| HB 1189 - Qualified State Tuition Program; establish |
First Reader Summary
A BILL to amend Chapter 3 of Title 20 of the Official Code of
Georgia Annotated, relating to postsecondary education, so as to
enact the "Georgia Qualified State Tuition Program"; and for
other purposes.
| House |
Action |
Senate |
| 1/24/00 |
Read 1st Time |
3/8/00 |
| 1/25/00 |
Read 2nd Time |
3/15/00 |
| 3/3/00 |
Favorably Reported |
3/15/00 |
| Sub |
Committee Amend/Sub |
|
| 3/8/00 |
Read 3rd Time |
|
| 3/8/00 |
Passed/Adopted |
|
| CS |
Comm/Floor Amend/Sub |
|
HB 1189 LC 21 5971S
______________________________ offers the following
substitute to HB 1189:
A BILL TO BE ENTITLED
AN ACT
1- 1 To amend Chapter 3 of Title 20 of the Official Code of
1- 2 Georgia Annotated, relating to postsecondary education, so
1- 3 as to enact the "Georgia Qualified State Tuition Program";
1- 4 to provide for comprehensive provisions establishing a
1- 5 method of saving money for the payment of qualified higher
1- 6 education expenses; to provide for a short title; to provide
1- 7 for definitions; to provide for purposes of such program; to
1- 8 provide for the powers, duties, and authority of the Georgia
1- 9 Student Finance Commission; to provide for procedures,
1-10 conditions, and limitations with respect to such program; to
1-11 provide that certain limited contributions and qualified
1-12 withdrawals used solely for qualified higher education
1-13 expenses shall not be subject to state income tax; to
1-14 provide for related matters; to repeal conflicting laws; and
1-15 for other purposes.
1-16 BE IT ENACTED BY THE GENERAL ASSEMBLY OF GEORGIA:
1-17 SECTION 1.
1-18 Chapter 3 of Title 20 of the Official Code of Georgia
1-19 Annotated, relating to postsecondary education, is amended
1-20 by adding a new article at the end thereof, to be designated
1-21 Article 11, to read as follows:
1-22 20-3-630.
1-23 This article shall be known and may be cited as the
1-24 'Georgia Qualified State Tuition Program.'
1-25 20-3-631.
1-26 As used in this article, the term:
1-27 (1) 'Account' or 'family tuition account' means an
1-28 individual savings account established in accordance
1-29 with the provisions of this article.
1-30 (2) 'Account owner' means the individual who enters into
1-31 a tuition savings agreement pursuant to the provisions
-1-
2- 1 of this article. The account owner may also be the
2- 2 designated beneficiary of the account.
2- 3 (3) 'Commission' means the Georgia Student Finance
2- 4 Commission created by Part 1 of Article 7 of this
2- 5 chapter.
2- 6 (4) 'Designated beneficiary' means, with respect to an
2- 7 account or accounts, the individual designated as the
2- 8 individual whose higher education expenses are expected
2- 9 to be paid from the account or accounts.
2-10 (5) 'Financial organization' means any financial
2-11 institution, savings bank, national bank, or state or
2-12 federal credit union or savings and loan association
2-13 organization authorized to do business in the State of
2-14 Georgia. Such term also means, without limitation, an
2-15 organization authorized to do business in this state
2-16 which is:
2-17 (A) A fiduciary authorized to act as a trustee
2-18 pursuant to the provisions of an Act of Congress
2-19 entitled the Employee Retirement Income Security Act
2-20 of 1974, as such provisions may be amended from time
2-21 to time, or an insurance company; and
2-22 (B)(i) Licensed or chartered by the Insurance
2-23 Department;
2-24 (ii) Licensed or chartered by the Department of
2-25 Banking and Finance;
2-26 (iii) Chartered by an agency of the federal
2-27 government;
2-28 (iv) Subject to the jurisdiction and regulation of
2-29 the federal Securities and Exchange Commission;
2-30 (v) Is any other entity otherwise authorized to act
2-31 in this state as a trustee pursuant to the
2-32 provisions of an Act of Congress entitled the
2-33 Employee Retirement Income Security Act of 1974 as
2-34 such provisions may be amended from time to time; or
2-35 (vi) Is a registered investment company.
2-36 (6) 'Institution of higher education' means:
2-37 (A) Any institution of higher education, recognized
2-38 and approved by the board of regents or accredited by
2-39 a nationally recognized accrediting agency or
2-40 association accepted as such by the board of regents,
-2-
3- 1 which provides a course of study leading to the
3- 2 granting of a postsecondary degree, certificate, or
3- 3 diploma; or
3- 4 (B) A business, trade, technical, or other
3- 5 occupational school approved as such by the State
3- 6 Board of Technical and Adult Education or accredited
3- 7 by a nationally recognized accrediting agency or
3- 8 association accepted as such by the State Board of
3- 9 Technical and Adult Education.
3-10 (7) 'Management contract' means the contract executed by
3-11 the commission and a financial organization selected to
3-12 act as a depository and manager of the program.
3-13 (8) 'Member of the family' means a family member as
3-14 defined in Section 529 of the Internal Revenue Code of
3-15 1986, as amended.
3-16 (9) 'Nonqualified withdrawal' means a withdrawal from an
3-17 account but shall not mean a:
3-18 (A) Qualified withdrawal;
3-19 (B) Withdrawal made as the result of the death or
3-20 disability of the designated beneficiary of an
3-21 account; or
3-22 (C) Withdrawal made on the account of a scholarship.
3-23 (10) 'Program' means the Georgia Qualified State Tuition
3-24 Program established pursuant to this article.
3-25 (11) 'Program manager' means a financial organization
3-26 selected by the commission to act as a depository and
3-27 manager of the program.
3-28 (12) 'Qualified higher education expenses' means any
3-29 qualified higher education expense included in Section
3-30 529 of the Internal Revenue Code of 1986, as amended.
3-31 (13) 'Qualified withdrawal' means a withdrawal from an
3-32 account to pay the qualified higher education expenses
3-33 of the designated beneficiary of the account.
3-34 (14) 'Tuition savings agreement' means an agreement
3-35 between the commission or a financial organization and
3-36 the account owner.
3-37 20-3-632.
3-38 The purposes of the tuition savings program shall be to
3-39 authorize the establishment of family tuition accounts and
-3-
4- 1 to provide guidelines for the maintenance of such accounts
4- 2 to:
4- 3 (1) Enable residents of this state and other states to
4- 4 benefit from the tax incentive provided for qualified
4- 5 state tuition programs under the Internal Revenue Code
4- 6 of 1986, as amended; and
4- 7 (2) Attract students to institutions of higher education
4- 8 within the state.
4- 9 20-3-633.
4-10 (a) The commission, with the advice and consent of the
4-11 director of the Office of Treasury and Fiscal Services,
4-12 shall implement the program under the terms and conditions
4-13 established by this article and a memorandum of
4-14 understanding relating to any terms or conditions not
4-15 otherwise expressly provided for in this article.
4-16 (b) In furtherance of such implementation, the memorandum
4-17 of understanding shall address the authority and
4-18 responsibility of the commission to:
4-19 (1) Develop and implement the program in a manner
4-20 consistent with the provisions of this article through
4-21 rules and regulations established in accordance with
4-22 Chapter 13 of Title 50, the 'Georgia Administrative
4-23 Procedure Act';
4-24 (2) Engage the services of consultants on a contract
4-25 basis for rendering professional and technical
4-26 assistance and advice;
4-27 (3) Seek rulings and other guidance from the United
4-28 States Department of the Treasury and the Internal
4-29 Revenue Service relating to the program;
4-30 (4) Make changes to the program required for the
4-31 participants in the program to obtain the federal income
4-32 tax benefits or treatment provided by Section 529 of the
4-33 Internal Revenue Code of 1986, as amended;
4-34 (5) Charge, impose, and collect administrative fees and
4-35 service charges in connection with any agreement,
4-36 contract, or transaction relating to the program;
4-37 (6) Develop marketing plans and promotion material;
4-38 (7) Establish the methods by which the funds held in
4-39 such accounts be dispersed;
-4-
5- 1 (8) Establish the method by which funds shall be
5- 2 allocated to pay for administrative costs; and
5- 3 (9) Do all things necessary and proper to carry out the
5- 4 purposes of this article.
5- 5 20-3-634.
5- 6 (a) The commission may implement the program through use
5- 7 of financial organizations as account depositories and
5- 8 managers. Under the program, individuals may establish
5- 9 accounts directly with an account depository.
5-10 (b) The commission may solicit proposals from financial
5-11 organizations to act as depositories and managers of the
5-12 program. Financial organizations submitting proposals
5-13 shall describe the investment instrument which will be
5-14 held in accounts. The commission shall select as program
5-15 depositories and managers the financial organization, from
5-16 among the bidding financial organizations, that
5-17 demonstrates the most advantageous combination, both to
5-18 potential program participants and this state, of the
5-19 following factors:
5-20 (1) Financial stability and integrity of the financial
5-21 organization;
5-22 (2) The safety of the investment instrument being
5-23 offered;
5-24 (3) The ability of the investment instrument to track
5-25 increasing costs of higher education;
5-26 (4) The ability of the financial organization to satisfy
5-27 record-keeping and reporting requirements;
5-28 (5) The financial organization's plan for promoting the
5-29 program and the investment such organization is willing
5-30 to make to promote the program;
5-31 (6) The fees, if any, proposed to be charged to persons
5-32 for opening accounts;
5-33 (7) The minimum initial deposit and minimum
5-34 contributions that the financial organization will
5-35 require;
5-36 (8) The ability of the financial organization to accept
5-37 electronic withdrawals, including payroll deduction
5-38 plans; and
-5-
6- 1 (9) Other benefits to the state or its residents
6- 2 included in the proposal, including fees payable to the
6- 3 state to cover expenses of operation of the program.
6- 4 (c) The commission may enter into a contract with a
6- 5 financial organization for the program.
6- 6 (d) The commission may select more than one financial
6- 7 organization and investment instrument for the program
6- 8 when the Internal Revenue Service has provided guidance
6- 9 that giving a contributor the choice of two or more
6-10 investment instruments under a state program will not
6-11 cause the program to fail to qualify for favorable tax
6-12 treatment under Section 529 of the Internal Revenue Code
6-13 of 1986, as amended.
6-14 (e) A management contract shall include, at a minimum,
6-15 terms requiring the financial organization to:
6-16 (1) Take any action required to keep the program in
6-17 compliance with requirements of Code Section 20-3-635
6-18 and any actions not contrary to its contract to manage
6-19 the program to qualify as a qualified state tuition plan
6-20 under Section 529 of the Internal Revenue Code of 1986,
6-21 as amended;
6-22 (2) Keep adequate records of each account, keep each
6-23 account segregated from each other account, and provide
6-24 the commission with the information necessary to prepare
6-25 the statements required by Code Section 20-3-635;
6-26 (3) Compile and total information contained in
6-27 statements required to be prepared under Code Section
6-28 20-3-635 and provide such compilations to the
6-29 commission;
6-30 (4) If there is more than one program manager, provide
6-31 the commission with such information necessary to
6-32 determine compliance with Code Section 20-3-635;
6-33 (5) Provide the commission or the commission's designee
6-34 access to the books and records of the program manager
6-35 to the extent needed to determine compliance with the
6-36 contract;
6-37 (6) Hold all accounts for the benefit of the account
6-38 owner;
6-39 (7) Be audited at least annually by a firm of certified
6-40 public accountants selected by the program manager and
6-41 provide the results of such audit to the commission;
-6-
7- 1 (8) Provide the commission with copies of all regulatory
7- 2 filings and reports made by such financial organization
7- 3 during the term of the management contract or while such
7- 4 financial organization is holding any accounts, other
7- 5 than confidential filings or reports that will not
7- 6 become part of the program. The program manager shall
7- 7 make available for review by the commission the results
7- 8 of any periodic examination of such manager by any state
7- 9 or federal banking, insurance, or securities commission,
7-10 except to the extent that such report or reports may not
7-11 be disclosed under applicable law or the rules of such
7-12 commission; and
7-13 (9) Ensure that any description of the program, whether
7-14 in writing or through the use of any media, is
7-15 consistent with the marketing plan developed in the
7-16 memorandum of understanding pursuant to Code Section
7-17 20-3-633.
7-18 (f) The commission may provide that an audit shall be
7-19 conducted of the operations and financial position of the
7-20 program depository and manager at any time if the
7-21 commission has any reason to be concerned about the
7-22 financial position, the record-keeping practices, or the
7-23 status of accounts of such program depository and manager.
7-24 (g) During the term of any contract with a program
7-25 manager, the commission shall conduct an examination of
7-26 such manager and such manager's handling of accounts.
7-27 Such examination shall be conducted at least biennially if
7-28 such manager is not otherwise subject to periodic
7-29 examination by the commissioner of banking and finance or
7-30 the Federal Deposit Insurance Corporation or other similar
7-31 entity.
7-32 (h) If selection of a financial organization as a program
7-33 manager or depository is not renewed, after the end of
7-34 such manager's term:
7-35 (1) Accounts previously established and held in
7-36 investment instruments at such financial organization
7-37 may be terminated;
7-38 (2) No additional contributions may be made to such
7-39 accounts;
7-40 (3) No new accounts may be placed with such financial
7-41 organization; and
-7-
8- 1 (4) Existing accounts held by such depository shall
8- 2 remain subject to all oversight and reporting
8- 3 requirements established by the commission.
8- 4 (i) If the commission terminates a financial organization
8- 5 as a program manager or depository, the commission shall
8- 6 take custody of accounts held by such financial
8- 7 organization and shall seek to promptly transfer such
8- 8 accounts to another financial organization that is
8- 9 selected as a program manager or depository and into
8-10 investment instruments as similar to the original
8-11 instruments as possible.
8-12 (j) The commission may enter into such contracts as it
8-13 deems necessary and proper for the implementation of the
8-14 program.
8-15 20-3-635.
8-16 (a) Family tuition accounts established pursuant to this
8-17 article shall be governed by the provisions of this Code
8-18 section.
8-19 (b) A family tuition account may be opened by any person
8-20 who desires to save money for the payment of the qualified
8-21 higher education expenses of the designated beneficiary.
8-22 Such person shall be considered the account owner.
8-23 (c) An application for such account shall be in the form
8-24 prescribed by the program and contain the following:
8-25 (1) The name, address, and social security number or
8-26 employer identification number of the account owner;
8-27 (2) The designation of a designated beneficiary;
8-28 (3) The name, address, and social security number of the
8-29 designated beneficiary;
8-30 (4) The certification relating to no excess
8-31 contributions; and
8-32 (5) Such other information as the program may require.
8-33 (d) The commission shall establish a nominal fee for such
8-34 application.
8-35 (e) Contributions to an account shall be made only in
8-36 money, which shall include electronic transfers and
8-37 negotiable instruments.
8-38 (f) An account owner may withdraw all or part of the
8-39 balance from an account on 60 days' notice or such shorter
-8-
9- 1 period as may be authorized under rules governing the
9- 2 program. Such rules shall include provisions that will
9- 3 generally enable the determination as to whether a
9- 4 withdrawal is a nonqualified withdrawal or a qualified
9- 5 withdrawal. Such rules may require one or more of the
9- 6 following:
9- 7 (1) An account owner seeking to make a qualified
9- 8 withdrawal must provide certification of qualified
9- 9 higher education expenses in a form and manner
9-10 consistent with Code Section 20-3-633;
9-11 (2) Qualified withdrawals must be made pursuant to the
9-12 methods established in the memorandum of understanding
9-13 pursuant to the provisions of Code Section 20-3-633; and
9-14 (3) Withdrawals not meeting the requirements of this
9-15 article shall be treated as nonqualified withdrawals by
9-16 the program manager and if such withdrawals are
9-17 subsequently deemed qualified withdrawals, the account
9-18 owner must seek any refund of penalties directly from
9-19 the program.
9-20 (g)(1) An account owner may change the designated
9-21 beneficiary of an account to an individual who is a
9-22 member of the family of the prior designated beneficiary
9-23 in accordance with procedures established by the
9-24 memorandum of understanding pursuant to Code Section
9-25 20-3-633.
9-26 (2) An account owner may transfer all or a portion of an
9-27 account to another family tuition account, the
9-28 subsequent designated beneficiary of which is a member
9-29 of the family.
9-30 (3) Changes in designated beneficiaries and transfers
9-31 under this subsection shall not be permitted to the
9-32 extent that they would constitute excess contributions
9-33 or unauthorized investment choices.
9-34 (h) In the case of any nonqualified withdrawal from an
9-35 account, an amount equal to 5 percent of the portion of
9-36 the withdrawal constituting income as determined in
9-37 accordance with the principles of Section 529 of the
9-38 Internal Revenue Code of 1986, as amended, shall be
9-39 withheld as a penalty and paid to the program.
9-40 (i) The percentage of the penalty described in subsection
9-41 (h) of this Code section may be increased if the
9-42 commission determines that the amount of such penalty must
-9-
10- 1 be increased to constitute a greater than de minimis
10- 2 penalty for purposes of qualifying the program as a
10- 3 qualified state tuition program under Section 529 of the
10- 4 Internal Revenue Code of 1986, as amended.
10- 5 (j) The percentage of the penalty described in subsection
10- 6 (h) of this Code section may be decreased by rule or
10- 7 regulation if it is determined that:
10- 8 (1) Such penalty is greater than is required to
10- 9 constitute a greater than de minimis penalty for
10-10 purposes of qualifying the program as a qualified state
10-11 tuition program under Section 529 of the Internal
10-12 Revenue Code of 1986, as amended; and
10-13 (2) Such penalty when combined with other revenue
10-14 generated under this article is producing more revenue
10-15 than is required to cover the costs of operating the
10-16 program and recover any prior costs not previously
10-17 recovered.
10-18 (k) If an account owner makes a nonqualified withdrawal
10-19 and no penalty amount is withheld pursuant to subsection
10-20 (h) of this Code section or the amount withheld was less
10-21 than the amount required to be withheld under subsection
10-22 (h) of this Code section for nonqualified withdrawals, the
10-23 account owner shall pay the unpaid portion of the penalty
10-24 to the program at the same time that the account owner
10-25 files the earlier of the account owner's state or federal
10-26 income tax return for the taxable year of the withdrawal
10-27 or, if such account owner does not file such return, the
10-28 due date for such returns but in any event on or before
10-29 the due date for such return taking into account any
10-30 authorized extensions.
10-31 (l) The program shall provide separate accounting for each
10-32 designated beneficiary.
10-33 (m) No account owner or designated beneficiary of any
10-34 account shall be permitted to direct the investment of any
10-35 contributions to an account or the earnings thereon.
10-36 (n) Neither an account owner nor a designated beneficiary
10-37 may use an interest in an account as security for a loan.
10-38 Any pledge of an interest in an account shall be of no
10-39 force and effect.
10-40 (o)(1) The commission shall promulgate rules and
10-41 regulations to prevent contributions on behalf of a
10-42 designated beneficiary in excess of $100,000.00.
-10-
11- 1 (2) Such rules and regulations shall include
11- 2 requirements that any excess balances with respect to a
11- 3 designated beneficiary be promptly withdrawn in a
11- 4 nonqualified withdrawal or transferred to another
11- 5 account.
11- 6 (p)(1) If there is any distribution from an account to
11- 7 any individual or for the benefit of any individual
11- 8 during a calendar year, such distribution shall be
11- 9 reported to the Internal Revenue Service and the account
11-10 owner, the designated beneficiary, or the distributee to
11-11 the extent required by federal law or regulation.
11-12 (2) Statements shall be provided to each account owner
11-13 at least once each year within 60 days after the end of
11-14 the 12 month period to which such statements relate.
11-15 The statement shall identify the contributions made
11-16 during a preceding 12 month period, the total
11-17 contributions made to the account through the end of
11-18 such period, the value of the account at the end of such
11-19 period, distributions made during such period, and any
11-20 other information that the commission shall require to
11-21 be reported to the account owner.
11-22 (3) Statements and information relating to accounts
11-23 shall be prepared and filed to the extent required by
11-24 federal and state tax law.
11-25 (q)(1) A local government or organization described in
11-26 Section 501(c)(3) of the Internal Revenue Code of 1986,
11-27 as amended, may open and become the account owner of an
11-28 account to fund scholarships for persons whose identity
11-29 will be determined upon disbursement.
11-30 (2) In the case of any account opened pursuant to
11-31 paragraph (1) of this subsection, the requirement set
11-32 forth in subsection (b) of this Code section that a
11-33 designated beneficiary be designated when an account is
11-34 opened shall not apply and each individual who receives
11-35 an interest in such account as a scholarship shall be
11-36 treated as a designated beneficiary with respect to such
11-37 interest.
11-38 (r) An annual fee may be imposed upon the account owner
11-39 for the maintenance of the account.
11-40 (s) An account must be opened at least three calendar
11-41 years before a qualified withdrawal can be made.
-11-
12- 1 (t) The program shall disclose the following information
12- 2 in writing to each account owner and prospective account
12- 3 owner of a family tuition account:
12- 4 (1) The terms and conditions for purchasing a family
12- 5 tuition account;
12- 6 (2) Any restrictions on the substitution of
12- 7 beneficiaries;
12- 8 (3) The person or entity entitled to terminate the
12- 9 tuition savings agreement;
12-10 (4) The period of time during which a designated
12-11 beneficiary may receive benefits under the tuition
12-12 savings agreement;
12-13 (5) The terms and conditions under which moneys may be
12-14 wholly or partially withdrawn from the program,
12-15 including, but not limited to, any reasonable charges
12-16 and fees that may be imposed for withdrawal;
12-17 (6) The probable tax consequences associated with
12-18 contributions to and distributions from accounts; and
12-19 (7) All other rights and obligations pursuant to tuition
12-20 savings agreements and any other terms, conditions, and
12-21 provisions deemed necessary and appropriate by the terms
12-22 of the memorandum of understanding entered into pursuant
12-23 to Code Section 20-3-633.
12-24 (u) Tuition savings agreements shall be subject to
12-25 applicable banking laws of this state and regulations
12-26 promulgated thereunder.
12-27 (v) Nothing in this article or in any tuition savings
12-28 agreement entered into pursuant to this article shall be
12-29 construed as a guarantee by the institution of higher
12-30 education that a beneficiary will be admitted to such
12-31 institution, or, upon admission to an institution of
12-32 higher education will be permitted to continue to attend
12-33 or will receive a degree from such institution.
12-34 20-3-636.
12-35 (a) Nothing in this article shall be construed to:
12-36 (1) Give any designated beneficiary any rights or legal
12-37 interest with respect to an account unless the
12-38 designated beneficiary is the account owner;
-12-
13- 1 (2) Guarantee that a designated beneficiary will be
13- 2 admitted to an institution of higher education;
13- 3 (3) Create state residency for an individual merely
13- 4 because the individual is a designated beneficiary; or
13- 5 (4) Guarantee that amounts saved pursuant to the program
13- 6 will be sufficient to cover the qualified higher
13- 7 education expenses of a designated beneficiary.
13- 8 (b)(1) Nothing in this article shall create or be
13- 9 construed to create any obligation of the commission,
13-10 the state, or any agency or instrumentality of the state
13-11 to guarantee for the benefit of any account owner or
13-12 designated beneficiary:
13-13 (A) The rate of interest or other return on any
13-14 account; and
13-15 (B) The payment of interest or other return on any
13-16 account.
13-17 (2) The commission by rule and regulation shall provide
13-18 that every contract, application, deposit slip, or other
13-19 similar document that may be used in connection with a
13-20 contribution to an account clearly indicate that the
13-21 account is not insured by the state and neither the
13-22 principal deposited nor the investment return is
13-23 guaranteed by the state.
13-24 20-3-637.
13-25 Moneys in a family tuition account shall not be used
13-26 toward the calculation of Georgia state financial aid
13-27 under a financial aid program administered by the state.
13-28 20-3-638.
13-29 (a) Contributions to an account by a contributor shall not
13-30 be subject to state income tax pursuant to Chapter 7 of
13-31 Title 48 to the extent such contributions do not in the
13-32 aggregate exceed $5,000.00 annually.
13-33 (b) Qualified withdrawals used solely for qualified higher
13-34 education expenses shall not be subject to state income
13-35 tax pursuant to Chapter 7 of Title 48."
13-36 SECTION 2.
13-37 All laws and parts of laws in conflict with this Act are
13-38 repealed.
-13-
Clerk of the House
Robert E. Rivers, Jr., Clerk
Last Updated on 03/15/00
