Bill Text: MI SB0547 | 2017-2018 | 99th Legislature | Engrossed
Bill Title: Individual income tax; other; Michigan education savings program act; designate as part 1. Amends secs. 1, 2, 3, 7, 8, 12, 13 & 14 of 2000 PA 161 (MCL 390.1471 et seq.) & designates secs. 1 - 16 as pt. 1. TIE BAR WITH: SB 0544'17
Spectrum: Partisan Bill (Republican 1-0)
Status: (Engrossed - Dead) 2018-02-08 - Referred To Second Reading [SB0547 Detail]
Download: Michigan-2017-SB0547-Engrossed.html
SB-0547, As Passed Senate, December 5, 2017
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.
(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 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.
(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 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.
(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
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.
(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 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.
(c) In the form of a check payable to the designated
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.
(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.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.
(c) Give residency status to an individual merely because the
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.