shall administer
the prepaid tuition unit undergraduate education program
established under this subchapter. The board shall comply with
federal and state law related to the program.
       (b)  In addition to the board's powers assigned under
Subchapters F and G, the board has the powers necessary or proper to
carry out this subchapter, including the power to:
             (1)  adopt rules to implement this subchapter;
             (2)  sue and be sued;
             (3)  enter into contracts and other necessary
instruments;
             (4)  enter into agreements or other transactions with
the United States, state agencies, general academic teaching
institutions, two-year institutions of higher education, and local
governments;
             (5)  appear on its own behalf before governmental
agencies;
             (6)  contract for necessary goods and services,
including specifying in the contract duties to be performed by the
provider of a good or service that are a part of or are in addition
to the person's primary duties under the contract;
             (7)  engage the services of private consultants,
actuaries, trustees, records administrators, managers, legal
counsel, and auditors for administrative or technical assistance;
             (8)  solicit and accept gifts, grants, loans, and other
aid from any source or participate in any other way in any
government program to carry out this subchapter;
             (9)  impose administrative fees;
             (10)  contract with a person to market the program;
             (11)  purchase liability insurance covering the board
and employees and agents of the board; and
             (12)  establish other policies, procedures, and
eligibility criteria to implement this subchapter.
       Sec. 54.753.  PREPAID TUITION UNITS: PURCHASE; ASSIGNED
VALUE; TYPES; PRICE. (a) Under the program, a purchaser may prepay
the costs of all or a portion of a beneficiary's undergraduate
tuition and required fees at a general academic teaching
institution, two-year institution of higher education, private or
independent institution of higher education, or accredited
out-of-state institution of higher education by entering into a
prepaid tuition contract with the board to purchase one or more
tuition units of a type described by this section at the applicable
price established by the board for that type of unit for the year in
which the unit is purchased. The portion of the beneficiary's
undergraduate tuition and required fees for which a tuition unit
may be redeemed at a particular general academic teaching
institution or two-year institution of higher education is assigned
to the tuition unit at the time of purchase, and the tuition unit
may be redeemed to pay that portion of the tuition and fees at the
general academic teaching institution or two-year institution of
higher education in any academic year in which the unit is redeemed
in accordance with this subchapter.  The purchaser may purchase one
type of unit or a combination of two or three types of units.
       (b)  The assigned value of a tuition unit, purchased as
provided by this section, when used to pay the cost of tuition and
required fees at a general academic teaching institution or
two-year institution of higher education, is equal to one percent
of the amount necessary for the academic year in which the unit is
redeemed to cover the applicable cost of undergraduate resident
tuition and required fees for one academic year consisting of 30
semester credit hours as follows:
             (1)  for a Type I tuition unit, the cost of
undergraduate resident tuition and required fees charged by the
general academic teaching institution with the highest such tuition
and fee costs, determined as provided by Subsection (d);
             (2)  for a Type II tuition unit, the weighted average
undergraduate resident tuition and required fees charged by general
academic teaching institutions, determined as provided by
Subsection (e); and
             (3)  for a Type III tuition unit, the weighted average
undergraduate resident tuition and required fees of two-year
institutions of higher education, determined as provided by
Subsection (f).
       (c)  Each year, the board shall establish the price at which
each type of tuition unit may be purchased during the next sales
period and the percentage of the total cost of undergraduate
resident tuition and required fees for one academic year consisting
of 30 semester credit hours for which each type of tuition unit may
be redeemed at each general academic teaching institution and
two-year institution.  The percentage shall be based on the total
cost of required tuition and fees at a particular general academic
teaching institution or two-year institution of higher education in
relation to the amount determined for the institution with the
highest cost or weighted average cost, as applicable. The purchase
price established for each type of unit must be equal to the
applicable cost of tuition and required fees as determined under
this section for the most recent academic year that began before the
beginning of the sales period. The sales period to which those
prices apply expires on the first anniversary of the date the units
become available for purchase at the prices established for that
year.
       (d)  The board shall base the purchase price of a Type I
tuition unit on one percent of the cost of the undergraduate
resident tuition and required fees for the applicable academic year
at the general academic teaching institution with the highest such
tuition and fee cost for that academic year.
       (e)  The board shall base the purchase price of a Type II
tuition unit on one percent of the cost of the weighted average
general academic teaching institution undergraduate resident
tuition and required fees for the applicable academic year. That
cost is determined by:
             (1)  for each general academic teaching institution,
multiplying the average amount of the institution's undergraduate
resident tuition and required fees for an academic year consisting
of 30 semester credit hours by the number of full-time equivalent
undergraduate resident students at that institution;
             (2)  adding together the products computed under
Subdivision (1) for each institution; and
             (3)  dividing the sum determined under Subdivision (2)
by the total number of full-time equivalent undergraduate resident
students at all general academic teaching institutions.
       (f)  The board shall base the purchase price of a Type III
tuition unit on one percent of the cost of the weighted average
two-year institution of higher education undergraduate resident
tuition and required fees for the applicable academic year,
disregarding any portion of the tuition charged by a public junior
college to a resident of this state who does not reside within the
taxing jurisdiction of the junior college. That cost is determined
by:
             (1)  for each two-year institution of higher education,
multiplying the average amount of the institution's undergraduate
resident tuition and required fees for an academic year consisting
of 30 semester credit hours by the number of full-time equivalent
undergraduate resident students at that institution;
             (2)  adding together the products computed under
Subdivision (1) for each institution; and
             (3)  dividing the sum determined under Subdivision (2)
by the total number of full-time equivalent undergraduate resident
students at all two-year institutions of higher education.
       (g)  The total amount paid under a prepaid tuition contract
on behalf of a single beneficiary may not exceed any limit
established on the amount by Section 529, Internal Revenue Code of
1986. The board shall establish, in compliance with Section 529,
Internal Revenue Code of 1986, the minimum amount that the
purchaser is required to pay under the contract on behalf of a
single beneficiary.
       (h)  At the time of the establishment of the account to which
a purchaser's prepaid tuition contract money is assigned, the board
may impose an administrative fee not to exceed $25.  Money from that
fee must be used directly in maintaining the actuarial soundness of
the fund as required by Section 54.770.  The board may not impose
any other fee or charge in connection with the sale of a tuition
unit.
       Sec. 54.754.  REDEMPTION OF TUITION UNITS. (a) In
accordance with this subchapter, when a beneficiary under a prepaid
tuition contract redeems one or more tuition units to pay costs of
tuition and required fees, the board shall apply money in the fund,
in the amount provided by Section 54.765(c) or (d), as applicable,
to pay all or the applicable portion of the costs of the
beneficiary's tuition and required fees at the general academic
teaching institution, two-year institution of higher education,
private or independent institution of higher education, or
accredited out-of-state institution of higher education in which
the beneficiary enrolls. Subject to Subsection (b)(2) and the other
provisions of this section, a beneficiary may redeem any type of
tuition unit for attendance at an institution described by this
section.  A general academic teaching institution or two-year
institution of higher education shall accept the amount transferred
to the institution under Section 54.765(c) when the unit or units
are redeemed as payment for all or the applicable portion of the
beneficiary's tuition and required fees.
       (b)  To pay for the entire cost of undergraduate resident
tuition and required fees for an academic year consisting of 30
semester credit hours, redemption of 100 Type I tuition units is
required at the general academic teaching institution with the
highest tuition and fee cost as described by Section 54.753(d),
redemption of 100 Type II tuition units is required at a general
academic teaching institution with the applicable tuition and fee
cost at the weighted average as described by Subsection (e) of that
section, and redemption of 100 Type III units is required at a
two-year institution of higher education with the applicable
tuition and fee cost at the weighted average as described by
Subsection (f) of that section. The number of tuition units that
must be redeemed to pay for the entire cost of tuition and required
fees for an academic year at another general academic teaching
institution or two-year institution of higher education may be
higher or lower:
             (1)  in proportion to the amount that the cost of
tuition and required fees at that institution is higher or lower
than the amount determined for the institution with the highest
cost or weighted average cost, as applicable; or
             (2)  if a more or less valuable type of tuition unit is
redeemed.
       (c)  To assist purchasers in determining the number of
tuition units a beneficiary must redeem to cover the costs of
tuition and required fees at general academic teaching institutions
and two-year institutions of higher education, each year the board
shall prepare a tuition unit redemption chart and shall post the
chart on an Internet website. The chart must show for each general
academic teaching institution and for each two-year institution of
higher education the number of each type of units purchased that
year that would be required to cover the cost of tuition and
required fees, based on an academic year consisting of 30 semester
credit hours.
       (d)  If a beneficiary redeems fewer tuition units of the type
or combination of types necessary to pay the total cost of the
beneficiary's tuition and required fees at the general academic
teaching institution, two-year institution of higher education,
private or independent institution of higher education, or
accredited out-of-state institution of higher education at which
the beneficiary enrolls, the beneficiary is responsible for paying
the amount of the difference between the amount of tuition and
required fees for which the beneficiary pays through the redemption
of one or more tuition units and the total cost of the beneficiary's
tuition and required fees at the institution.
       (e)  If the beneficiary redeems fewer tuition units to pay
the cost of tuition and required fees than the number of units
purchased on behalf of the beneficiary under a prepaid tuition
contract, other than to defer redemption as permitted in accordance
with Section 54.758, the purchaser may:
             (1)  redeem for cash the amount of the purchase price of
the excess units, plus annual interest earned on that money,
accrued at a rate set by the board not to exceed five percent
annually; or
             (2)  transfer the remaining units to another
beneficiary in accordance with this subchapter.
       (f)  A beneficiary or purchaser may not redeem a tuition unit
earlier than the third anniversary of the date the unit was
purchased.
       Sec. 54.755.  PREPAID TUITION CONTRACT.  (a)  The board shall
adopt a form for a prepaid tuition contract to be used by the board
and purchasers.
       (b)  A prepaid tuition contract must:
             (1)  specify the terms under which the purchaser must
pay any amounts owed under the contract;
             (2)  specify the consequences of default;
             (3)  specify the name and date of birth of the
beneficiary under the contract and the terms under which another
person may be substituted as the beneficiary;
             (4)  specify the date the beneficiary is projected to
graduate from high school; and
             (5)  contain any other provisions the board considers
necessary or appropriate.
       (c)  A prepaid tuition contract may provide for the purchase
of additional tuition units in subsequent years at the then-current
price of the additional units.
       Sec. 54.756.  PURCHASER; BENEFICIARY.  (a)  A purchaser may
be any person who is permitted to be a purchaser under Section 529,
Internal Revenue Code of 1986.  The purchaser is not required to be
a resident of this state, except as provided by Subsection (c)(2).
       (b)  In accordance with applicable provisions of Section
529, Internal Revenue Code of 1986, a purchaser is the owner of the
account to which the purchaser's prepaid tuition contract money is
assigned.
       (c)  At the time the purchaser enters into a prepaid tuition
contract, the beneficiary of the contract must be:
             (1)  a resident of this state at the time the purchaser
enters into the contract; or
             (2)  a nonresident who is the child of a parent who is a
resident of this state at the time that parent enters into the
contract.
       (d)  For purposes of Subsection (c), the board may require a
reasonable period of residence in this state for a beneficiary or
the parent of a beneficiary.
       (e)  Notwithstanding any provision of Subchapter B, the
tuition and required fees charged by a general academic teaching
institution or two-year institution of higher education that are
paid for with tuition units shall be determined as if the
beneficiary of that contract were a resident student.
       Sec. 54.757.  CONTRACT PAYMENT. (a) The board may provide
for the receipt of payment under prepaid tuition contracts in lump
sums or installment payments. If the board allows payments under a
contract to be made in installments over a period longer than one
year, the board must provide for a plan that permits those payments
to be made in single annual installments in addition to any other
permitted installment plans.
       (b)  A purchaser may make payments under a prepaid tuition
contract by an electronic funds transfer.
       (c)  An employee of this state or a political subdivision of
this state may make payments under a prepaid tuition contract by
payroll deductions made by the appropriate officer of the state or
political subdivision.  The board shall implement procedures to
facilitate payments under this subsection.
       (d)  The board may impose a fee for a late payment under a
prepaid tuition contract.
       Sec. 54.758.  DEFERRED USE OF PREPAID CREDIT HOURS. (a)  A
prepaid tuition contract must permit the beneficiary to elect to
pay from a source other than tuition units purchased under the
contract the beneficiary's tuition and required fees for some or
all of the tuition and required fees to which the beneficiary is
entitled to payment under the contract, and to defer to a subsequent
semester or other academic term the right to payment of the
beneficiary's tuition and required fees by using tuition units
remaining under the contract.
       (b)  This section does not affect the date on which a prepaid
tuition contract terminates under this subchapter and does not give
the beneficiary the right to a payment under the contract after
termination of the contract.
       Sec. 54.759.  CHANGE OF BENEFICIARY. (a)  The purchaser of a
prepaid tuition contract may designate a different beneficiary in
place of the original beneficiary if the new beneficiary meets the
requirements of a beneficiary on the date the designation is
changed. The new beneficiary must meet the requirements of Section
529, Internal Revenue Code of 1986, to prevent the change of
beneficiary from being treated as a distribution under that law.
       (b)  The board may adjust the terms of the contract so that
the purchaser is required to pay the amount the purchaser would have
been required to pay had the purchaser originally designated the
new beneficiary as the beneficiary, taking into account any
payments made before the date the designation is changed.
       (c)  The board may not impose a fee in connection with the
designation of a new beneficiary.
       (d)  The purchaser of a prepaid tuition contract may not sell
the contract.
       Sec. 54.760.  VERIFICATION UNDER OATH. The board may
require a purchaser to verify under oath a request to:
             (1)  change a beneficiary; or
             (2)  terminate a contract.
       Sec. 54.761.  PROMISE OR GUARANTEE OF ADMISSION. This
subchapter is not a promise or guarantee that a beneficiary will be:
             (1)  admitted to any public or private institution of
higher education;
             (2)  admitted to a particular public or private
institution of higher education;
             (3)  allowed to continue enrollment at a public or
private institution of higher education; or
             (4)  graduated from a public or private institution of
higher education.
       Sec. 54.762.  CONTRACT TERMINATION. (a)  A prepaid tuition
contract shall specify:
             (1)  the name of any person who may terminate the
contract; and
             (2)  the terms under which the contract may be
terminated.
       (b)  A prepaid tuition contract terminates on the 10th
anniversary of the date the beneficiary is projected to graduate
from high school, not counting time spent by the beneficiary as an
active duty member of the United States armed services.
       Sec. 54.763.  REFUND. (a)  A prepaid tuition contract shall
specify:
             (1)  the name of the person entitled to any refund if
the contract is terminated;
             (2)  the terms under which a person is entitled to a
refund; and
             (3)  the method by which the amount of the refund is
computed.
       (b)  The person named in the contract is entitled to a refund
following termination of a prepaid tuition contract.
       (c)  The board shall determine the method by which the amount
of the refund is computed.
       Sec. 54.764.  FUND. (a)  The Texas tomorrow fund II prepaid
tuition unit undergraduate education program fund is established as
a trust fund outside of the state treasury.
       (b)  The board shall:
             (1)  deposit in the fund money paid under prepaid
tuition contracts; and
             (2)  credit to the fund income earned on that money.
       (c)  The board shall provide for administering the assets of
the fund and establishing and administering the accounts of
purchasers under prepaid tuition contracts.
       (d)  The board shall provide for assigning payments to the
fund to separate accounts for purchasers and may provide for
assigning payments to other general accounts as otherwise
considered appropriate by the board.
       (e)  The board may provide for acquiring, holding, managing,
purchasing, selling, assigning, trading, transferring, or
disposing of any security, evidence of indebtedness, or other
investment in which the fund's assets may be invested.
       Sec. 54.765.  COMPTROLLER. (a)  Except as provided by
Subsection (e), the comptroller is the custodian of the assets of
the fund.
       (b)  The comptroller shall pay money from the fund on a
warrant drawn by the comptroller supported only on a voucher signed
by the comptroller or the comptroller's authorized representative.
       (c)  When a beneficiary enrolls at a general academic
teaching institution or two-year institution of higher education,
on written authorization from the purchaser of the tuition unit or
units for that beneficiary, the comptroller shall transfer to the
institution an amount equal to the total purchase price of the
tuition unit or units the beneficiary redeems for the semester or
other academic term plus the portion of the total return on all
investment assets of the fund attributable to that amount.
       (d)  When a beneficiary enrolls at a private or independent
institution of higher education or accredited out-of-state
institution of higher education, on written authorization from the
purchaser of the tuition unit or units for that beneficiary, the
comptroller shall transfer to the institution the lesser of:
             (1)  an amount equal to the current cost of the tuition
and required fees that would be covered by redemption of the number
and type of tuition units the beneficiary is redeeming if the
beneficiary were redeeming the unit or units at a general academic
teaching institution or two-year institution of higher education as
follows:
                   (A)  for a Type I unit, at the general academic
teaching institution that, in the sales year in which the unit was
purchased, had the highest tuition and required fee cost;
                   (B)  for a Type II unit, at a general academic
teaching institution that, in the sales year in which the unit was
purchased, had tuition and required fee cost at the weighted
average; and
                   (C)  for a Type III unit, at a two-year
institution of higher education that, in the sales year in which the
unit was purchased, had tuition and required fee cost at the
weighted average; or
             (2)  an amount equal to the total purchase price of the
tuition unit or units the beneficiary redeems for the semester or
other academic term plus the portion of the total return on assets
of the fund attributable to that amount.
       (e)  The comptroller annually shall provide to the board a
sworn statement of the amount of the fund's assets in the
comptroller's custody.
       (f)  The board may select one or more commercial banks,
depository trust companies, or other entities to serve as custodian
of all or part of the fund's assets.
       Sec. 54.766.  INVESTMENT OF FUND ASSETS. (a)  The board
shall provide for investing the assets of the fund. In investing the
fund, the board has the same investment authority as that provided
by Section 11b, Article VII, Texas Constitution, or other law, to
the board of regents of The University of Texas System with respect
to the investment of the Permanent University Fund.
       (b)  The board shall contract with one or more private
professional investment managers to serve as plan manager and to
invest the assets of the fund on behalf of the board. In selecting a
manager, the board must:
             (1)  select a person who has served as a professional
investment manager for at least 10 years;
             (2)  evaluate each person considered for the position
based on the historical net returns of the person's professional
investments and the consistency of the person's professional
investment returns over a period of at least five years; and
             (3)  comply with Section 54.704.
       (c)  In monitoring the manager's investments, the board
shall ensure that investments are made according to the standard of
investment provided by this section. The plan manager has the same
duties imposed on a plan manager by Section 54.705.
       (d)  The board shall develop written objectives concerning
the investment of the assets of the fund. The objectives may
address desired rates of return, risks involved, investment time
frames, and any other relevant considerations.
       (e)  The board may specify in a contract under this section
that the plan manager is required to establish and maintain an
Internet website through which a purchaser may monitor the account
to which the purchaser's prepaid tuition contract money is
assigned.
       Sec. 54.767.  USE OF FUND ASSETS. The assets of the fund may
be used only to:
             (1)  pay the costs of program administration and
operations;
             (2)  make payments to general academic teaching
institutions, two-year institutions of higher education, private
or independent institutions of higher education, and accredited
out-of-state institutions of higher education on behalf of
beneficiaries; and
             (3)  make refunds under prepaid tuition contracts.
       Sec. 54.7671.  TRANSFERS AMONG 529 PLANS.  (a)  The board by
rule shall provide for a purchaser to transfer money between an
account under this subchapter and an account under another plan
established by this state or by another state or other authorized
entity in accordance with Section 529, Internal Revenue Code of
1986, to the extent and in the manner authorized by that section.
       (b)  For purposes of a transfer of money from an account
under this subchapter, the value of the account at the time of
transfer is the lesser of:
             (1)  an amount equal to the cost, at the time of the
transfer, of the tuition and required fees that would be covered by
redemption of the number and type of tuition units to be transferred
from the account if the beneficiary were redeeming the units at a
general academic teaching institution or two-year institution of
higher education as follows:
                   (A)  for a Type I unit, at the general academic
teaching institution that, in the sales year in which the unit was
purchased, had the highest tuition and required fee cost;
                   (B)  for a Type II unit, at a general academic
teaching institution that, in the sales year in which the unit was
purchased, had tuition and required fee cost at the weighted
average; and
                   (C)  for a Type III unit, at a two-year
institution of higher education that, in the sales year in which the
unit was purchased, had tuition and required fee cost at the
weighted average; or
             (2)  an amount equal to the total purchase price of the
tuition units to be transferred from the account, plus the portion
of the total return on assets of the fund attributable to that
amount.
       Sec. 54.768.  EXEMPTION FROM SECURITIES LAWS. The
registration requirements of The Securities Act (Article 581-1 et
seq., Vernon's Texas Civil Statutes) do not apply to the sale of a
prepaid tuition contract by the board or by a registered securities
dealer or registered investment adviser.
       Sec. 54.769.  EXEMPTION FROM CREDITORS' CLAIMS. (a)  Money
in the fund is exempt from claims of creditors, including claims of
creditors of a purchaser, a beneficiary, or a successor in interest
of a purchaser or beneficiary.
       (b)  The rights of a purchaser, beneficiary, or successor in
interest of a purchaser or beneficiary in and under a prepaid
tuition contract and the payment of tuition and required fees for a
beneficiary under a prepaid tuition contract to a general academic
teaching institution, two-year institution of higher education,
private or independent institution of higher education, or
accredited out-of-state institution of higher education under this
chapter are exempt from attachment, levy, garnishment, execution,
and seizure for the satisfaction of any debt, judgment, or claim
against a purchaser, beneficiary, or successor in interest of a
purchaser or beneficiary.
       (c)  A claim or judgment against a purchaser, beneficiary, or
successor in interest of a purchaser or beneficiary does not impair
or entitle the claim or judgment holder to assert or enforce a lien
against:
             (1)  the rights of a purchaser, beneficiary, or
successor in interest of a purchaser or beneficiary in and under a
prepaid tuition contract; or
             (2)  the right of a beneficiary to the payment of
tuition and required fees to a general academic teaching
institution, two-year institution of higher education, private or
independent institution of higher education, or accredited
out-of-state institution of higher education under a prepaid
tuition contract.
       Sec. 54.770.  ACTUARIAL SOUNDNESS OF FUND. (a)  The board
shall administer the fund in a manner that is sufficiently
actuarially sound to pay the costs of program administration and
operations and to meet the obligations of the program.
       (b)  The board shall annually evaluate the actuarial
soundness of the fund.
       (c)  The board may adjust the terms of subsequent prepaid
tuition contracts as necessary to ensure the actuarial soundness of
the fund.
       Sec. 54.771.  COMPLIANCE WITH LIMITS ON CONTRIBUTIONS AND
WITHDRAWALS. The board shall monitor contributions to and
withdrawals from the fund and any account within the fund to ensure
that any applicable limits on contributions or withdrawals are not
exceeded.
       Sec. 54.772.  TAX EXEMPT STATUS REQUIREMENTS. (a)  This
section is intended to meet the requirements of Section 529,
Internal Revenue Code of 1986.
       (b)  A payment of an amount due to the fund for a prepaid
tuition contract must be made in cash or cash equivalent. A person
may not make a payment to the fund in excess of the amounts required
to be paid under a prepaid tuition contract.
       (c)  The board shall maintain a separate accounting for each
beneficiary.
       (d)  The purchaser under a prepaid tuition contract and the
beneficiary under the contract may not:
             (1)  control or direct the investment of payments under
the contract or any earnings of the fund; or
             (2)  use any interest in the contract as security for a
loan or other obligation.
       (e)  The board shall make reports required by the secretary
of the United States Treasury.
       Sec. 54.773.  SUSPENSION OF NEW ENROLLMENT; PROGRAM
MODIFICATION OR TERMINATION. (a) On the request of the comptroller
as the comptroller considers necessary to ensure the actuarial
soundness of the fund, the board may temporarily suspend new
enrollment in the program.
       (b)  If the comptroller determines that the program is
financially infeasible, the comptroller shall notify the governor
and the legislature and recommend that the program be modified or
terminated.
       Sec. 54.774.  EFFECT OF PROGRAM TERMINATION ON CONTRACT.
(a)  A prepaid tuition contract remains in effect after the program
is terminated if, when the program is terminated, the beneficiary:
             (1)  has been accepted by or is enrolled at a general
academic teaching institution, two-year institution of higher
education, private or independent institution of higher education,
or accredited out-of-state institution of higher education; or
             (2)  is projected to graduate from high school not
later than the third anniversary of the date the program is
terminated.
       (b)  A prepaid tuition contract terminates when the program
is terminated if the contract does not remain in effect under
Subsection (a).
       Sec. 54.775.  CONFIDENTIALITY. (a)  Records in the custody
of the board relating to the participation of specific purchasers
and beneficiaries in the program are confidential.
       (b)  Notwithstanding Subsection (a), the board may release
information described by that subsection to a general academic
teaching institution, two-year institution of higher education,
private or independent institution of higher education, or
accredited out-of-state institution of higher education at which a
beneficiary may enroll or is enrolled. The institution shall keep
the information confidential.
       (c)  Notwithstanding any other provision of this subchapter,
the board may release information to the Internal Revenue Service
and to any state tax agencies as required by applicable tax law.
       Sec. 54.776.  STATEMENT REGARDING STATUS OF PREPAID TUITION
CONTRACT. Not later than January 1 of each year, the board shall
provide without charge to each purchaser a statement of:
             (1)  the amount paid by the purchaser under the prepaid
tuition contract;
             (2)  the total number of each type of tuition unit
covered by the contract at any one time;
             (3)  the number of each type of tuition unit remaining
under the contract;
             (4)  the value of the purchasers' tuition units if
redeemed at any general academic teaching institution or two-year
institution of higher education designated for that year by the
purchaser in the time and manner required by the board, not to
exceed five institutions; and
             (5)  any other information the board determines by rule
is necessary or appropriate.
       Sec. 54.777.  REPORTS. (a)  Not later than December 1 of
each year, the board shall submit to the governor, lieutenant
governor, speaker of the house of representatives, Legislative
Budget Board, Legislative Audit Committee, state auditor, and Texas
Higher Education Coordinating Board a report including:
             (1)  the fiscal transactions of the board and the plan
manager under this subchapter during the preceding fiscal year;
             (2)  the market and book value of the fund as of the end
of the preceding fiscal year;
             (3)  the asset allocations of the fund expressed in
percentages of stocks, fixed income, cash, or other financial
investments;
             (4)  the rate of return on the investment of the fund's
assets during the preceding fiscal year; and
             (5)  an actuarial valuation of the assets and
liabilities of the program, including the extent to which the
program's liabilities are unfunded.
       (b)  The board shall make the report described by Subsection
(a) available to purchasers of prepaid tuition contracts.
       (c)  Not later than December 1 of each year, the board shall
provide to the coordinating board complete prepaid tuition contract
sales information, including projected enrollments of
beneficiaries at general academic teaching institutions and
two-year institutions of higher education.
       Sec. 54.778.  AUDIT. The fiscal transactions of the board
under this subchapter, including the administration of the fund,
are subject to audit by the state auditor in accordance with Chapter
321, Government Code.
       SECTION 2.  Beginning September 1, 2008, the Prepaid Higher
Education Tuition Board may enter into prepaid tuition contracts
with purchasers and begin selling tuition units under those
contracts in accordance with Subchapter H, Chapter 54, Education
Code, as added by this Act.
       SECTION 3.  This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution.  If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2007.