February 7, 2007, Introduced by Reps. Sheen, Robertson, Hoogendyk, Pearce, Stakoe, Hune, Caul, Stahl, Huizenga, Condino, Palmer, Brandenburg, Green, Agema, Marleau, Nofs, Moore and Bieda and referred to the Committee on Education.
A bill to amend 2000 PA 161, entitled
"Michigan education savings program act,"
by amending sections 2, 3, 7, 9, 11, 12, and 15 (MCL 390.1472,
390.1473, 390.1477, 390.1479, 390.1481, 390.1482, and 390.1485),
sections 2, 7, and 9 as amended by 2004 PA 387 and section 3 as
amended by 2001 PA 215.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 2. As used in this act:
(a) "Account" or "education savings account" means an account
established under this act.
(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) An entity exempt from taxation under section 501(c)(3) of
the internal revenue code or an estate or trust that enters into a
Michigan education savings program agreement and establishes an
education savings account.
(c) "Board" means the board of directors of the Michigan
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 the 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.
(l) "Program manager" means the entity 1 or more entities
selected
by the treasurer to act as the a
manager of 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, or taxation under
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 transfer of funds due to the termination of the
management contract as provided in section 5.
(v) A transfer of funds as provided in section 8.
(o) "Treasurer" means the state treasurer.
Sec. 3. (1) The Michigan education savings program is
established in the department of treasury.
(2) The treasurer shall solicit proposals from entities to be
the
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.
(5) The treasurer may employ or contract with personnel and
contract for services necessary for the administration of the
program and the investment of the assets of the program including,
but not limited to, managerial, professional, legal, clerical,
technical, and administrative personnel or services.
(6)
When selecting a program manager managers, 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 an entity to satisfy the record-keeping
and reporting requirements of this act.
(e) The entity's plan for marketing the program and the
investment it is willing to make to promote the program.
(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 program,
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 an entity to accept electronic
withdrawals, including payroll deduction plans.
(i) The willingness of an entity to offer a program of broker-
sold products available through financial advisors.
(7)
The treasurer shall enter into a contract with the 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 program.
(b) Invest the money received from account owners 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 which shall not exceed
1.5% 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 program in compliance with requirements
of this act and its management contract and to manage 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 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 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
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 program, whether in
writing or through the use of any media, is consistent with the
marketing plan developed by the program manager.
(p) Offer a program of broker-sold products available through
financial advisors.
(q) (p)
Take any other necessary and proper activities to
carry out the purposes of this act.
Sec. 7. (1) Beginning October 1, 2000, education savings
accounts may be established under this act.
(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 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
the 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.
(c) The name, address, and social security number of the
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 money order, 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. The 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.
(c) In the form of a check payable to 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, the 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, the
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) The program shall provide separate accounting for each
designated beneficiary.
Sec. 9. (1) Except as otherwise provided in this section, an
account owner or a designated beneficiary of any account shall not
direct the investment of any contributions to an account or the
earnings on an account.
(2) An account owner may select among different investment
strategies
designed exclusively by the a
program manager in all of
the following circumstances to the extent allowed under section 529
of the internal revenue code:
(a) At the time any contribution is made to an account with
respect to the amount of that contribution.
(b) Once each calendar year with respect to the accumulated
account balance.
(c) When an account owner makes a change in designated
beneficiary of an account.
(3) The program may allow board members or employees of the
program, or the board members or employees of a contractor hired by
the program to perform administrative services, to make
contributions to an account.
(4) An interest in an account shall not be used by an account
owner or a designated beneficiary as security for a loan. Any
pledge of an interest in an account has no force or effect.
Sec.
11. (1) The Each program manager shall report
distributions from an account to any individual or for the benefit
of any individual 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)
The Each program manager shall provide statements that
identify the individual 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.
Sec.
12. The 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.
(c) The person or entity entitled to terminate a Michigan
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.
Sec.
15. The 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,
designated beneficiaries, and distributees of family tuition
accounts. 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 and whether or not
each distribution was a qualified withdrawal.
(d) Any information that the program manager or treasurer may
require regarding the taxation of amounts contributed to or
withdrawn from accounts.
Enacting section 1. This amendatory act does not take effect
unless Senate Bill No.____ or House Bill No. 4205(request no.
00190'07 a) of the 94th Legislature is enacted into law.