Establishes the New York state pre-paid tuition plan by which a person may contribute to an account for the pre-payment of college tuition, tax free

Subdivision 2 of this section outlines the powers and duties of the comptroller, which shall be to: develop and implement the plan; make arrangements with the state university, city university and any eligible educational institution located within the state which chooses to participate, to fulfill obligations under prepaid tuition contracts for two-year and four-year degree programs; engage the services of consultants on a contract basis for rendering professional and technical assistance and advice; seek rulings and other guidance from the United States Department of Treasury and the IRS relating to the program; make changes to the plan required for the participants to obtain the federal income tax benefits or treatment provided by section 529 of the Internal Revenue Code; charge, impose and collect administrative fees and service charges in connection with any agreement, contract or transaction relating to the plan; develop marketing plans and promotional material; establish the methods by which funds shall be allocated to pay for administrative costs; and do all things necessary and proper to carry out the purposes of this section.

Subdivision 3 of this section outlines the plan requirements and provides that any person who desires to enter into a contract for prepayment of tuition expenses at an institution of SUNY, CUNY or any participating eligible educational institution may open an account, and outlines the information required to be provided by an account applicant. This subdivision also authorizes the comptroller to establish a nominal application fee, and provides that: any person, including the account owner, may make contributions to an account after it is opened; contributions may be made only in cash; four years must elapse between the establishment of a pre-paid tuition account and the time the first qualified withdrawal is made for the payment of tuition expenses; an account owner may withdraw all or part of the balance from an account on sixty days notice; an account owner may change the designated beneficiary to a person who is a member of the family of the prior designated beneficiary; an account owner may transfer all or a portion of an account to another family tuition account, the subsequent designated beneficiary of which is a member of the family; the plan shall provide separate accounting for each designated beneficiary; no account owner of designated beneficiary shall be permitted to direct the investment of any contributions to an account, or the earnings thereon; and neither an account owner nor a designated beneficiary shall use an interest in an account as security for a loan. Lastly, this subdivision: requires certain statements be provided to the account owner, the designated beneficiary and the IRS; permits local governments or certain nonprofit organizations to open and become an account owner of a n account to fund scholarships; permits an annual fee to be imposed on the account owner for the maintenance of the account; outlines required disclosures that must be made to each account owner and prospective account owner; stipulates that prepaid tuition savings agreements are subject to "truth-in-savings" laws; and stipulates that nothing in any agreement shall be construed as a guarantee by the state or any college that a beneficiary will be admitted to a college or university, or, upon admission will be permitted to continue to attend or will receive a degree.

Subdivision 4 of this section provides that nothing in this section shall establish or be deemed to establish any obligation of the state, the comptroller, or any agency or instrumentality of the state to guarantee any benefits to any account owner or designated beneficiary. This subdivision also provides that, in order to ensure that the plan is able to meet its obligations, the Governor shall provide an appropriation in the budget sufficient for the purpose of ensuring that the plan can meet its obligations.

Section 2. Adds a new section 78-c to the state finance law to establish the New York State Pre-Paid Tuition Plan Fund and outlines the conditions under which the comptroller shall invest the assets of the fund.

Section 3. Adds a new subdivision (p) to section 5205 of the civil practice law and rules to exempt the monies in a pre-paid tuition plan account from application to the satisfaction of a money judgment.

Section 4. Amends paragraph 34 of subsection (b) of section 612 of the tax law to give prepaid tuition accounts the same treatment as college choice tuition accounts regarding the addition of excess distributions from a pre-paid tuition account to federal adjusted gross income.

Section 5. Amends paragraphs 32 and 33 of subsection (c) of section 612 of the tax law to give pre-paid tuition accounts the same treatment as college choice tuition accounts regarding deductions from federal adjusted gross income.

Section 6. Effective date.

Justification

The cost of tuition and fees for college have grown significantly faster than inflation for many years. Tuitions at both private and public colleges and universities grew an average of 4% between the 2011-2012 academic year and the 2012-2013 academic year. This rate is significantly higher than that of inflation, which has held below 2% since 2008, and it is certainly higher that the rate of growth for the salaries and wages of families in New York State.

The IDC proposes the creation of the Pre-paid Tuition Plan which will help families guard against such increases in tuition rates by allowing them to buy tuition credit at both public or participating private Colleges and Universities in New York for their children at current tuition prices. This program also allows parents to spread out the cost of paying for tuition over multiple years, thus lessening the burden on their families.

The underlying idea behind a Pre-paid College Tuition Plan is the creation of a fund into which parents can place money to pay future college expenses. The payments into the fund come in the form of paying for a portion of tuition at a participating college or university at current tuition costs. The money in the fund is then invested so that when that pre-paid tuition unit is redeemed by the parent, the original payment plus the earned interest will be enough so that the participating colleges and universities get the same amount of revenue as if the parent were paying for tuition at that moment. In this way, parents save money without participating colleges and universities having to lose out on income. Pre-paid College Tuition Plans exist in many other States, such as Florida, Pennsylvania, Washington, Illinois, and Texas. There is a lot of variations found between the different plans offered by those varied States and the IDC proposal takes the best features from these plans in order to ensure that parents are able to get the savings they need while keeping the fund safe and viable. The IDC proposal would allow parents to purchase whole or portions of semester credit hours at current tuition rates with the guarantee that this payment will be honored if their child is accepted to the participating college or university. The plan gives parents the option to chose between different plans depending on the possible educational choices that their child will make. For example, parents could chose between buying credits towards an Associate's degree at a community college or a Bachelor's degree at a four-year university or a combination of the two. Contributions into this fund would get the same preferential tax treatment given to funds set aside in a 529 College Savings Account.

Legislative history

2014: S6698-A/A9656 - Passed Senate/Higher Education Committee

Fiscal implications

It is estimated that enactment of this legislation would result in a annual cost to the state of $2 million for administration of the program.

Effective date

This act shall take effect immediately and shall apply to taxable years commencing after December 31, 2016.