SB-0544, As Passed Senate, December 5, 2017

 

 

 

 

 

 

 

 

 

 

 

 

SUBSTITUTE FOR

 

SENATE BILL NO. 544

 

 

 

 

 

 

 

 

 

 

 

 

     A bill to amend 2000 PA 161, entitled

 

"Michigan education savings program act,"

 

(MCL 390.1471 to 390.1486) by amending the title and by adding part

 

2.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

TITLE

 

     An act to create the Michigan education savings program; to

 

create an enhanced Michigan education savings program; to provide

 

for education savings accounts; to prescribe the powers and duties

 

of certain state agencies, boards, and departments; to create a

 

fund; to make appropriations; to allow certain tax credits or

 

deductions; and to provide for penalties and remedies.

 

PART 2

 


     Sec. 17. This part shall be known and may be cited as the

 

"enhanced Michigan education savings program act".

 

     Sec. 18. As used in this part:

 

     (a) "Account" or "enhanced Michigan education savings account"

 

means an account established under this part.

 

     (b) "Account owner" means the parent of the student or the

 

student if he or she is 18 years of age or older.

 

     (c) "Core instructional courses" means those courses

 

specifically excluded from nonessential courses and nonessential

 

elective courses as provided under section 166b of the state school

 

aid act of 1979, 1979 PA 94, MCL 388.1766b.

 

     (d) "Department" means the department of treasury.

 

     (e) "Dependent" means an individual for whom the account owner

 

may claim a dependency exemption on his or her federal income tax

 

return pursuant to the internal revenue code of 1986, 26 USC 1 to

 

9834.

 

     (f) "Eligible services" means, except as otherwise provided

 

under this subdivision, any courses and services offered to

 

students by a public school or any other organization that the

 

department of education determines pursuant to this part are

 

qualified for payment from an account. Eligible services include

 

educational materials and supplies and other fees and costs that

 

are related to the eligible courses and services as determined by

 

the department of education. Eligible services do not include any

 

fees and costs that are necessary elements of a school's activities

 

or an integral, fundamental part of elementary and secondary

 

education.


     (g) "Enhanced Michigan education savings program agreement" or

 

"program agreement" means the agreement between the program and the

 

account owner who establishes an account.

 

     (h) "Enhanced Michigan education savings program fund" or

 

"fund" means the fund created in section 19.

 

     (i) "Management contract" means the contract executed between

 

the treasurer and a program manager.

 

     (j) "Parent" means a resident of this state who is a

 

biological or adoptive parent, legal guardian, legal custodian, or

 

other person with authority to act on behalf of the student.

 

     (k) "Program" means the enhanced Michigan education savings

 

program established pursuant to this part.

 

     (l) "Program manager" means an entity selected by the

 

treasurer to act as a manager of 1 or more of the savings plans

 

offered under the program.

 

     (m) "Public school" means that term as defined in the revised

 

school code, 1976 PA 451, MCL 380.1 to 380.1852.

 

     (n) "Pupil" means that term as defined in section 6 of the

 

state school aid act of 1979, 1979 PA 94, MCL 388.1606.

 

     (o) "Qualified withdrawal" means a distribution that is not

 

subject to a penalty under this part or taxation under the income

 

tax act of 1967, 1967 PA 281, MCL 206.1 to 206.713, and that meets

 

any of the following:

 

     (i) A withdrawal from an account to pay for eligible services

 

provided by a public school or any other organization to the

 

student or to pay for postsecondary education expenses incurred

 

after the account is established.


     (ii) A transfer of funds due to the termination of the

 

management contract as provided in section 20.

 

     (iii) A transfer of funds as provided in section 24.

 

     (p) "Savings plan" or "plans" means a plan or plans that

 

provide different investment strategies and allows account

 

distributions for eligible services.

 

     (q) "Student" means a pupil counted in membership in a public

 

school.

 

     (r) "Treasurer" means the state treasurer.

 

     Sec. 19. (1) The enhanced Michigan education savings program

 

fund is established in the department. The department shall

 

establish an enhanced Michigan education savings program, and the

 

program may consist of 1 or more savings plans.

 

     (2) The treasurer shall solicit proposals from entities to be

 

a program manager to provide the services described in subsection

 

(5).

 

     (3) The purposes, powers, and duties of the program are vested

 

in and shall be exercised by the treasurer or the designee of the

 

treasurer.

 

     (4) The state treasurer shall administer the fund and shall be

 

the trustee for the fund. Subject to appropriation, the treasurer

 

may use program revenues in the fund to maintain or enhance the

 

state's education programs.

 

     (5) The treasurer may employ or contract with personnel and

 

contract for services necessary for the administration of each

 

savings plan under the program and the investment of the assets of

 

each savings plan and the fund under the program, including, but


not limited to, managerial, professional, legal, clerical,

 

technical, and administrative personnel or services.

 

     (6) When selecting a program manager, the treasurer shall give

 

preference to proposals from single entities that propose to

 

provide all of the functions described in subsection (5) and that

 

demonstrate the most advantageous combination, to both potential

 

participants and this state, of the following factors and the

 

management contract shall address these factors:

 

     (a) Financial stability.

 

     (b) The safety of the investment instruments being offered.

 

     (c) The ability of the investment instruments to track the

 

increasing costs of higher education.

 

     (d) The ability of the entity to satisfy the record-keeping

 

and reporting requirements of this part.

 

     (e) The entity's plan for marketing the savings plan and the

 

investment it is willing to make to promote the savings plan.

 

     (f) The fees, if any, proposed to be charged to persons for

 

opening or maintaining an account.

 

     (g) The ability of the entity to accept electronic

 

withdrawals, including payroll deduction plans.

 

     (7) The treasurer shall enter into a contract with each

 

program manager, which shall address the respective authority and

 

responsibility of the treasurer and the program manager to do all

 

of the following:

 

     (a) Develop and implement the savings plan or plans offered

 

under the program.

 

     (b) Invest the money received in 1 or more investment


instruments.

 

     (c) Engage the services of consultants on a contractual basis

 

to provide professional and technical assistance and advice.

 

     (d) Determine the use of financial organizations as account

 

depositories and financial managers.

 

     (e) Charge, impose, and collect annual administrative fees and

 

service in connection with any agreements, contracts, and

 

transactions relating to individual accounts, exclusive of initial

 

sales charges, which shall not exceed 2.0% of the average daily net

 

assets of the account.

 

     (f) Develop marketing plans and promotional material.

 

     (g) Establish the methods by which funds are allocated to pay

 

for administrative costs.

 

     (h) Provide criteria for terminating and not renewing the

 

management contract.

 

     (i) Address the ability of the program manager to take any

 

action required to keep the savings plan or plans offered under the

 

program in compliance with requirements of this part and its

 

management contract.

 

     (j) Keep adequate records of each account and provide the

 

treasurer with information that the treasurer requires related to

 

those records.

 

     (k) Compile the information contained in statements required

 

to be prepared under this part and provide that compilation to the

 

treasurer in a timely manner.

 

     (l) Hold all accounts for the benefit of the account owner.

 

     (m) Provide for audits at least annually by a firm of


certified public accountants.

 

     (n) Provide the treasurer with copies of all regulatory

 

filings and reports related to the savings plan or plans offered

 

under the program made during the term of the management contract

 

or while the program manager is holding any accounts, other than

 

confidential filings or reports except to the extent those filings

 

or reports are related to or are a part of the savings plan or

 

plans offered under the program. The program manager shall make

 

available for review by the treasurer the results of any periodic

 

examination of the program manager by any state or federal banking,

 

insurance, or securities commission, except to the extent that the

 

report or reports are not required to be disclosed under state or

 

federal law.

 

     (o) Ensure that any description of the savings plan or plans

 

offered under the program, whether in writing or through the use of

 

any media, is consistent with the marketing plan developed by the

 

program manager.

 

     (p) Take any other necessary and proper actions to carry out

 

the purposes of this part.

 

     Sec. 20. (1) The treasurer shall be responsible for the

 

ongoing supervision of each management contract.

 

     (2) A management contract shall be for a term of years

 

specified in the management contract.

 

     (3) The treasurer may terminate a management contract based on

 

the criteria specified in the management contract.

 

     (4) The treasurer may enter into contracts that it considers

 

necessary and proper for the implementation of this program.


     Sec. 26. (1) Each program manager shall report distributions

 

from an account to a public school or any other organization for

 

the benefit of the student and distributions from an account for

 

postsecondary education expenses during a tax year to the Internal

 

Revenue Service and the account owner or, to the extent required by

 

federal law or regulation, to the distributee.

 

     (2) Each program manager shall provide statements that

 

identify the contributions made during the tax year, the total

 

contributions made to the account for the tax year, the value of

 

the account at the end of the tax year, distributions made during

 

the tax year, and any other information that the treasurer requires

 

to each account owner on or before the January 31 following the end

 

of each calendar year.

 

     (3) Each program manager shall disclose the following

 

information in writing to each account owner of an enhanced

 

Michigan education savings account and any other person who

 

requests information about an account:

 

     (a) The terms and conditions for establishing an account.

 

     (b) Restrictions on the substitutions of students and transfer

 

of account funds.

 

     (c) The person entitled to terminate a program agreement.

 

     (d) The period of time during which a student may receive

 

benefits under the program agreement.

 

     (e) The terms and conditions under which money may be

 

withdrawn from an account or the program, including, but not

 

limited to, any reasonable charges and fees and penalties that may

 

be imposed for withdrawal.


     (f) The potential tax consequences associated with

 

contributions to and distributions and withdrawals from accounts.

 

     (g) Investment history and potential growth of account funds

 

and a projection of the impact of the growth of the account funds

 

on the maximum amount allowable in an account.

 

     (h) All other rights and obligations under program agreements

 

and any other terms, conditions, and provisions of a contract or an

 

agreement entered into under this part.

 

     Sec. 27. (1) This part and any agreement under this part shall

 

not be construed or interpreted to do any of the following:

 

     (a) Guarantee that a student will be admitted to a public

 

school of his or her choice or, upon admission to a public school,

 

will be permitted to continue to attend or will receive a degree

 

from the public school.

 

     (b) Guarantee that amounts contributed to an account will be

 

sufficient to cover the eligible services of a student.

 

     (2) This part does not create and shall not be construed to

 

create any obligation upon this state or any agency or

 

instrumentality of this state to guarantee for the benefit of an

 

account owner or student any of the following:

 

     (a) The rate of interest or other return on an account.

 

     (b) The payment of interest or other return on an account.

 

     (3) The contracts, applications, deposit slips, and other

 

similar documents used in connection with a contribution to an

 

account shall clearly indicate that the account is not insured by

 

this state and that the money deposited into and investment return

 

earned on an account are not guaranteed by this state.


     Sec. 28. Each program manager shall file an annual report with

 

the treasurer and the board that includes all of the following:

 

     (a) The names and identification numbers of account owners and

 

students. The information reported pursuant to this subdivision is

 

not subject to the freedom of information act, 1976 PA 442, MCL

 

15.231 to 15.246.

 

     (b) The total amount contributed to all accounts during the

 

year.

 

     (c) All distributions from all accounts.

 

     (d) Any information that the program manager or treasurer may

 

require regarding the taxation of amounts contributed to or

 

withdrawn from accounts.

 

     Sec. 29. (1) Contributions to and interest earned on an

 

account are exempt from taxation as provided in section 30 of the

 

income tax act of 1967, 1967 PA 281, MCL 206.30.

 

     (2) Withdrawals made from an account are exempt from taxation

 

as provided in section 30 of the income tax act of 1967, 1967 PA

 

281, MCL 206.30.