House File 2553
HOUSE FILE
BY COMMITTEE ON WAYS AND MEANS
(SUCCESSOR TO HF 2429)
Passed House, Date Passed Senate, Date
Vote: Ayes Nays Vote: Ayes Nays
Approved
A BILL FOR
1 An Act relating to technical and substantive changes regarding
2 the Iowa educational savings plan trust and the establishment
3 of an additional optional program by a specified date, and
4 providing an effective date.
5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
6 TLSB 6103HV 80
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PAG LIN
1 1 Section 1. Section 12D.1, Code 2003, is amended to read as
1 2 follows:
1 3 12D.1 PURPOSE AND DEFINITIONS.
1 4 The general assembly finds that the general welfare and
1 5 well=being of the state are directly related to educational
1 6 levels and skills of the citizens of the state, and that a
1 7 vital and valid public purpose is served by the creation and
1 8 implementation of programs which encourage and make possible
1 9 the attainment of higher education by the greatest number of
1 10 citizens of the state. The state has limited resources to
1 11 provide additional programs for higher education funding and
1 12 the continued operation and maintenance of the state's public
1 13 institutions of higher education and the general welfare of
1 14 the citizens of the state will be enhanced by establishing a
1 15 program which allows citizens of the state to invest money in
1 16 a public trust for future application to the payment of higher
1 17 education costs. The creation of the means of encouragement
1 18 for citizens to invest in such a program represents the
1 19 carrying out of a vital and valid public purpose. In order to
1 20 make available to the citizens of the state an opportunity to
1 21 fund future higher education needs, it is necessary that a
1 22 public trust be established in which moneys may be invested
1 23 for future educational use. It is also necessary to establish
1 24 an endowment fund which may be funded with public funds, among
1 25 other sources, the income from which will be made available to
1 26 participants in the trust to enhance their savings invested
1 27 for the payment of future higher education costs.
1 28 As used in this chapter, unless the context otherwise
1 29 requires:
1 30 1. "Account balance limit" means the maximum allowable
1 31 aggregate balance of accounts established for the same
1 32 beneficiary. Account earnings, if any, are included in the
1 33 account balance limit.
1 34 2. "Administrative fund" means the administrative fund
1 35 established under section 12D.4.
2 1 3. "Beneficiary" means the individual designated by a
2 2 participation agreement to benefit from advance payments of
2 3 higher education costs on behalf of the beneficiary.
2 4 4. "Benefits" means the payment of higher education costs
2 5 on behalf of a beneficiary by the trust during the
2 6 beneficiary's attendance at an institution of higher
2 7 education.
2 8 5. "Endowment fund" means the endowment fund established
2 9 under section 12D.4.
2 10 6. 5. "Higher education costs" means the certified costs
2 11 of tuition, fees, books, supplies, and equipment required for
2 12 enrollment or attendance at an institution of higher
2 13 education. Reasonable room and board expenses, based on the
2 14 minimum amount applicable for the institution of higher
2 15 education during the period of enrollment, shall be included
2 16 as a higher education cost for those students enrolled on at
2 17 least a half=time basis. In the case of a special needs
2 18 beneficiary, expenses for special needs services incurred in
2 19 connection with enrollment or attendance at an institution of
2 20 higher education shall be included as a higher education cost.
2 21 7. 6. "Institution of higher education" means an
2 22 institution described in section 481 of the federal Higher
2 23 Education Act of 1965, 20 U.S.C. } 1088, which is eligible to
2 24 participate in the United States department of education's
2 25 student aid programs.
2 26 8. 7. "Internal Revenue Code" means the same as defined in
2 27 section 422.3.
2 28 9. 8. "Iowa educational savings plan trust" or "trust"
2 29 means the trust created under section 12D.2.
2 30 10. 9. "Participant" means an individual, or an
2 31 individual's legal representative, who trust, or estate that
2 32 has entered into a participation agreement under this chapter
2 33 for the advance payment of higher education costs on behalf of
2 34 a beneficiary.
2 35 11. 10. "Participation agreement" means an agreement
3 1 between a participant and the trust entered into under this
3 2 chapter.
3 3 12. 11. "Program fund" means the program fund established
3 4 under section 12D.4.
3 5 13. "Refund penalty" means the amount assessed by the
3 6 treasurer of state for cancellation of a participation
3 7 agreement which is not considered a de minimus penalty
3 8 pursuant to section 529 of the Internal Revenue Code.
3 9 14. 12. "Tuition and fees" means the quarter or semester
3 10 charges imposed to attend an institution of higher education
3 11 and required as a condition of enrollment.
3 12 Sec. 2. Section 12D.2, subsection 4, Code 2003, is amended
3 13 to read as follows:
3 14 4. Accept any grants, gifts, legislative appropriations,
3 15 and other moneys from the state, any unit of federal, state,
3 16 or local government, or any other person, firm, partnership,
3 17 or corporation which the treasurer of state shall deposit into
3 18 the administrative fund, the endowment fund, or the program
3 19 fund.
3 20 Sec. 3. Section 12D.2, subsection 8, Code 2003, is amended
3 21 by striking the subsection.
3 22 Sec. 4. Section 12D.2, subsection 10, Code 2003, is
3 23 amended to read as follows:
3 24 10. Make payments to institutions of higher education,
3 25 participants, or beneficiaries, pursuant to participation
3 26 agreements on behalf of beneficiaries.
3 27 Sec. 5. Section 12D.2, subsection 11, Code 2003, is
3 28 amended to read as follows:
3 29 11. Make refunds to participants upon the termination of
3 30 participation agreements, and partial nonqualified
3 31 distributions to participants, pursuant to the provisions,
3 32 limitations, and restrictions set forth in this chapter.
3 33 Sec. 6. Section 12D.2, subsection 12, Code 2003, is
3 34 amended to read as follows:
3 35 12. Invest moneys from the endowment fund and the program
4 1 fund in any investments which are determined by the treasurer
4 2 of state to be appropriate.
4 3 Sec. 7. Section 12D.3, subsection 1, paragraph a, Code
4 4 2003, is amended to read as follows:
4 5 a. Each participation agreement may require a participant
4 6 to agree to invest a specific amount of money in the trust for
4 7 a specific period of time for the benefit of a specific
4 8 beneficiary. A participant shall not be required to make an
4 9 annual contribution on behalf of a beneficiary. The minimum
4 10 contribution per beneficiary per year, in a year in which a
4 11 participant is making a contribution, shall be fifty dollars.
4 12 The maximum contribution that may be deducted for Iowa income
4 13 tax purposes shall not exceed two thousand dollars per
4 14 beneficiary per year adjusted annually to reflect increases in
4 15 the consumer price index. The treasurer of state shall set an
4 16 account balance limit to maintain compliance with section 529
4 17 of the Internal Revenue Code. A contribution shall not be
4 18 permitted to the extent it causes the aggregate balance of all
4 19 accounts established for the same beneficiary to exceed the
4 20 applicable account balance limit.
4 21 Sec. 8. Section 12D.3, subsections 2 and 3, Code 2003, are
4 22 amended by striking the subsections.
4 23 Sec. 9. Section 12D.4, Code 2003, is amended by striking
4 24 the section and inserting in lieu thereof the following:
4 25 12D.4 PROGRAM AND ADMINISTRATIVE FUNDS == INVESTMENT AND
4 26 PAYMENTS.
4 27 1. a. The treasurer of state shall segregate moneys
4 28 received by the trust into two funds: the program fund and
4 29 the administrative fund.
4 30 b. All moneys paid by participants in connection with
4 31 participation agreements shall be deposited as received into
4 32 separate accounts within the program fund.
4 33 c. Contributions to the trust made by participants may
4 34 only be made in the form of cash.
4 35 d. A participant or beneficiary shall not provide
5 1 investment direction regarding program contributions or
5 2 earnings held by the trust.
5 3 2. Moneys accrued by participants in the program fund of
5 4 the trust may be used for payments to any institution of
5 5 higher education. Payments can be made to the institution,
5 6 the participant, or the beneficiary.
5 7 Sec. 10. Section 12D.5, Code Supplement 2003, is amended
5 8 by striking the section and inserting in lieu thereof the
5 9 following:
5 10 12D.5 CANCELLATION OF AGREEMENTS.
5 11 A participant may cancel a participation agreement at will.
5 12 Upon cancellation of a participation agreement, a participant
5 13 shall be entitled to the return of the participant's account
5 14 balance.
5 15 Sec. 11. Section 12D.6, subsection 2, Code 2003, is
5 16 amended to read as follows:
5 17 2. In the event the program is terminated prior to payment
5 18 of higher education costs for the beneficiary, the participant
5 19 is entitled to a refund of the participant's account balance.
5 20 No right to receive investment income shall exist in cases
5 21 of voluntary participant cancellation except as provided in
5 22 section 12D.5.
5 23 Sec. 12. Section 12D.6, subsection 3, Code 2003, is
5 24 amended by striking the subsection.
5 25 Sec. 13. Section 12D.9, subsection 1, paragraphs d and e,
5 26 Code Supplement 2003, are amended to read as follows:
5 27 d. Pursuant to section 12D.4, subsection 1, paragraph "f"
5 28 "c", contributions may only be made in the form of cash.
5 29 e. Pursuant to section 12D.4, subsection 1, paragraph "g"
5 30 "d", a participant or beneficiary shall not provide investment
5 31 direction regarding program contributions or earnings held by
5 32 the trust.
5 33 Sec. 14. Section 12D.9, subsection 1, paragraph f, Code
5 34 Supplement 2003, is amended by striking the paragraph.
5 35 Sec. 15. Section 12D.10, subsection 1, Code 2003, is
6 1 amended to read as follows:
6 2 1. The assets of the trust, including the program fund and
6 3 the endowment fund, shall at all times be preserved, invested,
6 4 and expended solely and only for the purposes of the trust and
6 5 shall be held in trust for the participants and beneficiaries.
6 6 Sec. 16. LEGISLATIVE INTENT. It is the intent of the
6 7 general assembly that the treasurer of state shall establish
6 8 an additional educational savings plan option, to be marketed
6 9 through licensed securities agents, by December 31, 2005.
6 10 Licensed securities agents marketing the optional program may
6 11 be compensated from the product distributor, fund company,
6 12 insurance company, or other distribution agent for their
6 13 activities in marketing and advising investors regarding the
6 14 program.
6 15 Sec. 17. EFFECTIVE DATE. This Act, being deemed of
6 16 immediate importance, takes effect upon enactment.
6 17 EXPLANATION
6 18 This bill makes several technical and substantive changes
6 19 regarding the operation of the Iowa educational savings plan
6 20 trust pursuant to Code chapter 12D.
6 21 The bill eliminates the endowment fund which is currently
6 22 established pursuant to Code section 12D.4, and deletes
6 23 references to that fund throughout Code chapter 12D. The bill
6 24 additionally eliminates provisions establishing a penalty
6 25 assessed by the treasurer of state for cancellation of a
6 26 participation agreement. The inclusion of penalty provisions
6 27 had previously been required in order for plan qualification
6 28 pursuant to section 529 of the Internal Revenue Code, but is
6 29 no longer necessary due to the incorporation of such
6 30 provisions in federal tax legislation. The bill further
6 31 eliminates age restrictions which currently limit plan
6 32 participation to individuals establishing an account for a
6 33 child prior to the child's attainment of age 18. Such
6 34 restrictions are not required for plan qualification pursuant
6 35 to section 529 of the Internal Revenue Code. Consistent with
7 1 the elimination of beneficiary age restrictions, the bill
7 2 additionally eliminates a provision providing for a refund of
7 3 a participant's account balance remaining in the account after
7 4 the 30=day period following the beneficiary's thirtieth
7 5 birthday.
7 6 The bill also adjusts current plan provisions to promote
7 7 clarity or increase flexibility. The bill adds a provision to
7 8 the definition of "higher education costs" providing that such
7 9 costs include, in the case of a special needs beneficiary,
7 10 expenses for special needs services incurred in connection
7 11 with enrollment or attendance at an institution of higher
7 12 education. The bill allows payments to be made by the
7 13 treasurer of state not only to institutions of higher
7 14 learning, as currently provided for in Code chapter 12D, but
7 15 also to the participant and the beneficiary of the plan. The
7 16 bill eliminates the current minimum contribution limit of $50
7 17 per year, and deletes provisions which currently limit
7 18 participation to individuals, thereby authorizing
7 19 participation by entities such as trusts or estates.
7 20 Additionally, the bill provides that refunds to participants
7 21 made upon the termination of participation agreements can
7 22 include or extend to a partial nonqualified distribution.
7 23 The bill also provides intent language regarding the
7 24 establishment by the treasurer of state of an additional
7 25 educational savings plan option. The bill provides that the
7 26 additional option shall be marketed through licensed
7 27 securities agents, who may be compensated from the product
7 28 distributor, fund company, insurance company, or other
7 29 distribution agent for their activities in marketing and
7 30 advising investors regarding the program. The bill provides
7 31 that the additional option shall be established by December
7 32 31, 2005.
7 33 The bill takes effect upon enactment.
7 34 LSB 6103HV 80
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