Create Prepaid College Tuition Accounts

Section 1. The education law is amended by adding a new section 355-d to read as follows:

§ 355-d. "New York state pre-paid tuition plan". 1. Definitions. For the purposes of this section, the following terms shall have the following meanings:

a. "Account" or "pre-paid tuition account" shall mean an individual pre-paid tuition account established in accordance with the provisions of this section.

b. "Account owner" shall mean a person who enters into a pre-paid tuition agreement pursuant to the provisions of this article, including a person who enters into such an agreement as a fiduciary or agent on behalf of a trust, estate, partnership, association, company or corporation. The account owner may also be the designated beneficiary of the account.

c. "City university" shall mean the city university of New York.

d. "Comptroller" shall mean the state comptroller.

e. "Designated beneficiary" shall mean, with respect to an account or accounts, the individual designated as the individual whose tuition expenses are expected to be paid from the account or accounts.

f. "Eligible educational institution" shall mean any institution of higher education defined as an eligible educational institution in section 529(e)(5) of the Internal Revenue Code of 1986, as amended.

EXPLANATION--Matter in italics (underscored) is new; matter in brackets

[ ] is old law to be omitted.

LBD01793-01-7

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g. "Financial organization" shall mean an organization authorized to do business in the state and (i) which is an authorized fiduciary to act as a trustee pursuant to the provisions of an act of congress entitled "Employee Retirement Income Security Act of 1974" as such provisions may be amended from time to time, or an insurance company; and (ii) (A) is licensed or chartered by the department of financial services, (B) is chartered by an agency of the federal government, (C) is subject to the jurisdiction and regulation of the securities and exchange commission of the federal government, or (D) is any other entity otherwise authorized to act in this state as a trustee pursuant to the provisions of an act of congress entitled "Employee Retirement Income Security Act of 1974" as such provisions may be amended from time to time.

h. "Member of family" shall mean a family member as defined in section 529 of the Internal Revenue Code of 1986, as amended.

i. "Nonqualified withdrawal" shall mean a withdrawal from an account, but shall not mean:

(i) a qualified withdrawal; (ii) a withdrawal made as the result of the death or disability of the designated beneficiary of an account; or (iii) a withdrawal made on the account of a scholarship.

j. "Plan" shall mean the New York state pre-paid tuition plan established pursuant to this section.

k. "Plan manager" shall mean a financial organization selected by the comptroller to act as a depository and manager of the plan.

l. "Qualified withdrawal" shall mean a withdrawal from an account to pay the qualified tuition expenses of the designated beneficiary.

m. "State university" shall mean the state university of New York.

n. "Tuition" shall mean any mandatory charges imposed by an eligible educational institution for attendance for an academic year as a condition of enrollment. Such term shall not include laboratory fees, room and board, or other similar fees and charges.

o. "Tuition savings agreement" shall mean an agreement between the comptroller or a financial organization and an account owner.

2. Powers and duties of the comptroller. The comptroller shall administer the plan and shall develop and implement programs for the pre-payment of undergraduate tuition, at a fixed, guaranteed level for application at any two-year or four-year eligible educational institution as defined in section 529 of the Internal Revenue Code of 1986, as amended, or other applicable federal law. In addition, the comptroller shall have the power and duty to:

a. develop and implement the plan in a manner consistent with the provisions of this section through rules and regulations established in accordance with the state administrative procedure act;

b. 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 pre-paid tuition contracts for two-year or four-year degree programs, including, but not limited to, payment from the plan of the then actual in-state undergraduate tuition cost on behalf of a qualified beneficiary of a pre-paid tuition contract to the institution in which such beneficiary is admitted and enrolled, and application of such benefits towards graduate-level tuition and towards tuition costs at such eligible educational institutions, as that term is defined in 26 U.S.C. § 529 or any other applicable section of the Internal Revenue Code of 1986, as amended, as determined by the comptroller in his or her sole discretion. Such arrangements must include plans that allow an account owner to enter into contracts in which he or she can purchase tuition in installments

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equal to the cost of semesters as a full time student, but can also include plans that would allow for the pre-payment of tuition for tuition credit hours;

c. engage the services of consultants on a contract basis for rendering professional and technical assistance and advice;

d. seek rulings and other guidance from the United States department of Treasury and the Internal Revenue Service relating to the program;

e. 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 of 1986, as amended, or any similar successor legislation;

f. charge, impose and collect administrative fees and service charges in connection with any agreement, contract or transaction relating to the plan;

g. develop marketing plans and promotion material;

h. establish the methods by which the funds held in such accounts be disbursed;

i. establish the method by which funds shall be allocated to pay for administrative costs; and

j. do all things necessary and proper to carry out the purposes of this section.

3. Plan requirements. Every pre-paid tuition account shall comply with the provisions of this section.

a. A pre-paid tuition account may be opened by any person who desires to enter into a contract for pre-payment of tuition expenses at an institution of the state university, the city university or any participating eligible educational institution. An account owner may designate another person as successor owner of the account in the event of the death of the original account owner. Such person who opens an account or any successor owner shall be considered the account owner.

b. An application for such account shall be in the form prescribed by the comptroller and contain the following:

(i) the name, address and social security number or employer identification number of the account owner;

(ii) the designation of a designated beneficiary;

(iii) the name, address and social security number of the designated beneficiary; and

(iv) such other information as the comptroller may require.

c. The comptroller may establish a nominal fee for such application.

d. Any person, including the account owner, may make contributions to an account after the account is opened.

e. Contributions to accounts may be made only in cash.

f. 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.

g. An account owner may withdraw all or part of the balance from an account on sixty days notice or such shorter period as may be authorized under rules governing the plan. Such rules shall include provisions that will generally enable the determination as to whether a withdrawal is a nonqualified withdrawal or a qualified withdrawal.

h. An account owner may change the designated beneficiary of an account to an individual who is a member of the family of the prior designated beneficiary in accordance with procedures established by the comptroller.

i. An account owner may transfer all or a portion of an account to another family tuition account, the subsequent designated beneficiary of

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which is a member of the family as defined in section 529 of the Internal Revenue Code of 1986, as amended.

j. The plan shall provide separate accounting for each designated beneficiary.

k. No account owner or designated beneficiary of any account shall be permitted to direct the investment of any contributions to an account or the earnings thereon.

l. Neither an account owner nor a designated beneficiary shall use an interest in an account as security for a loan. Any pledge of an interest in an account shall be of no force and effect.

m. (i) If there is any distribution from an account to any individual or for the benefit of any individual during a calendar year, such distribution shall be reported to the Internal Revenue Service and the account owner, the designated beneficiary or the distributee to the extent required by federal law or regulation.

(ii) Statements shall be provided to each account owner at least once each year within sixty days after the end of the twelve month period to which they relate. The statement shall identify the contributions made during a preceding twelve month period, the total contributions made to the account through the end of the period, the value of the account at the end of such period, distributions made during such period and any other information that the comptroller shall require to be reported to the account owner.

(iii) Statements and information relating to accounts shall be prepared and filed to the extent required by federal and state tax law.

n. (i) A local government or organization described in section 501(c)(3) of the Internal Revenue Code of 1986, as amended, may open and become the account owner of an account to fund scholarships for persons whose identity will be determined upon disbursement.

(ii) In the case of any account opened pursuant to paragraph a of this subdivision the requirement set forth in this subdivision that a designated beneficiary be designated when an account is opened shall not apply and each individual who receives an interest in such account as a scholarship shall be treated as a designated beneficiary with respect to such interest.

o. An annual fee may be imposed upon the account owner for the maintenance of the account.

p. The plan shall disclose the following information in writing to each account owner and prospective account owner of a pre-paid tuition account:

(i) the terms and conditions for purchasing a pre-paid tuition account;

(ii) any restrictions on the substitution of beneficiaries;

(iii) the person or entity entitled to terminate the tuition pre-payment agreement;

(iv) the period of time during which a beneficiary may receive benefits under the tuition pre-payment agreement;

(v) the terms and conditions under which money may be wholly or partially withdrawn from the plan, including, but not limited to, any reasonable charges and fees that may be imposed for withdrawal;

(vi) the probable tax consequences associated with contributions to and distributions from accounts; and

(vii) all other right and obligations pursuant to pre-paid tuition agreements, and any other terms, conditions and provisions deemed necessary and appropriate by the comptroller pursuant to this subdivision.

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q. Pre-paid tuition savings agreements shall be subject to section fourteen-c of the banking law and the "truth-in-savings" regulations promulgated thereunder.

r. Nothing in this article or in any pre-paid tuition savings agreement entered into pursuant to this article 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 to a college will be permitted to continue to attend or will receive a degree from a college or university.

4. State guarantee. a. 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.