AB654: Bill Text Engrossed

Engrossed 1999 Assembly BILL 654

February 28, 2000 - Printed by direction of Senate Chief Clerk.

AB654-engrossed,2,2 An Act to repeal 14.63 (3) (a) 1. and 3.; to amend 14.63 (title), 14.63 (1) (b), 14.63 (3) (title), 14.63 (4), 14.63 (5) (a), 14.63 (5) (b) (intro.) and 2., 14.63 (8), 14.63 (11) (b), 14.63 (13), 16.75 (2m) (a), 20.585 (2) (a), 20.585 (2) (s) and 71.05 (6) (b) 23.; and to create 14.57, 14.63 (3) (c), 14.63 (11m), 14.64, 15.07 (1) (b) 2., 16.25, 20.585 (1) (gm), 71.05 (6) (b) 28. h., 71.05 (6) (b) 31., 71.05 (6) (b) 32., 71.05 (6) (b) 33. and 815.18 (3) (p) of the statutes; relating to: the college tuition prepayment program, creating a college savings program board and college savings program, creating a tax deduction for certain amounts contributed to the college tuition prepayment program, creating a tax deduction for certain amounts contributed to the college savings program, exempting from taxation certain gains derived from contributions to the college savings program, granting rule-making authority and making an appropriation.

Analysis by the Legislative Reference Bureau

Engrossment information:

The text of Engrossed 1999 Assembly Bill 654 consists of the following documents adopted in the assembly on February 2, 2000: the bill as affected by Assembly Amendment 2 and Assembly Amendment 3. The text also includes the February 29, 2000, LRB correction to the bill.

Content of Engrossed 1999 Assembly Bill 654:

Under current law, the state treasurer administers a college tuition program that allows a Wisconsin resident, trust or legal guardian to purchase tuition units from the state treasurer that may be redeemed in the future to pay tuition and mandatory student fees at any accredited institution of higher education in the United States on behalf of a beneficiary who is a Wisconsin resident. The college tuition program is a qualified state tuition plan under federal law; federal tax is deferred until funds are withdrawn, after which the distributions are taxable as ordinary income at the beneficiary's federal tax rate. Distributions are exempt from state tax. A person who wishes to purchase tuition units must pay a $50 nonrefundable enrollment fee.

This bill repeals the residency requirements for purchasers and beneficiaries of tuition units; permits, but does not require, the state treasurer to charge an enrollment fee; and permits tuition units to be redeemed to cover tuition, fees and the costs of room and board, books, supplies and equipment required for college enrollment. Also under the bill, a distribution from the college tuition program is not exempt from state taxation if the distribution results from the termination of the contract under the tuition program for a number of reasons, such as the prospective beneficiary's death, failure to graduate from high school, failure to gain admittance to an institution of higher education or a decision to not attend an institution of higher education.

The bill creates a tax deduction for amounts paid into a college tuition program if the beneficiary of the account either is the claimant or is the claimant's child and dependent. Generally, the deduction is limited to $3,000 each year per beneficiary.

The bill also creates a college savings program, which is administered primarily by an eleven-member college savings program board (board) that is attached to the office of the state treasurer. The college savings program allows an individual, trust or legal guardian to establish and contribute money to a college savings account to cover tuition, fees and the costs of room and board, books, supplies and equipment required for enrollment or attendance of a beneficiary at any accredited institution of higher education in the United States. (A tax-exempt nonprofit corporation and a state or local governmental unit may also open a college savings account as part of a scholarship program.) The board must ensure that the college savings program meets federal requirements for a qualified state tuition plan and must invest the contributions to college savings accounts and pay distributions to beneficiaries and institutions of higher education. Under the bill, the department of administration (DOA) selects a private entity to serve as program manager, based upon factors specified in the bill and other factors determined by DOA. The contract between DOA and the manager must, among other things, require the manager to reimburse the state for all administrative costs that the state incurs for the college savings program. The bill also prohibits a state agency, a University of Wisconsin System institution or a technical college from including the balance of a college savings account in the calculation of a beneficiary's eligibility for state financial aid for higher education.

The bill exempts from taxation any increase in the value of a college savings account, unless the claimant makes an unqualified withdrawal, and creates a tax deduction for amounts paid into a college savings account if the beneficiary of the account either is the claimant or is the claimant's child and dependent. Generally, the deduction is limited to $3,000 each year per beneficiary.

Under current law, an income tax "education" deduction exists for amounts paid by a claimant for tuition expenses for the claimant or for a child of the claimant who is also the claimant's dependent to attend any university, college or technical college or a school approved by the educational approval board, that is located in Wisconsin, or to attend a public vocational school or public institution of higher education in Minnesota. The deduction that may be claimed is an amount up to $3,000 each year for each student to whom the claim relates, although the maximum amount that may be claimed is reduced to zero as the claimant's income increases from $50,000 to $60,000 for a single or married head of household filer, from $80,000 to $100,000 for a married joint filer or from $40,000 to $50,000 for a married separate filer. Under the bill, no "education" deduction may be claimed for any amounts paid for tuition expenses if the source of the payment is an amount withdrawn from a college savings account or from a college tuition program.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB654-engrossed, s. 1 Section 1. 14.57 of the statutes is created to read:

AB654-engrossed,3,4 14.57 Same; attached boards. There is created a college savings program board that is attached to the office of the state treasurer under s. 15.03 and that consists of all of the following members:

AB654-engrossed,3,5 (1) The state treasurer or his or her designee.

AB654-engrossed,3,7 (2) The president of the board of regents of the University of Wisconsin System or his or her designee.

AB654-engrossed,4,2 (3) The president of the Wisconsin Association of Independent Colleges and Universities or his or her designee.

AB654-engrossed,4,3 (4) The chairperson of the investment board or his or her designee.

AB654-engrossed,4,4 (5) The president of the technical college system board or his or her designee.

AB654-engrossed,4,5 (6) Six other members, appointed for 4-year terms.

AB654-engrossed, s. 1g Section 1g. 14.63 (title) of the statutes, as affected by 1999 Wisconsin Act 9, is amended to read:

AB654-engrossed,4,8 14.63 (title) College tuition prepayment and expenses program.

AB654-engrossed, s. 1m Section 1m. 14.63 (1) (b) of the statutes, as affected by 1999 Wisconsin Act 9, is amended to read:

AB654-engrossed,4,15 14.63 (1) (b) "Institution of higher education" means a public or private institution of higher education that is accredited by an accrediting association recognized by the state treasurer, and a proprietary school approved by the educational approval board under s. 45.54 an eligible educational institution, as defined under 26 USC 529.

AB654-engrossed, s. 1r Section 1r. 14.63 (3) (title) of the statutes, as affected by 1999 Wisconsin Act 9, is amended to read:

AB654-engrossed,4,18 14.63 (3) (title) Tuition prepayment College tuition and expenses contracts.

AB654-engrossed, s. 2 Section 2. 14.63 (3) (a) 1. and 3. of the statutes, as affected by 1999 Wisconsin Act 9, are repealed.

AB654-engrossed, s. 3 Section 3. 14.63 (3) (c) of the statutes is created to read:

AB654-engrossed,4,22 14.63 (3) (c) The state treasurer may charge a purchaser an enrollment fee.

AB654-engrossed, s. 4m Section 4m. 14.63 (4) of the statutes, as affected by 1999 Wisconsin Act 9, is amended to read:

AB654-engrossed,5,10 14.63 (4) Number of tuition units purchased. A person who enters into a contract under sub. (3) may purchase tuition units at any time and in any number, except that the total number of tuition units purchased on behalf of a single beneficiary may not exceed the number necessary to pay for 4 years of full-time attendance, including mandatory student fees, as a resident undergraduate at the institution within the University of Wisconsin System that has the highest resident undergraduate tuition, as determined by the state treasurer, in the anticipated academic years of their use cover tuition, fees and the costs of room and board, books, supplies and equipment required for enrollment or attendance of the beneficiary at an institution of higher education.

AB654-engrossed, s. 5 Section 5. 14.63 (5) (a) of the statutes, as affected by 1999 Wisconsin Act 9, is amended to read:

AB654-engrossed,5,21 14.63 (5) (a) Except as provided in sub. (7m), if an individual named as beneficiary in a contract under sub. (3) attends an institution of higher education in the United States, each tuition unit purchased on his or her behalf entitles that beneficiary to apply toward the payment of tuition and mandatory student, fees and the costs of room and board, books, supplies and equipment required for enrollment or attendance at the institution an amount equal to 1% of the anticipated weighted average tuition of bachelor's degree-granting institutions within the University of Wisconsin System for the year of attendance, as estimated under sub. (2) in the year in which the tuition unit was purchased.

AB654-engrossed, s. 6 Section 6. 14.63 (5) (b) (intro.) and 2. of the statutes, as affected by 1999 Wisconsin Act 9, are amended to read:

AB654-engrossed,6,3 14.63 (5) (b) (intro.) Upon request by the beneficiary, the state treasurer shall pay to the institution or beneficiary, whichever is appropriate, in each semester of attendance the lesser of the following:

AB654-engrossed,6,5 2. An amount equal to the sum of the institution's tuition and mandatory student, fees and the costs described in par. (a) for that semester.

AB654-engrossed, s. 7 Section 7. 14.63 (8) of the statutes, as affected by 1999 Wisconsin Act 9, is amended to read:

AB654-engrossed,6,11 14.63 (8) Exemption from garnishment, attachment and execution. Moneys deposited in the tuition trust fund and a beneficiary's right to the payment of tuition and mandatory student, fees and the costs described in sub. (5) (a) under this section are not subject to garnishment, attachment, execution or any other process of law.

AB654-engrossed, s. 8 Section 8. 14.63 (11) (b) of the statutes, as affected by 1999 Wisconsin Act 9, is amended to read:

AB654-engrossed,6,17 14.63 (11) (b) The requirements to pay tuition and mandatory student, fees and the costs of room and board, books, supplies and equipment under sub. (5) and to make refunds under sub. (7) are subject to the availability of sufficient assets in the tuition trust fund.

AB654-engrossed, s. 8m Section 8m. 14.63 (11m) of the statutes is created to read:

AB654-engrossed,6,25 14.63 (11m) Financial aid calculations. The value of tuition units shall not be included in the calculation of a beneficiary's eligibility for state financial aid for higher education if the beneficiary notifies the higher educational aids board and the institution of higher education that the beneficiary is planning to attend that he or she is a beneficiary of a contract under this section and the contract owner agrees to release to the higher educational aids board and the institution of higher education information necessary for the calculation under this subsection.

AB654-engrossed, s. 8r Section 8r. 14.63 (13) of the statutes, as affected by 1999 Wisconsin Act 9, is amended to read:

AB654-engrossed,7,6 14.63 (13) Program termination. If the state treasurer determines that the program under this section is financially infeasible, the state treasurer shall discontinue entering into tuition prepayment contracts under sub. (3) and discontinue selling tuition units under sub. (4).

AB654-engrossed, s. 9 Section 9. 14.64 of the statutes is created to read:

AB654-engrossed,7,8 14.64 College savings program. (1) Definitions. In this section:

AB654-engrossed,7,10 (a) "Account owner" means an individual who establishes a college savings account under this section.

AB654-engrossed,7,11 (b) "Board" means the college savings program board.

AB654-engrossed,7,12 (2) Duties of the board. The board shall do all of the following:

AB654-engrossed,7,18 (a) Except as provided in s. 16.25, establish and administer a college savings program that allows an individual, trust, legal guardian or entity described under 26 USC 529 (e) (1) (C) to establish a college savings account to cover tuition, fees and the costs of room and board, books, supplies and equipment required for the enrollment or attendance of a beneficiary at an eligible educational institution, as defined under 26 USC 529.

AB654-engrossed,7,20 (b) Ensure that the college savings program meets the requirements of a qualified state tuition plan under 26 USC 529.

AB654-engrossed,7,22 (c) Invest the contributions to college savings accounts and pay distributions to beneficiaries and eligible educational institutions.

AB654-engrossed,8,2 (d) Provide to each account owner, and to persons who are interested in establishing a college savings account, information about current and estimated future higher education costs, levels of participation in the college savings program that will help achieve educational funding objectives and availability of and access to financial aid.

AB654-engrossed,8,7 (e) Promulgate rules to implement and administer this section, including rules that determine whether a withdrawal from a college savings account is a qualified or nonqualified withdrawal, as defined under 26 USC 529, and that impose more than a de minimis penalty, as defined under 26 USC 529, for nonqualified withdrawals.

AB654-engrossed,8,10 (f) Seek rulings and guidance from the U.S. department of the treasury, the internal revenue service and the securities and exchange commission to ensure the proper implementation and administration of the college savings program.

AB654-engrossed,8,13 (g) Ensure that if the department of administration changes vendors, the balances of college savings accounts are promptly transferred into investment instruments as similar to the original investment instruments as possible.

AB654-engrossed,8,17 (h) Keep personal and financial information pertaining to an account owner or a beneficiary closed to the public, except that the board may release to the appropriate state agency information necessary in determining a beneficiary's eligibility for state financial aid for higher education.

AB654-engrossed,8,19 (3) Account owners; beneficiaries; contributions; termination of savings accounts. (a) An account owner may do all of the following:

AB654-engrossed,8,20 1. Contribute to a college savings account

AB654-engrossed,8,21 2. Select a beneficiary of a college savings account.

AB654-engrossed,8,23 3. Change the beneficiary of a college savings account to a family member, as defined under 26 USC 529, of the previous beneficiary.

AB654-engrossed,8,25 4. Transfer all or a portion of a college savings account to another college savings account whose beneficiary is a member of the family.

AB654-engrossed,9,2 5. Designate an individual other than the beneficiary as an individual to whom funds may be paid from a college savings account.

AB654-engrossed,9,4 6. Receive distributions from a college savings account if no other individual is designated.

AB654-engrossed,9,7 (b) An individual may be the beneficiary of more than one college savings account, and an account owner may be the beneficiary of a college savings account that the account owner has established.

AB654-engrossed,9,13 (c) The board shall establish a minimum initial contribution to a college savings account that may be waived if the account owner agrees to contribute to a college savings account through a payroll deduction or automatic deposit plan. The board shall ensure that any such plan permits the adjustment of scheduled deposits because of a change in the account owner's economic circumstances or a beneficiary's educational plans.

AB654-engrossed,9,15 (d) An account owner under this section may terminate his or her college savings account if any of the following occurs:

AB654-engrossed,9,16 1. The beneficiary dies or is permanently disabled.

AB654-engrossed,9,18 2. The beneficiary graduates from high school but is unable to gain admission to an institution of higher education after a good faith effort.

AB654-engrossed,9,20 3. The beneficiary attended an institution of higher education but involuntarily failed to complete the program in which he or she was enrolled.

AB654-engrossed,9,21 4. The beneficiary is at least 18 years old and one of the following applies:

AB654-engrossed,9,22 a. The beneficiary has not graduated from high school.

AB654-engrossed,9,23 b. The beneficiary has decided not to attend an institution of higher education.

AB654-engrossed,9,25 c. The beneficiary attended an institution of higher education but voluntarily withdrew without completing the program in which he or she was enrolled.

AB654-engrossed,10,1 5. Other circumstances determined by the board to be grounds for termination.

AB654-engrossed,10,5 (e) The board shall terminate a college savings account if any portion of the college savings account balance remains unused 10 years after the anticipated academic year of the beneficiary's initial enrollment in an eligible educational institution.

AB654-engrossed,10,8 (4) Contracts with professionals. The board may enter into a contract for the services of accountants, attorneys, consultants and other professionals to assist in the administration and evaluation of the college savings program.

AB654-engrossed,10,12 (5) Report. Annually, the board shall submit a report to the governor, and to the appropriate standing committees of the legislature under s. 13.172 (3), on the performance of the college savings program, including any recommended changes to the program.

AB654-engrossed,10,16 (6) Construction. Nothing in this section guarantees an individual's admission to, retention by or graduation from any institution of higher education; a rate of interest or return on a college savings account; or the payment of principal, interest or return on a college savings account.

AB654-engrossed,10,19 (7) Exemption from garnishment, attachment and execution; security for loan. (a) A beneficiary's right to qualified withdrawals under this section is not subject to garnishment, attachment, execution or other process of law.

AB654-engrossed,10,21 (b) No interest in a college savings account may be pledged as security for a loan.

AB654-engrossed,11,3 (8) Financial aid calculations. The balance of a college savings account shall not be included in the calculation of a beneficiary's eligibility for state financial aid for higher education if the beneficiary notifies the higher educational aids board and the eligible educational institution that the beneficiary is planning to attend that he or she is a beneficiary of a college savings account and if the account owner agrees to release to the higher educational aids board and the eligible educational institution information necessary for the calculation under this subsection.