SB-0544, As Passed Senate, December 5, 2017
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
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
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.
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
(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
(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
(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
(3) The purposes, powers, and duties of the program are vested
in and shall be exercised by the treasurer or the designee of the
(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
(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
(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
(j) Keep adequate records of each account and provide the
treasurer with information that the treasurer requires related to
(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
(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
(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
(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.