BillCam

SENATE BILL No. 547

September 12, 2017, Introduced by Senators COLBECK, PAVLOV and GREEN and referred to the Committee on Education.

A bill to amend 2000 PA 161, entitled

"Michigan education savings program act,"

by amending sections 1, 2, 3, 7, 8, 12, 13, and 14 (MCL 390.1471,

390.1472, 390.1473, 390.1477, 390.1478, 390.1482, 390.1483, and

390.1484), sections 2 and 7 as amended by 2010 PA 6, sections 3 and

12 as amended by 2007 PA 153, and section 8 as amended by 2004 PA

387, and by designating sections 1 to 16 as part 1.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

PART 1

Sec. 1. This act part shall be known and may be cited as the

"Michigan education savings program act".

Sec. 2. As used in this act:part:

(a) "Account" or "education savings account" means an account

established under this act.part.

(b) "Account owner" means any of the following:

(i) The individual who enters into a Michigan education

savings program agreement and establishes an education savings

account. The account owner may also be the designated beneficiary

of the account.

(ii) A state or local government agency or instrumentality, an

entity exempt from taxation under section 501(c)(3) of the internal

revenue code, an estate or trust, or a corporation that enters into

a Michigan education savings program agreement and establishes an

education savings account.

education trust described in section 10 of the Michigan education

trust act, 1986 PA 316, MCL 390.1430.

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

(e) "Designated beneficiary" means the individual designated

as the individual whose higher education expenses are expected to

be paid from the account.

(f) "Eligible educational institution" means that term as

defined in section 529 of the internal revenue code or a college,

university, community college, or junior college described in

section 4, 5, or 6 of article VIII of the state constitution of

1963 or established under section 7 of article VIII of the state

constitution of 1963.

(g) "Internal revenue code" means the United States internal

revenue code of 1986 in effect on January 1, 2002 or at the option

of the taxpayer, in effect for the current year.

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

the treasurer and a program manager.

(i) "Member of the family" means a family member as defined in

section 529 of the internal revenue code.

(j) "Michigan education savings program agreement" means the

agreement between the program and an account owner that establishes

an education savings account.

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

established pursuant to this act.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) "Qualified higher education expenses" means qualified

higher education expenses as defined in section 529 of the internal

revenue code.

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

subject to a penalty or an excise tax under section 529 of the

internal revenue code, a penalty under this act, part, or taxation

under part 1 of the income tax act of 1967, 1967 PA 281, MCL 206.1

to 206.532, and that meets any of the following:

(i) A withdrawal from an account to pay the qualified higher

education expenses of the designated beneficiary incurred after the

account is established.

(ii) A withdrawal made as the result of the death or

disability of the designated beneficiary of an account.

(iii) A withdrawal made because a beneficiary received a

scholarship that paid for all or part of the qualified higher

education expenses of the beneficiary to the extent the amount of

the withdrawal does not exceed the amount of the scholarship.

(iv) A withdrawal made because a beneficiary attended a

service academy to the extent that the amount of the withdrawal

does not exceed the costs of the advanced education attributable to

the beneficiary's attendance in the service academy.

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

management contract as provided in section 5.

(vi) A transfer of funds as provided in section 8.

(o) "Savings plan" or "plans" means a plan that provides

different investment strategies and allows account distributions

for qualified higher education expenses.

(p) "Service academy" means the United States military

academy, United States naval academy, United States air force

academy, United States coast guard academy, or United States

merchant marine academy.

(q) "Treasurer" means the state treasurer.

Sec. 3. (1) The Michigan education savings program is

established in the department of treasury. 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 Michigan education

savings program are vested in and shall be exercised by the

treasurer or the designee of the treasurer.

(4) The state treasurer shall administer the Michigan

education savings program and shall be the trustee for the funds of

the Michigan education savings program. The treasurer may use

program revenues to maintain or enhance the state's qualified

tuition 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 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.

increasing costs of higher education.

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

and reporting requirements of this act.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 minimum initial deposit and minimum contributions that

the entity will require which, for the first year of the savings

plan, shall not be greater than $25.00 for a cash contribution or

$15.00 per pay period for payroll deduction plans.

(h) 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 from account owners in 1 or more

investment instruments.

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 act part and its

management contract and to manage the savings plan or plans offered

under the program to qualify as a qualified tuition program under

section 529 of the internal revenue code.

(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 act 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. It is the responsibility of the

program manager to 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 activities to carry

out the purposes of this act.part.

Sec. 7. (1) Beginning October 1, 2000, education savings

accounts may be established under this act.part.

(2) Any individual or entity described in section 2(b)(ii) may

open 1 or more education savings accounts to save money to pay the

qualified higher education expenses of 1 or more designated

beneficiaries. An account owner shall open only 1 account for any 1

designated beneficiary. Each account opened under this act part

shall have only 1 designated beneficiary.

(3) To open an education savings account, the individual or

entity described in section 2(b)(ii) shall enter into a Michigan

education savings program agreement with the program. The Michigan

education savings program agreement shall be in the form prescribed

by a program manager and approved by the treasurer and contain all

of the following:

(a) The name, address, and social security number or employer

identification number of the account owner.

(b) A designated beneficiary. A state or local government

agency or instrumentality, a person exempt from taxation as an

organization described in section 501(c)(3) of the internal revenue

code, or a corporation, as part of a scholarship program, may defer

naming a designated beneficiary consistent with the terms of the

applicable Michigan education savings program agreement.

designated beneficiary.

(d) Any other information that the treasurer or program

manager considers necessary.

(4) Any individual or entity described in section 2(b)(ii) may

make contributions to an account.

(5) Contributions to accounts shall only be made in cash, by

check, by credit card, or by any similar method as approved by the

state treasurer but shall not be property.

(6) An account owner may withdraw all or part of the balance

from an account on 60 days' notice, or a shorter period as

authorized in the Michigan education savings program agreement.

(7) Distributions from an account shall be requested on a form

approved by the state treasurer. A program manager may retain from

the distribution the amount necessary to comply with federal and

state tax laws. Distributions may be made in the following manner:

(a) Directly to an eligible education institution.

(b) In the form of a check payable to both the designated

beneficiary and the eligible educational institution.

beneficiary or account holder.

(d) In the form of an electronic funds transfer to an account

specified by the designated beneficiary or account holder.

(8) Except as otherwise provided in this subsection for tax

years that begin before January 1, 2002, if the distribution is not

a qualified withdrawal, a program manager shall withhold an amount

equal to 10% of the distribution amount as a penalty and pay that

amount to the department for deposit into the general fund. For a

distribution made after December 31, 2001 that is not a qualified

withdrawal, if an excise tax or penalty is imposed under section

529 of the internal revenue code pursuant to section 530(d)(4) of

the internal revenue code, a penalty shall not be imposed under

this subsection for that distribution. If a distribution that is

not a qualified withdrawal is made after December 31, 2001 and an

excise tax or penalty is not imposed under section 529 of the

internal revenue code pursuant to section 530(d)(4) of the internal

revenue code on that distribution, a program manager shall withhold

an amount equal to 10% of the accumulated earnings attributable to

that distribution amount as a penalty and pay that amount to the

department for deposit into the general fund. The penalty under

this subsection may be increased or decreased if the treasurer and

the program manager determine that it is necessary to increase or

decrease the penalty to comply with section 529 of the internal

revenue code.

(9) Each savings plan under the program shall provide separate

accounting for each designated beneficiary.

Sec. 8. (1) An account owner may designate another individual

as a successor owner of the account in the event of the death of

the account owner.

(2) An account owner may change the designated beneficiary of

an account to a member of the family of the previously designated

beneficiary as provided in the management contract or as otherwise

provided in this act.part.

(3) An account owner may transfer ownership of all or a

portion of an account to an individual or entity that is eligible

to be an account owner under this act.part.

(4) An account owner may transfer all or a portion of an

account to another education savings account. The designated

beneficiary of the account to which the transfer is made must be a

member of the family.

(5) An account owner may transfer all or a portion of an

account to an account in a qualified tuition program under section

529 of the internal revenue code, other than the program under this

act, part, once every 12 months, without a change in designated

beneficiary.

(6) Changes in designated beneficiaries and transfers under

this section are not permitted to the extent that the change or

transfer would constitute excess contributions or unauthorized

investment choices.

Sec. 12. Each program manager shall disclose the following

information in writing to each account owner of an education

savings account and any other person who requests information about

an education savings account:

(a) The terms and conditions for establishing an education

savings account.

(b) Restrictions on the substitutions of designated

beneficiaries and transfer of account funds.

education savings program agreement.

(d) The period of time during which a designated beneficiary

may receive benefits under the Michigan education savings program

agreement.

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

or partially 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 Michigan education

savings program agreements and any other terms, conditions, and

provisions of a contract or an agreement entered into under this

act.part.

Sec. 13. This act part and any agreement under this act part

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

(a) Give any designated beneficiary any rights or legal

interest with respect to an account unless the designated

beneficiary is the account owner.

(b) Guarantee that a designated beneficiary will be admitted

to an eligible educational institution or, upon admission to an

eligible educational institution, will be permitted to continue to

attend or will receive a degree from the eligible educational

institution.

individual is a designated beneficiary.

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

sufficient to cover the qualified higher education expenses of a

designated beneficiary.

Sec. 14. (1) This act 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 designated beneficiary 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.

(2) 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.

Enacting section 1. This amendatory act does not take effect

unless Senate Bill No. 544

of the 99th Legislature is enacted into law.