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House File 2119

Partial Bill History

Bill Text

PAG LIN
  1  1                                         HOUSE FILE 2119
  1  2 
  1  3                             AN ACT
  1  4 PROVIDING FOR THE CREATION OF AN IOWA EDUCATIONAL SAVINGS
  1  5    PLAN TRUST, ADDRESSING TAX ASPECTS, AND CONTAINING
  1  6    APPLICABILITY PROVISIONS.
  1  7 
  1  8 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 
  1  9 
  1 10    Section 1.  NEW SECTION.  12D.1  PURPOSE AND DEFINITIONS.
  1 11    The general assembly finds that the general welfare and
  1 12 well-being of the state are directly related to educational
  1 13 levels and skills of the citizens of the state, and that a
  1 14 vital and valid public purpose is served by the creation and
  1 15 implementation of programs which encourage and make possible
  1 16 the attainment of higher education by the greatest number of
  1 17 citizens of the state.  The state has limited resources to
  1 18 provide additional programs for higher education funding and
  1 19 the continued operation and maintenance of the state's public
  1 20 institutions of higher education and the general welfare of
  1 21 the citizens of the state will be enhanced by establishing a
  1 22 program which allows citizens of the state to invest money in
  1 23 a public trust for future application to the payment of higher
  1 24 education costs.  The creation of the means of encouragement
  1 25 for citizens to invest in such a program represents the
  1 26 carrying out of a vital and valid public purpose.  In order to
  1 27 make available to the citizens of the state an opportunity to
  1 28 fund future higher education needs, it is necessary that a
  1 29 public trust be established in which moneys may be invested
  1 30 for future educational use.  It is also necessary to establish
  1 31 an endowment fund which may be funded with public funds, among
  1 32 other sources, the income from which will be made available to
  1 33 participants in the trust to enhance their savings invested
  1 34 for the payment of future higher education costs.
  1 35    As used in this chapter, unless the context otherwise
  2  1 requires:
  2  2    l.  "Administrative fund" means the administrative fund
  2  3 established under section 12D.4.
  2  4    2.  "Beneficiary" means the individual designated by a
  2  5 participation agreement to benefit from advance payments of
  2  6 higher education costs on behalf of the beneficiary.
  2  7    3.  "Benefits" means the payment of higher education costs
  2  8 on behalf of a beneficiary by the trust during the
  2  9 beneficiary's attendance at an institution of higher
  2 10 education.
  2 11    4.  "Endowment fund" means the endowment fund established
  2 12 under section 12D.4.
  2 13    5.  "Higher education costs" means the certified costs of
  2 14 tuition, fees, books, supplies, and equipment required for
  2 15 enrollment or attendance at an institution of higher
  2 16 education.  Reasonable room and board expenses, based on the
  2 17 minimum amount applicable for the institution of higher
  2 18 education during the period of enrollment, shall be included
  2 19 as a higher education cost for those students enrolled on at
  2 20 least a half-time basis.
  2 21    6.  "Institution of higher education" means an institution
  2 22 described in section 481 of the federal Higher Education Act
  2 23 of 1965, 20 U.S.C. } 1088, which is eligible to participate in
  2 24 the United States department of education's student aid
  2 25 programs.
  2 26    7.  "Internal Revenue Code" means the same as defined in
  2 27 section 422.3.
  2 28    8.  "Iowa educational savings plan trust" or "trust" means
  2 29 the trust created under section 12D.2.
  2 30    9.  "Participant" means an individual, or an individual's
  2 31 legal representative, who has entered into a participation
  2 32 agreement under this chapter for the advance payment of higher
  2 33 education costs on behalf of a beneficiary.
  2 34    10.  "Participation agreement" means an agreement between a
  2 35 participant and the trust entered into under this chapter.
  3  1    11.  "Program fund" means the program fund established
  3  2 under section 12D.4.
  3  3    12.  "Refund penalty" means the amount assessed by the
  3  4 treasurer of state for cancellation of a participation
  3  5 agreement which is not considered a de minimus penalty
  3  6 pursuant to section 529 of the Internal Revenue Code.
  3  7    13.  "Tuition and fees" means the quarter or semester
  3  8 charges imposed to attend an institution of higher education
  3  9 required as a condition of enrollment.
  3 10    Sec. 2.  NEW SECTION.  12D.2  CREATION OF IOWA EDUCATIONAL
  3 11 SAVINGS PLAN TRUST.
  3 12    An Iowa educational savings plan trust is created.  The
  3 13 treasurer of state is the trustee of the trust, and has all
  3 14 powers necessary to carry out and effectuate the purposes,
  3 15 objectives, and provisions of this chapter pertaining to the
  3 16 trust, including the power to do all of the following:
  3 17    1.  Make and enter into contracts necessary for the
  3 18 administration of the trust created under this chapter.
  3 19    2.  Enter into agreements with any institution of higher
  3 20 education, the state, or any federal or other state agency, or
  3 21 other entity as required to implement this chapter.
  3 22    3.  Carry out the duties and obligations of the trust
  3 23 pursuant to this chapter.
  3 24    4.  Accept any grants, gifts, legislative appropriations,
  3 25 and other moneys from the state, any unit of federal, state,
  3 26 or local government, or any other person, firm, partnership,
  3 27 or corporation which the treasurer of state shall deposit into
  3 28 the administrative fund, the endowment fund, or the program
  3 29 fund.
  3 30    5.  Carry out studies and projections so the treasurer of
  3 31 state may advise participants regarding present and estimated
  3 32 future higher education costs and levels of financial
  3 33 participation in the trust required in order to enable
  3 34 participants to achieve their educational funding objectives.
  3 35    6.  Participate in any federal, state, or local
  4  1 governmental program for the benefit of the trust.
  4  2    7.  Procure insurance against any loss in connection with
  4  3 the property, assets, or activities of the trust.
  4  4    8.  Solicit and accept for the benefit of the endowment
  4  5 fund gifts, grants, and other moneys, including legislative
  4  6 appropriations and grants from any federal, state, or local
  4  7 governmental agency.
  4  8    9.  Enter into participation agreements with participants.
  4  9    10.  Make payments to institutions of higher education
  4 10 pursuant to participation agreements on behalf of
  4 11 beneficiaries.
  4 12    11.  Make refunds to participants upon the termination of
  4 13 participation agreements pursuant to the provisions,
  4 14 limitations, and restrictions set forth in this chapter.
  4 15    12.  Invest moneys within the endowment fund and the
  4 16 program fund in any investments which are determined by the
  4 17 treasurer of state to be appropriate.
  4 18    13.  Engage investment advisors, if necessary, to assist in
  4 19 the investment of trust assets.
  4 20    14.  Contract for goods and services and engage personnel
  4 21 as necessary, including consultants, actuaries, managers,
  4 22 legal counsel, and auditors for the purpose of rendering
  4 23 professional, managerial, and technical assistance and advice
  4 24 to the treasurer of state regarding trust administration and
  4 25 operation.
  4 26    15.  Establish, impose, and collect administrative fees and
  4 27 charges in connection with transactions of the trust, and
  4 28 provide for reasonable service charges, including penalties
  4 29 for cancellations and late payments with respect to
  4 30 participation agreements.
  4 31    16.  Administer the funds of the trust.
  4 32    17.  Adopt rules pursuant to chapter 17A for the
  4 33 administration of the trust.
  4 34    An amount, not to exceed two hundred thousand dollars
  4 35 annually, shall be transferred from the unclaimed property
  5  1 trust fund established in section 556.18 to the administrative
  5  2 fund for the payment of costs of administration and operation
  5  3 of the trust.
  5  4    Sec. 3.  NEW SECTION.  12D.3  PARTICIPATION AGREEMENTS FOR
  5  5 TRUST.
  5  6    The trust may enter into participation agreements with
  5  7 participants on behalf of beneficiaries pursuant to the
  5  8 following terms and agreements:
  5  9    1.  a.  Each participation agreement shall require a
  5 10 participant to agree to invest a specific amount of money in
  5 11 the trust for a specific period of time for the benefit of a
  5 12 specific beneficiary.  A participant shall not be required to
  5 13 make an annual contribution on behalf of a beneficiary.  The
  5 14 minimum contribution per beneficiary per year, in a year in
  5 15 which a participant is making a contribution, shall be three
  5 16 hundred dollars, and the maximum contribution shall not exceed
  5 17 two thousand dollars per beneficiary per year adjusted
  5 18 annually to reflect increases in the consumer price index.
  5 19 However, the treasurer of state may set a maximum, as
  5 20 necessary, to maintain compliance with section 529 of the
  5 21 Internal Revenue Code.
  5 22    b.  Participation agreements may be amended to provide for
  5 23 adjusted levels of payments based upon changed circumstances
  5 24 or changes in educational plans.
  5 25    2.  Beneficiaries designated in participation agreements
  5 26 may be designated from date of birth up to, but not including,
  5 27 their seventeenth birthday.
  5 28    3.  Payment of benefits provided under participation
  5 29 agreements must begin not later than the first full fall
  5 30 academic quarter or semester of enrollment at an institution
  5 31 of higher education following the twenty-second birthday or
  5 32 high school graduation of the beneficiary, whichever is later.
  5 33    4.  The execution of a participation agreement by the trust
  5 34 shall not guarantee in any way that higher education costs
  5 35 will be equal to projections and estimates provided by the
  6  1 trust or that the beneficiary named in any participation
  6  2 agreement will attain any of the following:
  6  3    a.  Be admitted to an institution of higher education.
  6  4    b.  If admitted, be determined a resident for tuition
  6  5 purposes by the institution of higher education.
  6  6    c.  Be allowed to continue attendance at the institution of
  6  7 higher education following admission.
  6  8    d.  Graduate from the institution of higher education.
  6  9    5.  a.  A beneficiary under a participation agreement may
  6 10 be changed as permitted under rules adopted by the treasurer
  6 11 of state upon written request of the participant prior to the
  6 12 date of admission of the beneficiary to an institution of
  6 13 higher education as long as the substitute beneficiary is
  6 14 eligible for participation.
  6 15    b.  Participation agreements may otherwise be freely
  6 16 amended throughout their terms in order to enable participants
  6 17 to increase or decrease the level of participation, change the
  6 18 designation of beneficiaries, and carry out similar matters as
  6 19 authorized by rule.
  6 20    6.  Each participation agreement shall provide that the
  6 21 participation agreement may be canceled upon the terms and
  6 22 conditions, and upon payment of applicable fees and costs set
  6 23 forth and contained in the rules adopted by the treasurer of
  6 24 state.
  6 25    Sec. 4.  NEW SECTION.  12D.4  PROGRAM, ENDOWMENT, AND
  6 26 ADMINISTRATIVE FUNDS – INVESTMENT AND PAYMENTS.
  6 27    1.  a.  The treasurer of state shall segregate moneys
  6 28 received by the trust into three funds:  the program fund, the
  6 29 endowment fund, and the administrative fund.
  6 30    b.  All moneys paid by participants in connection with
  6 31 participation agreements shall be deposited as received into
  6 32 separate accounts within the program fund.
  6 33    c.  All moneys received by the trust from the proceeds of
  6 34 gifts and other endowments for the purposes of the trust shall
  6 35 be deposited as received into the endowment fund.
  7  1    d.  The program fund and the endowment fund shall be
  7  2 separately administered.
  7  3    e.  Any gifts, grants, or donations made by any
  7  4 governmental entity or any person, firm, partnership, or
  7  5 corporation to the trust for deposit to the endowment fund
  7  6 shall be a grant, gift, or donation to the state for the
  7  7 accomplishment of a valid public eleemosynary, charitable, and
  7  8 educational purpose and shall not be included in the income of
  7  9 the donor for Iowa tax purposes.
  7 10    f.  Contributions to the trust made by participants or
  7 11 received in the form of gifts, grants, or donations may only
  7 12 be made in the form of cash.
  7 13    g.  A participant or beneficiary shall not provide
  7 14 investment direction regarding program contributions or
  7 15 earnings held by the trust.
  7 16    2.  a.  Each beneficiary under a participation agreement
  7 17 shall receive a pro rata interest in the investment income
  7 18 derived by the endowment fund each year after any transfers to
  7 19 the administrative fund have been made.
  7 20    b.  The amount of interest received from the endowment fund
  7 21 shall be in the ratio that the principal amount paid by the
  7 22 participant under the participation agreement and investment
  7 23 income earned to date under the agreement bears to the
  7 24 principal amount of all moneys, funds, and securities then
  7 25 held in the program fund, but not to exceed the amount which,
  7 26 in combination with the current payment due from the program
  7 27 fund, equals the beneficiary's higher education costs for the
  7 28 current period of enrollment.
  7 29    c.  Moneys accrued by participants in the program fund of
  7 30 the trust may be used for payments to any institution of
  7 31 higher education.
  7 32    d.  No rights to any moneys derived from the endowment fund
  7 33 shall exist if moneys payable under the participation
  7 34 agreement are paid to an educational institution which is not
  7 35 an institution of higher education.
  8  1    Sec. 5.  NEW SECTION.  12D.5  CANCELLATION OF AGREEMENTS.
  8  2    1.  A participant may cancel a participation agreement at
  8  3 will.
  8  4    a.  If the participation agreement is canceled by a
  8  5 participant prior to the expiration of two years from the date
  8  6 of original execution of the participation agreement, the
  8  7 participant shall receive one hundred percent of the principal
  8  8 amount of all contributions made by the participant, but any
  8  9 program fund investment income or endowment fund investment
  8 10 income which has been credited to the participant's account
  8 11 shall be retained by the trust to cover administration
  8 12 expenses.
  8 13    b.  After a participation agreement has been in effect for
  8 14 two years, participants shall be entitled to the return upon
  8 15 cancellation of the agreement of the principal amount of all
  8 16 contributions made by participants plus actual program fund
  8 17 investment income on the contributions, but not endowment fund
  8 18 investment income, less a refund penalty to be levied by the
  8 19 trust.  The penalty shall be deposited into the administrative
  8 20 fund.
  8 21    2.  a.  Upon the occurrence of any of the following
  8 22 circumstances, no refund penalty shall be levied by the trust
  8 23 in the event of termination of a participation agreement:
  8 24    (l)  Death of the beneficiary.
  8 25    (2)  Permanent disability or mental incapacity of the
  8 26 beneficiary.
  8 27    (3)  The beneficiary is awarded a scholarship, as defined
  8 28 in section 529 of the Internal Revenue Code, but only to the
  8 29 extent the refund of earnings does not exceed the scholarship
  8 30 amount.
  8 31    b.  In the event of cancellation of a participation
  8 32 agreement for any of the causes listed in paragraph "a", the
  8 33 participant shall be entitled to receive the principal amount
  8 34 of all payments made by the participant under the
  8 35 participation agreement plus the actual program fund
  9  1 investment income earned on the payments, but not endowment
  9  2 fund investment income.
  9  3    Sec. 6.  NEW SECTION.  12D.6  REPAYMENT AND OWNERSHIP OF
  9  4 PAYMENTS AND INVESTMENT INCOME – TRANSFER OF OWNERSHIP
  9  5 RIGHTS.
  9  6    1.  a.  A participant retains ownership of all payments
  9  7 made under a participation agreement up to the date of
  9  8 utilization for payment of higher education costs for the
  9  9 beneficiary.
  9 10    b.  All income derived from the investment of the payments
  9 11 made by the participant shall be considered to be held in
  9 12 trust for the benefit of the beneficiary.
  9 13    2.  In the event the program is terminated prior to payment
  9 14 of higher education costs for the beneficiary, the participant
  9 15 is entitled to a full refund of all payments made under the
  9 16 participation agreement and all investment income credited on
  9 17 all the payments.
  9 18    No right to receive investment income shall exist in cases
  9 19 of voluntary participant termination except as provided in
  9 20 section 12D.5.
  9 21    3.  If the beneficiary graduates from an institution of
  9 22 higher education, and a balance remains in the participant's
  9 23 account, the treasurer of state shall pay the balance to the
  9 24 participant.
  9 25    4.  The institution of higher education shall obtain
  9 26 ownership of the payments made for the higher education costs
  9 27 paid to the institution at the time each payment is made to
  9 28 the institution.
  9 29    5.  Any amounts which may be paid to any person or persons
  9 30 pursuant to the Iowa educational savings plan trust but which
  9 31 are not listed in this section are owned by the trust.
  9 32    6.  A participant may transfer ownership rights to another
  9 33 eligible participant, including a gift of the ownership rights
  9 34 to a minor beneficiary.  The transfer shall be made and the
  9 35 property distributed in accordance with rules adopted by the
 10  1 treasurer of state or with the terms of the participation
 10  2 agreement.
 10  3    7.  A participant shall not be entitled to utilize any
 10  4 interest in the trust as security for a loan.
 10  5    Sec. 7.  NEW SECTION.  12D.7  EFFECT OF PAYMENTS ON
 10  6 DETERMINATION OF NEED AND ELIGIBILITY FOR STUDENT FINANCIAL
 10  7 AID.
 10  8    A student loan program, student grant program, or other
 10  9 program administered by any agency of the state, except as may
 10 10 be otherwise provided by federal law or the provisions of any
 10 11 specific grant applicable to that law, shall not take into
 10 12 account and shall not consider amounts available for the
 10 13 payment of higher education costs pursuant to the Iowa
 10 14 educational savings plan trust in determining need and
 10 15 eligibility for student aid.
 10 16    Sec. 8.  NEW SECTION.  12D.8  ANNUAL AUDITED FINANCIAL
 10 17 REPORT TO GOVERNOR AND GENERAL ASSEMBLY.
 10 18    1.  The treasurer of state shall submit an annual audited
 10 19 financial report, prepared in accordance with generally
 10 20 accepted accounting principles, on the operations of the trust
 10 21 by November 1 to the governor and the general assembly.
 10 22    The annual audit shall be made either by the auditor of
 10 23 state or by an independent certified public accountant
 10 24 designated by the auditor of state and shall include direct
 10 25 and indirect costs attributable to the use of outside
 10 26 consultants, independent contractors, and any other persons
 10 27 who are not state employees.
 10 28    2.  The annual audit shall be supplemented by all of the
 10 29 following information prepared by the treasurer of state:
 10 30    a.  Any related studies or evaluations prepared in the
 10 31 preceding year.
 10 32    b.  A summary of the benefits provided by the trust
 10 33 including the number of participants and beneficiaries in the
 10 34 trust.
 10 35    c.  Any other information which is relevant in order to
 11  1 make a full, fair, and effective disclosure of the operations
 11  2 of the trust.
 11  3    Sec. 9.  NEW SECTION.  12D.9  TAX CONSIDERATIONS.
 11  4    1.  For federal income tax purposes, the Iowa educational
 11  5 savings plan trust shall be considered a qualified state
 11  6 tuition program exempt from taxation pursuant to section 529
 11  7 of the Internal Revenue Code.  The Iowa educational savings
 11  8 plan trust meets the requirements of section 529(b), of the
 11  9 Internal Revenue Code, as follows:
 11 10    a.  Pursuant to section 12D.3, subsection 1, paragraph "a",
 11 11 a participant may make contributions to an account which is
 11 12 established for the purpose of meeting the qualified higher
 11 13 education expenses of the designated beneficiary of the
 11 14 account.
 11 15    b.  Pursuant to section 12D.4, subsection 1, paragraph "f",
 11 16 contributions may only be made in the form of cash.
 11 17    c.  Pursuant to section 12D.5, subsection 1, paragraphs "a"
 11 18 and "b", penalties are provided on refunds of earnings which
 11 19 are not used for qualified higher education expenses of the
 11 20 beneficiary, made on account of the death or disability of the
 11 21 designated beneficiary, or made due to scholarship, allowance,
 11 22 or payment receipt as provided in section 529(b)(3) of the
 11 23 Internal Revenue Code.
 11 24    d.  Pursuant to section 12D.4, subsection 1, paragraph "b",
 11 25 a separate account is established for each beneficiary.
 11 26    e.  Pursuant to section 12D.4, subsection 1, paragraph "g",
 11 27 a participant or beneficiary shall not provide investment
 11 28 direction regarding program contributions or earnings held by
 11 29 the trust.
 11 30    f.  Pursuant to section 12D.6, subsection 7, a participant
 11 31 shall not pledge any interest in the trust as security for a
 11 32 loan.
 11 33    g.  Pursuant to section 12D.3, subsection 1, a maximum
 11 34 contribution level is established.
 11 35    2.  State income tax treatment of the Iowa educational
 12  1 savings plan trust shall be as provided in section 422.7,
 12  2 subsections 35, 36, and 37, and section 422.35, subsection 14.
 12  3    Sec. 10.  NEW SECTION.  12D.10  PROPERTY RIGHTS TO ASSETS
 12  4 IN TRUST.
 12  5    1.  The assets of the trust, including the program fund and
 12  6 the endowment fund, shall at all times be preserved, invested,
 12  7 and expended solely and only for the purposes of the trust and
 12  8 shall be held in trust for the participants and beneficiaries.
 12  9    2.  No property rights in the trust shall exist in favor of
 12 10 the state.
 12 11    3.  The assets of the trust shall not be transferred or
 12 12 used by the state for any purposes other than the purposes of
 12 13 the trust.
 12 14    Sec. 11.  NEW SECTION.  12D.11  CONSTRUCTION.
 12 15    This chapter shall be construed liberally in order to
 12 16 effectuate its purpose.
 12 17    Sec. 12.  Section 422.7, Code Supplement 1997, is amended
 12 18 by adding the following new subsections:
 12 19    NEW SUBSECTION.  35.  a.  Subtract the amount, not to
 12 20 exceed two thousand dollars per beneficiary, contributed as a
 12 21 participant in the Iowa educational savings plan trust created
 12 22 in chapter 12D.
 12 23    b.  Add the amount resulting from the cancellation of a
 12 24 participation agreement refunded to the taxpayer as a
 12 25 participant in the Iowa educational savings plan trust to the
 12 26 extent previously deducted as a contribution to the trust.
 12 27    NEW SUBSECTION.  36.  Subtract, to the extent included,
 12 28 income from interest and earnings received from the Iowa
 12 29 educational savings plan trust created in chapter 12D.
 12 30    NEW SUBSECTION.  37.  Subtract, to the extent not deducted
 12 31 for federal income tax purposes, the amount of any gift,
 12 32 grant, or donation made to the Iowa educational savings plan
 12 33 trust for deposit in the endowment fund of that trust.
 12 34    Sec. 13.  Section 422.35, Code Supplement 1997, is amended
 12 35 by adding the following new subsection:
 13  1    NEW SUBSECTION.  14.  Subtract, to the extent not deducted
 13  2 for federal income tax purposes, the amount of any gift,
 13  3 grant, or donation made to the Iowa educational savings plan
 13  4 trust, as created in chapter 12D, for deposit in the endowment
 13  5 fund of that trust.
 13  6    Sec. 14.  Sections 12 and 13 of this Act apply to
 13  7 contributions, gifts, grants, and donations made on or after
 13  8 July 1, 1998, for tax years ending on or after that date.  
 13  9 
 13 10 
 13 11                                                             
 13 12                               RON J. CORBETT
 13 13                               Speaker of the House
 13 14 
 13 15 
 13 16                                                             
 13 17                               MARY E. KRAMER
 13 18                               President of the Senate
 13 19 
 13 20    I hereby certify that this bill originated in the House and
 13 21 is known as House File 2119, Seventy-seventh General Assembly.
 13 22 
 13 23 
 13 24                                                             
 13 25                               ELIZABETH ISAACSON
 13 26                               Chief Clerk of the House
 13 27 Approved                , 1998
 13 28 
 13 29 
 13 30                         
 13 31 TERRY E. BRANSTAD
 13 32 Governor
     

Text: HF02118                           Text: HF02120
Text: HF02100 - HF02199                 Text: HF Index
Bills and Amendments: General Index     Bill History: General Index

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