Proposed order
The Wisconsin College Savings Program Board creates Treas 1 of the Wisconsin Administrative Code.
Analysis prepared by the Office of the State Treasurer
Statutes interpreted: s.
14.64 et seq., Stats.
The Wisconsin College Savings Program Board establishes a rule for the operation of the College Savings Program. The rule is designed to grant flexibility to program participants wherever possible, while enabling the State and its private-sector partners to administer the program in a manner that protects the program's financial integrity and viability. Maintaining eligibility as a “qualified tuition program" pursuant to section
529 of the Internal Revenue Code [
26 USC 529] is another primary objective. “529" programs are eligible for a number of federal tax benefits that are attractive to families saving for future college costs. Significant features of the rule are addressed below:
Sections
Treas 1.03,
1.04 and
1.05 describe who may open an account and how to open an account. Section
Treas 1.06 discusses designating a successor owner and describes how to change ownership of an account. Sections
Treas 1.07 and
1.08 define the account beneficiary and how to change the beneficiary on an account.
Section
Treas 1.09 details how to make contributions to an account, including minimum and maximum contribution limits, and how to “rollover" an account balance to another section 529 program. IRS requirements relating to investment direction are also detailed.
Sections
Treas 1.11,
1.12 and
1.13 describe account withdrawals, distributions and refunds. Special circumstances are also provided for in these sections, such as the death or disability of the beneficiary or receipt of a scholarship by a beneficiary.
Section
Treas 1.14 sets forth conditions under which the Board may terminate an owner's account. Sections
Treas 1.15 and
1.16 address related fees and penalties.
Text of rule
Treas 1.01 Purpose and Analysis. This rule establishes the procedures, standards and eligibility requirements for investment in accounts under the Wisconsin college savings program, into which a participant may invest funds to be used by individual beneficiaries to pay the cost of attendance at an institution of higher education. The Wisconsin college savings program is established as a qualified tuition program pursuant to section
529 of the internal revenue code [
26 USC 529], and is administered by the Office of State Treasurer.
Treas 1.02 Definitions. In this chapter:
1. “
Account" means a formal record of transactions maintained for a particular designated beneficiary to meet qualified higher education expenses under the program.
2. “Account owner" means the person who is entitled to select or change the designated beneficiary of an account, or designate any person other than the designated beneficiary to whom funds may be paid from the account.
3. “Board" means the Wisconsin college savings program board.
4. “Cash" includes checks, money orders, wire transfers, or electronic funds transfers through payroll deduction, automatic contribution plans or similar methods, but does not include currency.
5.
“Contribution" means any payment directly allocated to an account for the benefit of a designated beneficiary or that is used to pay late fees or administrative fees associated with the account.
6.
“Department" means the Wisconsin department of administration.
7.
“Designated beneficiary" has the meaning found in section
529(e)(1) of the internal revenue code.
8.
“Eligible Educational Institution" has the meaning found in section
529(e)(5) of the internal revenue code.
9.
“Maximum contribution limit" is the sum total market value amount established by the board that may be accumulated in the accounts of a designated beneficiary to meet qualified higher education expenses.
10.
“Member of the family" has the meaning found in section
529(e)(2) of the internal revenue code.
11.
“Non-qualified distribution" means any distribution that is not a qualified distribution.
12.
“Participation agreement" means the contract between an account owner and the board setting forth the terms and conditions under which the account owner participates in the program.
13.
“Person" includes an individual, a trust, or a body corporate or politic.
14.
“Program" means the qualified tuition program established under s.
14.64, Stats.
15.
“Program manager" means the entity under contract with the department to serve as the program administrator, marketing agent and investment manager of the program.
16.
“Qualified distribution" means any distribution of funds, as defined in section
529 of the internal revenue code, for qualified higher education expenses from an account pursuant to a distribution notice from the account owner.
17.
“Qualified higher education expenses" has the meaning found in section
529(e)(3) of the internal revenue code.
18.
“Qualified tuition program" means a savings program to help defray the cost of college expenses under section
529 of the internal revenue code
.
19. “Rollover contribution" means the transfer of all or part of an account from one qualified tuition program account to another qualified tuition program account.
Treas 1.03 Account owner eligibility. Any person legally able to contract under applicable state law is eligible to establish an account for the benefit of a designated individual. There shall be only one account owner per account.
Treas 1.04 Opening an account. (1) To open an account, an applicant shall submit a properly completed and signed application, which incorporates the program description and participation agreement, to the program manager. A contribution may be made as provided in Treas 1.09 or by any alternate method established by the board or the program manager.
(2) An applicant must select an available investment option in which all contributions to the account shall be invested. After an account has been opened, the investment option selected may only be changed as permitted under section
529 of the internal revenue code and any regulations issued thereunder.
(3) The participation agreement shall be accompanied by a program description disclosing the program characteristics, including the investment options, investment risks, program fees, and other information as determined by the board and the program manager.
(4) Acceptance by the program manager of application materials, the initial contribution, or selection of contribution method for processing shall not be deemed an agreement to open an account.
(5) The program manager shall accept applications to open accounts and accept subsequent contributions for a designated beneficiary in the order they are received, up to the maximum contribution limit.
Treas 1.05 Refusal to open an account. The program manager or the board may refuse to open an account for the following reasons:
(1)
The applicant is not an eligible account owner.
(2)
The applicant has not provided all of the information required in the application.
(3)
The maximum contribution level for the designated beneficiary will be exceeded.
(4)
The execution of a participation agreement violates any federal or state law.
(5)
The board determines that the number of accounts in the program should be limited.
Treas 1.06 Change of account ownership. An account owner may designate a successor who shall become the new account owner automatically upon his or her death. This designation may be made at any time by submitting a written designation of the successor to the program manager containing the information required by the program manager and the board. Designation of a successor shall be effective upon registration in the records of the program manager.
(1) If a change in the ownership of an account is required by a court order directing such change, or by an affidavit or declaration that is recognized under applicable law as requiring transfer of ownership upon death without a court order, such change shall be effective upon receipt by the program manager unless otherwise required by law.
(2) Any other request to transfer ownership to a new account owner must be made by submitting to the program manager a written designation of a new account owner containing the information required by the program manager and the board. Transfer of ownership shall not be effective until registered in the records of the program manager.
Treas 1.07 Designated beneficiary. Any individual regardless of age or relationship to the account owner, including the account owner, may be a designated beneficiary under the program. There shall be only one designated beneficiary per account. Subject to the maximum contribution level, any number of accounts may be opened for a single designated beneficiary.
Treas 1.08 Change of designated beneficiary. (1) Only an account owner may change the designated beneficiary of an account. The designated beneficiary may only be changed to a member of the family of that designated beneficiary.
(2) To change a designated beneficiary, the account owner must submit a written request to the program manager containing all the information required by the program manager and the board.
(3) Upon receipt of the written request, the program manager shall register the information regarding the newly designated beneficiary in the records of the program. The change of the designated beneficiary shall be effective upon registration.
Treas 1.09 Contributions. Any person may make a contribution to an account of a designated beneficiary. Contributions shall be made only in cash.
(1) MAXIMUM CONTRIBUTION LIMIT. Contributions to the accounts established for a designated beneficiary shall not, in the aggregate, exceed that amount necessary to provide for the qualified higher education expenses of the designated beneficiary. The board shall establish from time to time the maximum amount that may be contributed in the aggregate to the accounts of an individual designated beneficiary. Contributions in excess of that limit shall not be accepted and shall be returned to the contributor.
(2) MINIMUM CONTRIBUTION LIMIT. The minimum amount contributed at the time an account is opened under Treas 1.04, and the minimum amount of any additional contribution to be made to an account shall be established from time to time by the board.
(3) ROLLOVER CONTRIBUTIONS. If rollover distributions are allowed by another state's qualified tuition program, an account owner may deposit all or part of the funds from an account in that state's qualified tuition program to a new account in the program as provided under section
529 of the internal revenue code, and any regulations issued thereunder. When making a rollover contribution, the account owner shall complete the forms and make such disclosures of financial information as required by the program manager and the board. If the rollover distribution deposited in the program account would cause the total account balance of all accounts for that designated beneficiary to exceed the maximum contribution limit, the excess funds shall be refused.
(4) INVESTMENT DIRECTION PROHIBITION. Except as permitted under section
529 of the internal revenue code and any regulations issued thereunder, no person contributing to an account may direct the investment or investment earnings of any contribution of an account.
Treas 1.10 Separate Accounting. Separate records and accounting shall be maintained for each account established under the program. Reports shall be issued to each account owner at least annually.
Treas 1.11 General Distributions. (1) CALCULATING EARNINGS ON MULTIPLE ACCOUNTS. If an individual is a designated beneficiary of more than one account, contributions and earnings with respect to those accounts shall be treated as directed under section
529 of the internal revenue code for purposes of calculating the earnings portions of any distribution with respect to that designated beneficiary.
(2) DISTRIBUTION REQUESTS. An account owner may request a distribution of funds by submitting to the program manager at least three business days prior to the date of the requested distribution a completed distribution request form and all other information as may be required by the program manager and the board. Upon receipt, the program manager shall commence processing properly completed distribution request forms as soon as practicable. Distributions shall be subject to any applicable state and federal tax withholdings.
(3) A designated beneficiary shall not authorize distribution or withdrawal of account funds.
(4) NONQUALIFIED DISTRIBUTION. A distribution of funds from an account for any use other than qualified higher education expenses for the designated beneficiary constitutes a nonqualified distribution and may be subject to the additional tax imposed by section
529(c)(6) of the internal revenue code.
(5) QUALIFIED DISTRIBUTION. A distribution of funds to pay for the qualified higher education expenses of a designated beneficiary constitutes a qualified distribution. An account owner may request a qualified distribution by submitting a properly completed distribution request form, and all documentary evidence necessary to verify the claimed qualified higher education expenses, as determined by the program manager and the board, to the program manager.
Treas 1.12 Distributions Due to Death, Disability or Scholarship of Beneficiary. (1) Prior to a distribution from an account due to the death or disability of the designated beneficiary, or because the beneficiary has received a scholarship to be applied toward attendance at an eligible education institution, the program manager may require either of the following:
(a) Certification by the account owner that the distribution is due to the death or disability of the designated beneficiary or because the designated beneficiary has received a scholarship. The program manager may withhold and reserve as a penalty a portion of the distribution made as a result of such distribution request until the program manager receives written confirmation from an appropriate authority.
(b) Written confirmation from an appropriate authority that the designated beneficiary has died, become disabled, or received a scholarship in the amount of the requested distribution.
(2) A penalty-free distribution due to the death or disability of a beneficiary may be for an amount up to the total account balance for all accounts for that designated beneficiary. A penalty-free distribution due to a scholarship awarded to a designated beneficiary may be for an amount up to the total scholarship award.
Treas 1.13 Refund of qualified distribution payment. An eligible educational institution that owes a full or partial refund of a qualified distribution due to an overpayment of educational expenses shall pay the refund directly to the program manager for credit to the applicable designated beneficiary's account. A refund may not be paid directly to the designated beneficiary or account owner.
Treas 1.14 Account termination. (1) The board shall determine the conditions under which an account may be terminated, including but not limited to the following:
(a)
the account balance is below an established minimum.
(b)
The account is inactive for an established amount of time.
(c)
Any portion of the account remains unused 10 years after the anticipated academic year of the designated beneficiary's initial enrollment in an eligible educational institution.
(d)
The account owner or the designated beneficiary provides false or misleading information to the board, the program manager, or an eligible educational institution.
(2) Prior to termination, the program manager shall give reasonable notice to the account owner of the proposed termination. The notice shall provide a reasonable period of time, as determined by the board, in which to prevent termination by either making an additional contribution or a qualified distribution as necessary. Upon termination, the account balance shall be paid to the account owner as a nonqualified distribution, subject to applicable federal or state taxes, and any additional fees as determined by the board.
Treas 1.15 Fees. The board may charge account owners a fee for the administrative expenses of the program. Fees shall be clearly identified in the program description that accompanies the participation agreement.
Treas 1.16 Penalties. The board may impose penalties as necessary to maintain eligibility as a qualified tuition program under section
529 of the internal revenue code.
Treas 1.17 Investment Policies. The board shall establish all investment guidelines for the program.
Initial Regulatory Flexibility Analysis
Pursuant to section
227.114, Stats., the rule herein is not expected to negatively impact small businesses.
Fiscal Estimate
No State Fiscal Effect. The rule establishes procedures for operation of the Wisconsin college savings program. The program has been budgeted based on estimates of participation. The procedures permit the program to proceed and do not change the basis for participation in the program.
Contact Person
Marty Olle
Office of the State Treasurer
1 South Pinckney Street, 5th Floor
P.O. Box 7871
Madison, WI 53707-7871
(608) 264-7886
Notice of Hearing
NOTICE IS HEREBY GIVEN that pursuant to Sections
49.137 (4m) and
227.11, Stats., the Department of Workforce Development proposes to hold a public hearing to consider the creation of rules relating to grants supporting community child care initiatives.
