HBA-JLV S.B. 555 77(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 555 By: Ellis, Rodney Higher Education 4/22/2001 Engrossed BACKGROUND AND PURPOSE In 1996, the federal Small Business Protection Act established criteria for the creation of a qualified state tuition program (QSTP) and provided states with latitude in determining how to structure and administer QSTPs. As a result, programs in different states vary considerably from one another in structure. The 75th Legislature created the Texas Tomorrow Fund (TTF), and in November 1997 Texas voters authorized a constitutional amendment to officially guarantee TTF as a constitutionally guaranteed trust fund backed by the full faith and credit of the State of Texas. However, some have criticized TTF as lacking some of the flexibility and potential for higher returns offered by other state-sponsored prepaid trust fund programs. Senate Bill 555 establishes a qualified higher education savings plan to be administered by the Prepaid Higher Education Tuition Board, with investments in the plan managed by a private firm. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Prepaid Higher Education Tuition Board in SECTION 1 (Section 54.702, Education Code) of this bill. ANALYSIS Senate Bill 555 amends the Education Code to establish the qualified higher education savings plan. The bill requires the Prepaid Higher Education Tuition Board (board) to select the financial institution or institutions to serve as plan manager, and to adopt rules governing the withdrawal of money from a savings trust account and develop policies and penalties for nonqualified withdrawals. The bill authorizes the board to seek rulings and other guidance from certain federal agencies relating to the plan for proper implementation and development of the plan. The bill requires the board to collect administrative fees and service charges in connection with the plan in amounts not exceeding the cost of establishing and maintaining the plan. The bill requires the board to review and approve a savings and trust agreement used by a plan manager and any informational materials used by the plan manager to be furnished to participants in the plan. The bill requires the board to adopt a policy to prevent excess contributions to an account on behalf of a beneficiary (Sec. 54.702). The bill requires the board to administer a higher education savings plan to enable individuals to save money for qualified higher education expenses. The bill provides that money contributed to a savings trust account and earnings on the account are held in trust by the board and the plan manager for the sole benefit of the account owner and beneficiary (Sec. 54.703). The bill sets forth requirements and procedures for the selection of one or more financial institutions from among bidding financial institutions as a plan manager or managers for savings trust accounts. The bill also sets forth the duties of a plan manager. The bill also sets forth conditions for a contract between the board and a plan manager (Secs. 54.704-54.706). The bill authorizes an individual to open a savings trust account to save money for the payment of the qualified higher education expenses of a beneficiary. The bill provides that the individual who opens the account is the owner of the account and the owner of the account may also be the beneficiary. The bill provides that an individual may open an account by completing a savings trust agreement prescribed by the plan manager and approved by the board, and by making the minimum contribution required by the plan manager to open an account. The bill provides the terms of a savings trust agreement (Sec. 54.707). The bill provides conditions for contributions to and withdrawals from a savings trust account and provides penalties for nonqualified withdrawals. The bill authorizes an employee of the state or a political subdivision of the state to make contributions to a savings trust account by payroll deductions made by the appropriate officer of the state or political subdivision. The bill provides that contributions to a savings trust account may also be made by electronic funds transfer (Sec. 54.708). The bill also provides for the administration of a savings trust account. The bill prohibits an account owner or beneficiary from directing the investment of any contributions to or earnings on an account. The bill requires the board to select the financial institution to which the balances of the accounts are transferred if the board terminates the contract of a financial institution acting as a plan manager and the accounts must be transferred from that financial institution to another financial institution. A savings trust agreement must provide that, if after a specified period the savings trust agreement has not been terminated and the beneficiary's rights in the account have not been exercised, the board, after making reasonable contact efforts, is required to report the unclaimed money in the account to the comptroller. The bill provides that money in a savings trust account is exempt from attachment, execution, and seizure for the satisfaction of debt or liability of an account owner or beneficiary. The bill prohibits the savings trust account from being subject to alienation, sale, transfer, assignment, pledge, encumbrance, or charge (Sec. 54.709). The bill provides for the limitations of the plan (Sec. 54.710). The bill also provides that the opening or maintenance of a savings trust account does not promise or guarantee admission, enrollment, or graduation from any eligible educational institution (Sec. 54.711). An account owner or beneficiary of a savings trust account is not required to be a resident of this state (Sec. 54.712). The bill provides policies for the promotion and disclosure of plan information to savings trust account owners and beneficiaries, and provides for the confidentiality of information relating to a beneficiary or owner of a savings trust account (Secs. 54.713 and 54.714). If the comptroller determines that the plan is not financially feasible, the comptroller is required to notify the governor and the legislature and recommend that the board not administer a higher education savings plan or that the plan be modified or terminated (Sec. 54.715). If the plan is terminated, the balance of each savings trust account is required to be paid to the account owner and any unclaimed assets are required to escheat to the state in accordance with general law regarding unclaimed property (Sec. 54.716). The bill provides that the Texas tomorrow constitutional trust fund is created as a trust fund to be held with the comptroller. The bill also provides that the Texas college savings plan account is created within the Texas tomorrow constitutional trust fund and is financed through administrative fees and service charges from the higher education savings plan (Sec. 54.634). EFFECTIVE DATE On passage, or if the Act does not receive the necessary vote, the Act takes effect September 1, 2001.